With triple digit up and down days becoming par for the course, the market has been herky-jerky lately, to say the least. So how can one survive these wild swings and still make some money? The best way I can think of, is to learn how to see through the market's daily gyrations and stay with its prevalent trend, the way to do this is to use the Enhanced ProTrader Market Timing Graph, EPMTG. I wrote about this graph on November 30, 2007 and an excellent "Strategy of the Week" presentation was given which showed what it is and how to use it.

Nowadays, we use the EPMTG regularly in our Daily Color Guard Report, but before I go too far, let me tell you more about the original ProTrader Market Timing Graph. It used three key indicators: A Detrended Price Oscillator, Envelopes and a 30-Day Weighted Moving Average. Many of our subscribers refer to it as the "DEW" system of Timing the Market. But make no mistake, the DEW system does not conflict with or replace our Standard Market Timing System. It serves as a compliment. All I did to create the EPMTG was to add the MACD to the DEW graph. The key to using it properly is to use the MACD crossovers to pinpoint meaningful changes in market direction.

To see the EPMTG, simply access the Standard Market Timing Graph; then click on ProTrader Graph in the box labeled Graph Type. (If you do not have ProTrader on your computer, you may visit our website, or click here, to sign up for a Free 2-week Trial). I usually set the graph up with a 3-month Period in order to clearly see the MACD crossovers. If you do this, you can easily see that the DEW indicators signaled the start of a rally on 12/11/09. The Color Guard flashed a green light on 12/14/09 and the day's "Five Best Performing Strategies," all Bullish, were listed. Which one would you have chosen to use?

According to the EPMTG, the rally lasted until 01/20/10, and the Color Guard coincidentally flashed a red light. The day's "Five Best Performing Strategies," all Bearish, were listed. Which one would you have chosen to use?

I observed an interesting phenomenon while preparing for this essay. The Total Gain column of the Totalizer, in the VectorVest RealTime Derby, showed a steady series of top performing Bullish Strategies, day after day, throughout the rally from 12/14/09 through 01/20/10. It did not flip-flop from Bullish to Bearish and back again according to the daily whims of the market. It also showed a steady series of top performing Bearish Strategies, day after day, throughout the downturn from 01/20/10 through to today. It did not flip-flop from Bearish to Bullish and back again even when the market rallied sharply.

What this tells me is that we should be able to use the EPMTG, the Color Guard and the Totalizer to see through the market's daily gyrations, stay with the prevailing trend and pick sure-fire, money making Strategies. What A Magnificent Combination.

P. S. From this time forward, we will report to you the Strategies with the best Total Gain as shown in the Totalizer from the onset of a new trend. We will call them Derby Leaders.

GOING TO THE BANK WITH DERBY LEADERS.
How well could you have done if you went long with one of the Derby Winners listed in the 12/14/09 Color Guard Report, and went short with one of the Derby Winners listed in the Color Guard Report of 01/20/10? Mr. Glenn Tompkins, Manager of Internal Training, has the answer. So visit the VectorVest University to see this week's very important "Strategy of the Week" presentation: "Going to the Bank with Derby Leaders."

Buried in the bowels of VectorVest Views is an extremely important, but mostly ignored, section called "The Investment Climate." The purpose of this section is to ascertain whether key economic factors are favorable or unfavorable for stock prices.

Since it is my belief that stock prices go up when inflation and interest rates go down and corporate earnings go up, we track and report two measures of inflation, three measures of interest rates and one measure of earnings. In addition, we track two independent measures of market direction and one measure of investment advisors' sentiment. Each of these data items are analyzed in terms of level and trend. All of the trend indicators are shown on a scale of 0.00 to 2.00, with values above 1.00 being favorable.

The big news last week was that the trend indicator for S&P 500 earnings rose to 1.01, meaning that S&P 500 earnings are in an uptrend. This analysis was called into question this week by a number of subscribers who observed that forecasted earnings, EPS, of the S&P 500, as shown on a summary graph of the S&P 500 WatchList, have been going lower since January 5, 2010. While this observation is true, it does not amount to a trend analysis for several reasons. First of all, we use smoothed data as shown by a 50-day moving average of EPS. Secondly, we analyze the entire one year data set, not just the last few weeks. Thirdly, we base our conclusion of trend on what our trend indicator tells us.

This information is shown graphically on our Market Climate Graph. The upper portion of the graph shows the weekly EPS as reflected by the 50-day MA and the lower portion shows the value of the Trend Indicator for each corresponding week. Note that the Trend Indicator fell below 1.00 on February 15, 2008. You may say that was way too late, the Bear market was called in my essay of November 2, 2007. Maybe so, but the EPS Trend Indicator allowed us to see the Bear market coming well before it happened, and I wrote about it many times.

Now the EPS Trend Indicator is above 1.00 and it says that better days are ahead for stock prices. The question is, "Will it continue to rise and stay above 1.00?" The current drawdown of S&P 500 forecasted earnings is not a good sign, but I do see that the rate of decent is lessening. I'm hopeful, if not confident, that S&P 500 EPS will begin rising again soon. This is vitally important, because it will ultimately determine the direction of stock prices.

Attendees, here at the Orlando World MoneyShow, are very concerned about the economy and I have received many questions about inflation and interest rates. They are shocked when I tell them that the Inflation Genie is out of the bottle and interest rates are rising even though Fed Chairman, Ben Bernanke, has not yet raised interest rates. With earnings, inflation and interest rates rising, we are now in a Case 4, Bull Market Scenario, climbing the classic "Wall of Worry." While you won't see it on CNBC, you can read all about it in The Investment Climate Report.

P.S. For more information on Stock Market Scenarios, read my essay of March 28, 2003.

BUYING NON-LEVERAGED CONTRA ETFS.
After a big down day like yesterday, you may want to play the market to the downside, but you may not want to increase the volatility of your portfolio un-necessarily. See how you can have your cake and eat it too by joining Ms. Angel Clark, Research Strategist, at the VectorVest University to see this week's very timely presentation: "Buying Non-Leveraged Contra ETFs."

Stock prices took off with a bang this year with huge gains on the first day of trading followed by five more consecutive up days. Only four times in the last 82 years has the S&P 500 Index started a year with five consecutive up days, let alone six consecutive up days. So there was no telling where the market was heading, but there are ways to get some clues.

According to the 2010 Stock Trader's Almanac's First Five-Day Indicator, the S&P 500 will end the year higher when the S&P 500 goes higher in the first five days of trading. The S&P 500 has gone up 31 times in the last 36 years and the S&P 500 has ended the year higher 86.1% of the time. The average gain for all 36 years is 13.7%. Not bad. So things were looking very good for 2010 after the first full week trading. But the S&P 500 went down on January 12th; then again on January 15th, and, my goodness, three more times on January 20th, 21st and 22nd; then two more times on January 26th and 28th. Now the delicious gain after the first six days is gone and the S&P 500 is even down from its December 31, 2009 close. So what's the market going to do now?

Well, let's see. The Stock Trader's Almanac says the January Five-Day Indicator has a spotty record - almost a contrary indicator in midterm election years. In the last 15 midterm years, only seven entire years followed the direction of the First-Five Days and only one of the last eight, 2006. The full-month January Barometer has a much better midterm record of 66.7% accurate. In other words, 10 of the last 15 midterm election years followed January's direction. Every down January on the S&P 500 since 1950, without exception, preceded a new or extended bear market, a flat market, or a 10% correction.

Wow, this doesn't sound good. What does it mean? First of all, it says that since the S&P 500 went up during the first five days of January, the Indicator (which is pretty unreliable and has acted like a contrary indicator in midterm elections) is pointing to a down year. Since the S&P 500 is down for the full month, there's a 66.7% chance that the S&P 500 will end the year lower than 2009's close of 1115.10. Moreover, the bear market will have been extended, or the market will have been flat or experienced a 10% correction, if the S&P 500 does close the year lower.

OK, so that's what the Stock Trader's Almanac says, but what do I think? Well I'm not quite that gloomy and the main reason is that S&P 500 Earnings have been rising and our trend indicator of S&P 500 Earnings, as shown in the Market Climate Graph, is about to go above 1.00. My belief is that stock prices will rise as long as earnings continue to go higher. Sure, we could have a 10% correction, but rising earnings will trump The January Barometer.

HOW TO TRADE CONTRA ETFS.
The market has been nasty lately, punishing stocks with good earnings as well as bad, so we finally caved in and started buying Contra ETFs. If you are not familiar with these stocks, you must see this week's "Strategy of the Week" video. Please join Mr. Todd Shaffer, Senior Instructor and Product Support Consultant, at the VectorVest University to see this week's very important presentation: "How to Trade Contra ETFs."

What will the market do in 2010? Nobody knows for sure, but I'm pleased to say that although analysts are mostly bullish, their forecasts are tempered by a healthy dose of skepticism. This is a good sign since advisor sentiment is a contrary indicator.

The Investors Intelligence Percent Bullish Advisors Sentiment Indicator, shown in the Climate section of these Views, is at 51.1%. It peaked at 62.0% when the Mighty Dow hit its all-time high on 10/19/07, and it bottomed at 21.3% on 10/31/08, two weeks after I wrote an essay entitled, "Time to Buy." Given today's mid-range reading of 51.1%, I think there's still room for this market to move higher. But stock selection will be the key to making money.

In this regard, I want to further develop some of the ideas we have been exploring for stock selection and position entry. In particular, I like the idea of buying selected stocks when they have gone above the previous day's high. We demonstrated how this technique helps you pick winners and avoid losers in the "Strategy of the Week" presentations of 11/27/09 and 12/18/09. We even went so far in last week's SOTW presentation as to illustrate how the Buy-Stop-Limit order works for those of you who cannot watch the market during the day.

I liked this technique enough to consider using it to manage our Model Portfolios in 2010, but before deciding to do that, I did some additional testing. I ran some tests in which I combined the Green Light Buyer idea with the Daily Double idea using top VST stocks. Mr. Paul McCann, one of our whiz-bang developers, created a neat little search for me that looks at the top five VST stocks and finds those that went at least 1% above the previous day's high. I call it "Higher Ups" and we put it into the Strategies - Price-Volume Group of the UniSearch tool.

In a typical test, I ran a 10 stock portfolio in which I ran the search only when the Color Guard showed a green light in the Price column to buy stocks as needed the next day, and sold stocks that received 'S' Recs on three consecutive days. From 03/17/09 to 10/19/09, this portfolio was up 99.22%, but it took a hard hit over the next 10 days, down to 42.20%. Nevertheless, it ended the year up 67.88%. Not bad for such a simple strategy.

There are a lot of variations to this system and I plan to try some of them out. So beginning Monday, January 4, 2010, we'll be using them in managing our Model Portfolios of which there will be four: The Yellow Brick Road, Riding-the-Wave, Premier Growth Stocks and High Income Stocks.

This means that while we will continue to buy rising stocks in rising markets, we will no longer be using the 1% rule to enter the market. It's a good rule, but it misses too many good buying opportunities. Moreover, we will no longer feel obligated to buy baskets of stocks. We will be using selected Strategies to buy a few selected stocks, i.e., 1 to 3 at a time, that have risen at least 1% above their previous day's high.

My goal is to help you learn an end-of-day stock selection and portfolio management system that will be easy to do and consistently generate profits. That's what I want to accomplish in The Year Ahead.

THE MIDAS TOUCH.
If you've seen one TV commercial exhorting you to buy gold, I'll bet you've seen a hundred of them. I'll also bet you know that the price of gold has been on a multi-year tear and is projected to go much, much higher. But you also know that gold prices are very volatile and you have to know when to get in and when to get out. So how should you play this trade? Ms. Angel Clark, Research Strategist, knows and she's going to show you some of her innermost secrets on how to go for the gold. So join Ms. Clark at the VectorVest University to see this week's esoteric "Strategy of the Week" presentation: "The Midas Touch."