Written by: Angela Akers

Investors went into July with the intent to buy stocks. The Major Indices and the Price of the VVC were rising nicely in the first couple weeks of the month, with the DJI adding 2.79%, the S&P500 rising 3.13%, the Nasdaq picking up 4.17% and the Price of the VectorVest Composite (VVC) increasing 3.56%. But that was all BEFORE the canary died. What do I mean? What is the canary and how did it die? Let me explain.

The Price of the VectorVest Composite (VVC) hit a rally closing high on July 12th of $67.80 per share and our Buy/Sell Ratio, BSR, closed at 1.56. The following day, the Price of the VVC closed at another new rally high of $68.14 per share, up a hefty $0.34 per share for the day, while the BSR closed at a lower high of 1.44. We call these divergences between the Price of the VVC and the BSR, the Canary’s Warning, i.e., the Price of the VVC hitting higher highs while the BSR is hitting lower highs. While the Price of the VVC and BSR went on to hit another closing high on July 16th, they have both suffered since. July 15th looks to be the day the Canary died.

Dr. DiLiddo coined the term “the Canary” to represent the BSR because he began to recognize, over time, the significance of these divergences. Like the canary in the coal mine would alert the miners that the levels of poisonous gases were at dangerous heights, the BSR has proven to be a leading indicator, a warning if you will, that a downtrend is forthcoming.

Since the July high of $69.45 per share on July 16th, the DJI has slipped 0.89%, the S&P500 has fallen 3.67%, the Nasdaq plummeted 6.22% and the Price of the VectorVest Composite (VVC) slid 1.47%. Those losses have entirely wiped out the early July gains for both the S&P500 and the Nasdaq and a nice chunk of the gains for the Dow and Price of the VVC. Has the curse of the “July high” struck again? In last week’s Strategy section, I said, “Remember that July is notorious for rising to a peak; then crashing (refer to Dr. DiLiddo’s July 20, 2007, Essay entitled, ‘Beware the July High’).” If you haven’t, please take a moment to review the Essay. It’s a short, but worthy read.

Of course, we don’t predict the market, and no one has a crystal ball. With earnings, economic data, the Presidential Election Cycle and the Fed at play, we must continue to use the tools at our disposal. Consult the Color Guard and overall trend of the market before you take any action to the upside or downside. Nevertheless, based on what the VectorVest Market Timing indicators are saying, I believe that we have already seen The July High.

PS. When the market begins to show signs that the rally is tiring and begins moving lower, it’s time to start thinking about and implementing defensive strategies to protect your profits. Make sure to check out tonight’s “Special Presentation” where Mr. Jim Penna will illustrate several ways that you can do this.

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