SIGNS OF REVIVAL

Originally Published: www.vectorvest.com

by Dr. Bart DiLiddo Friday, 12/12/2008

At 26 weeks, the current downturn, which was signaled by a C/Dn on June 11, 2008, is the longest we have recorded in the VectorVest U.S. database, which goes back to June 1995. In fact, it's the longest downturn we have encountered since going into business in January 1988. When is it likely to end?

Well, I really can't answer that question, but I'll know it when I see it. I'll know it because our Market Timing System will give a Confirmed Up, C/Up, signal at that time. In order to get the C/Up signal, the Price of the VectorVest Composite must go up, week-over-week, on any given day for two consecutive weeks and the Buy/Sell Ratio, BSR, must go from below 1.00 to above 1.00. The beauty here is that we can see this signal develop as it happens.

The first step in this process is that the Price of the V V C must go up week-over-week for a single week. This event is noted in our Daily Color Guard Report by saying that the Primary Wave is Up, and the Up signal is then logged into the Trend column of the Color Guard Report. If we access the Timing section of last night's Views, we can see that the Primary Wave was Up on November 26th and 28th, and it has been Up for the last four days. As I write this essay, the Primary Wave is Up by a scant 10 cents per share. Nevertheless, five consecutive up days is very encouraging. Moreover, we could also see a couple of Green lights in the Price column.

The next significant step is to see the Price of the V V C go up week-over-week on any given day for two consecutive weeks. When this happens, we say that "The Price of the V V C has given a preliminary signal of a sustainable uptrend." If you look at our Market Timing Graph in the Weekly Mode, you'll see that a string of five consecutive Up weeks started on July 18, 2008. So I checked the Strategy section of the July 25, 2008 Views to see if we had properly documented the two week signal. Sure enough, these very words were there for all of the world to see.

Things appeared to be going pretty well with the incipient rally and our Market Timing Indicator, MTI, was even bold enough to close above 1.00 on August 11, 2008. But all was not well. The BSR was at a lowly level of 0.58 and it needed to go above 1.00 to confirm the rally. Moreover, the traditionally tough months of September and October were looming ahead. So what's all this got to do with what's happening now?

Right now I'm seeing shades of 1990. You may recall that the market peaked in July 1990 and the economy was in the tank due to rising interest rates. In addition to that, the banking industry was losing tons of money on foreign loans and the U.S. government was spending $200 billion trying to recover from the S&L Crisis. Finally, Saddam Hussein invaded Kuwait on August 2nd, threatening our oil supplies and caused stock prices to plunge. The BSR crashed to the lowest level, 0.04, I had ever seen in the short history of VectorVest.

Around the end of October an amazing thing happened: The BSR started to go up. It seemed crazy. With all the problems facing investors, why would stock prices be going up? We could ask the same question today. Whether we know the answer or not, the BSR has begun to rise again. It closed at a 48-day high of 0.10 on Wednesday, December 10th. Now that's not very high, but it is a good sign.

Other good signs are that the Price of the V V C closed above its 40-Day Moving Average on Wednesday, December 10th, and the MTI also closed above 1.00. Altogether, I'd say we're seeing Signs of a Revival.