The answer is simple. No one knows for sure what a stock's price is going to do. Statistical theory says that it is just as likely to go down as it is to go up...a fifty, fifty proposition. In real life, however, it seems that every time you buy a stock that you think is low. It goes lower. Sell a stock that you think is high. It goes higher. So what's the problem? If statistical analysis were any good at all, you should break even over a long period of time. But it hardly ever seems to happen that way.

Maybe the statistical guys are wrong. Maybe there are times when a stock is more likely to go up than it is to go down. That could be the key to the whole thing. What's the best way to tell when a stock is more likely to go one way instead of the other?

There are a million different ways investors try to answer that question. Value hunters believe stocks are more likely to go up when they have low P/E ratios. Momentum Players think that stocks that are already soaring in price are most likely to keep going up. Traders use all sorts of indicators to determine when a stock is more likely to go up or down. Some of these techniques work better than others. In any case, my belief is that looking at individual stocks is the wrong way to go about solving the problem.

The answer lies in studying the broad market. Consider, if you would, the situation in which the average price of a large universe of stocks, let's call it the market, went up on a given day. It's quite likely that more than 50% of the stocks advanced in price on that day. Now one day's data doesn't mean a whole lot, but if the market continued to go up over a period of time, it is more likely than not that most of your stocks would have gone up during that same time. So the trick to beating the odds now becomes one of identifying when the overall market is in an uptrend or a downtrend. Knowing what the direction of the market is doing is the single most important information an investor needs to have.

VectorVest also assesses a stock's long-term price appreciation potential vis-a-vis an alternative investment in AAA Corporate bonds. This information is presented as an indicator called Relative Value, (RV) on a scale of 0.00 to 2.00. Stocks with RV values of 1.00 or above have favorable long-term upside price potential. The background for computing RV is given in Chapter 6 of "Stocks, Strategies, and Common Sense."

Safety is assessed by VectorVest from a wide variety of factors. These factors are discussed in Chapter 7 of "Stocks, Strategies, and Common Sense." Consistency and predictability of a company's financial performance is the single most important factor in assessing stock safety. Stocks of companies which achieve higher earnings per share quarter after quarter, year after year, have high safety ratings in the VectorVest system. Stocks of companies with erratic, unpredictable earnings have, of course, low safety ratings. This information is presented as an indicator called Relative Safety, (RS) on a scale of 0.00 to 2.00. Stocks with RS values of 1.00 or above have above average stability and predictability.

VectorVest believes that investors should buy stocks that are rising in price and sell stocks that are falling in price. Therefore, it analyzes a stock's price behavior for direction, magnitude of change and rate of change. This information is presented as an indicator called Relative Timing, (RT) on a scale of 0.00 to 2.00. Stocks with RT values of 1.00 or more are in an uptrend and vice-versa. RT also is useful in depicting changes in price momentum.

All three indicators, RV, RS, and RT are combined into a master indicator called VST-Vector. Stocks with a VST-Vector rating of 1.00 or above on a scale of 0.00 to 2.00 have favorable combinations of Value, Safety, and Timing. All stocks in the VectorVest data base can be analyzed, sorted and ranked by VST-Vector.

Buy, Hold, Sell recommendations are given on each stock every day. At least three conditions must be satisfied in order for a stock to receive a Buy recommendation: (1) Stock Price must be greater than Stop-Price. (2). RT must be >=1.00. (3). VST-Vector must be >= 1.00.

Condition (1) is important because a stock will receive a Sell recommendation if its price is less than the Stop-Price. Condition (2) insures that the stock's price is in an uptrend, and condition (3) insures that minimum values of RV and RS are met in order for the stock to receive a Buy rating. (Some stocks in the VectorVest system have never received a Buy rating.)

It is very important to note that the number of stocks receiving Buy recommendations in the VectorVest database increases and the number of stocks receiving Sell recommendations decreases as the market goes up. Of course, the reverse is also true. One could in fact ascertain the direction of the market simply by observing the percentage of Buy to Sell recommendations over time. This is exactly what we have done over the years.

Starting in 1995, the information provided by the BSR was augmented by analyzing the movements of the Price of the VectorVest Composite. The VectorVest Composite, (VVC), is the arithmetic average of over 7,500 stocks in our database. When the Price of the VVC goes up, the market is going up, and when the Price of the VVC goes down the market is going down.

Our basic system of timing the market is described in Chapter 20 of "Stocks, Strategies & Common Sense." For your convenience this system is summarized below:

The VectorVest Market Timing system is based upon two simple rules:

1. A trend is signaled when the Price of the VectorVest Composite moves two consecutive weeks in a given direction.

2. An upturn is confirmed when the BSR is greater than 1.00, and a downturn is confirmed when the BSR is less than 1.00.

This system for timing the market was back tested to 1991, and has been used on a real time basis since 1995. Every call going back to 1995 is fully documented in VectorVest Views, our newsletter which comes with your service. You are invited to read these Views to prove to yourself that VectorVest's system of timing the market works very well indeed.

Yes, we've made some great calls and more are sure to come. Just as we are proud of our record of signaling market direction we are also pleased to have never missed a major trend. For your convenience, all the up and down calls since January 1996 are listed in the Appendix I.

To access this Special Report, do the following:
1. Enter VV ProGraphics v6.0.
2. Click on Research.
3. Click on Special Reports.
4. Click on Riding the Wave.

THE HOME PAGE

Market timing is so important to your success that VectorVest displays a summary of the market's action right on the home page of your software. It contains the following important features:
1. Market Indices,
2. VectorVest at a Glance,
3. The VectorVest Color Guard,
4. The Market Timing Indicator, and
5. Investment Strategy.

These items provide immediate information on the state of the market. In addition, a strategy based upon this information is shown on the home page. Given this arrangement, you can see what the market is doing in an instant and have a strategy on just what to do.

VectorVest subscribers have demonstrated in back tests of their own design the ability to turn $10,000 into more than $10,000,000 on numerous occasions using our actual calls. The techniques for conducting backtests are illustrated via a series of click-by-click tutorials presented in the Strategy Section of VectorVest Views. It is suggested that you print these tutorials and go through each one of them. Using VectorVest is like playing a piano. The more you use it the better you will become.

VectorVest believes in buying safe, undervalued stocks in rising markets, selling them when the market peaks; then selling risky, overvalued stocks short in down markets, and covering them as the market bottoms. We call this strategy, "Riding the Wave." It was first introduced to our readers on May 29, 1998. A Special Report on "Riding the Wave" is available in your software. Note that the example in the report shows how $100,000 was turned into $10,073,480 in slightly over six years.

1. Prepare yourself by back testing strategies over and over again.

2. Paper trade in real time. This is a very important step in learning to implement any strategy...especially selling short.

3. Start out with very small positions. No amount of back testing and/or paper trading can give you the experience and knowledge of actually managing a portfolio. So start out small. Don't become impatient. Another market turn is always around the corner.

4. Act when the market is turning around. VectorVest will identify this event in the VectorVest Views when it happens.

5. Select a strategy. If you have prepared yourself properly via steps (1) - (3), you should know which strategies are best for you. However, VectorVest always suggests to its readers several strategies which may be used to buy stocks long or sell stocks short when the appropriate time comes.

6. Follow our Model Portfolio as a guide. Please be aware that the Model Portfolio is to be used only for illustrative purposes, and is managed mechanically. We try to keep things as simple as possible, and do not make intra-day trading decisions that an experienced investor would normally make. Don't try to follow what we do because you will always be a day late. Learn how to anticipate what we will do.

-- Good luck.