VectorVest Views 5/20/05
On January 24, 1996, I issued a Strategic Report called, "Bottom-Fishing: How to Master the Art of Buying Low and Selling High for Outstanding Performance." This report is as valid today as it was more than nine years ago. In fact, it may be even more useful now, given the churning, erratic market we have been experiencing. An update of this report may be obtained by clicking on Research, Special Reports, Bottom Fishing.
The underlying principle to using Buy, Sell, Hold recommendations as a means of conducting low-risk, high reward bottom-fishing strategies is that a stock receives an "S" recommendation in the VectorVest system when its Price falls below its Stop-Price and an "H" or "B" recommendation when its Price rises above the Stop-Price. Since Stop-Price is computed from a weighted 13-week moving average of Price, this technique is essentially equivalent to using a moving average crossover to signal a buy candidate. So let's see how it works.
Trend is the ideal tool for finding stocks undergoing specific recommendation sequences. Therefore, a complete array of Trend searches involving pre-selected recommendation sequences has been loaded into the UniSearch tool. To find them, simply click on Research, UniSearch, and Trends - Bottom Fishing. The new searches are identified as BF - =S, ,=B, for example. This sequence means that a stock had an "S" recommendation two weeks ago, then an unspecified recommendation one week ago, and finally, a "B" recommendation on the date of the search. We back-tested each of these searches to see how well they were working in the recent past. Here's a taste of what we found: Using a 10 stock portfolio from May 16, 2003 through May 19, 2005, managed weekly and selling on an "S" Rec gave the following results: (=S=B; 59.06%); (=S, ,=B; 195.20%); (=S, , ,=B; 83.09%); (=S, , , ,=B; 147.90%) and (=S, , , , ,=B; 340.20%). Not bad.
We also looked at recommendation sequences ending in =B,=B. These gave better results than the former group on average. The best search was =S, , , ,=B,=B with a healthy gain of 347.53%. It is presented as this week's "Strategy of the Week." Going to sequences ending with =B,=B,=B gave less favorable results than the sequences ending with =B. While the drawdown was more than we liked in several cases, all but one of the above searches outperformed the Price of the VectorVest Composite over last two years. Performance also was positive when starting from one year out, but a number of losing campaigns were encountered when starting less than a year out. Therefore, I suggest that these searches be used mainly during market uptrends.
Screening with a recommendation sequence can provide a foundation for a very powerful search. For example, our very successful series of BeeLine Boppers searches employ a six week sequence of <>B and =B fields. Try using them in some of your personal searches. You'll find that it pays to go Bottom-Fishing Using Recommendation Sequences.