VectorVest Views 11/2/07
Last week I wrote an essay entitled, "Has the Rally Resumed?" It was based upon the observation that the Primary Wave had given an Up signal from the prior week, and the market had responded extremely well to a strong earnings report from "blundering Microsausage." But it also noted that the biggest up day prior to last Friday was September 18th, the day the Fed lowered interest rates.
As expected, the Fed did indeed lower the Fed Funds interest rate by 0.25% to 4.50% on Wednesday, October 31st, and stock prices rallied. But it was a hollow victory for investors. Following their meeting, the Fed signaled that further rate cuts may not be forthcoming. They said economic growth was solid in the third quarter, (GDP was up 3.9%), and strains in the financial system had eased. They also cited renewed inflation risks (think high oil prices and a weak dollar). In other words, the party is over. Without the expectation of lower interest rates, investors turned bearish. We got a Confirmed Down, C/Dn, signal yesterday.
Does a down market mean we can't make money anymore? Not at all - in fact it could be easier than ever with the advent of Contra ETFs. Contra ETFs are Exchange Traded Funds that are designed to go up when the market goes down. Of course, they are likely to go down when the market goes up. So Contra ETFs do not eliminate risk, but they eliminate the need to have a margin account and they are allowed in most IRAs that I know of. So you can trade them just like regular stocks.
All you need to do to find these guys is click on WatchLists on the Main Menu Bar, click on the plus sign to the left of the ETFs Group; then click on Contra ETFs.
As of last night, Thursday, November 1st, there were 29 stocks in the WatchList. If you sort them by name, you'll see that all of them are designated as ProShrs, "Short" or UlSht. The UlSht means that leverage may be employed in creating these funds. A leverage factor of 2 to 1 is typical. Note that options are traded on several of these funds. So if you're a wild and crazy trader, you can get plenty of leverage from these funds.
The WatchList is presented to you sorted by VST. As of last night the ProShrsUlShtFnl, SKF, fund stood at the top of the list. The Daily Graph shows that this stock hit a high Price of $92.57 on 08/15/07, one day before the Price of the VectorVest Composite hit a low of $28.09 on 08/16/07. Of course it went down as the Price of the VectorVest Composite went up. It bottomed on 10/09/07, three days before the Price of the VectorVest Composite hit a rally high of $31.56 per share. This was also one day before the BSR gave us an Early Warning of a weaker rally. (See my essay of 10/19/07). It's also very interesting to see how this stock mirrors the performance of the Business Sector - Financial.
So what's the best way to trade these guys? Well, you could click here or visit the VectorVest University and watch the August 3, 2007 video on "How to Make Money with UltraShort ETFs." Or you could watch this week's Strategy of the Week on "How to Make Money Using CONTRA ETFs."
A WORD TO NEW SUBSCRIBERS.
The Confirmed Down signal that we received yesterday could be the entree to a long Bear market. We aren't there yet because earnings are still rising according to our method of analysis. Yet, we no longer appear to have the support of an accommodative Fed and that can make things very bad for the stock market. So don't be deceived by the endless parade of experts who will appear on TV and other places telling you to buy stocks. This is not the time to buy stocks.
Just follow our Market Timing System and it will tell us when to go long again. At that time, we should be getting some wonderful bargains.