Follow the Trend of the Market

What a wacky stock market. A nice rally for a couple of hours early Monday followed by a huge selloff to the end of the session. Tuesday the market opens sharply lower for the first hour and then moves straight up the rest of the day, the TSX gaining 269 points, and yet VectorVest’s RT, BSR and MTI all ending lower than the previous day, a bearish divergence.

The pattern has been concerning, yet through it all VectorVest’s guidance has been cautiously bullish with the short-term Primary Wave predominantly Up and the longer term DEW and Confirmed Calls unwavereringly Up, the DEW since April 6th. Still, this is no time to be complacent.

VectorVest Founder Dr. Bart DiLiddo has often said, “I firmly believe market direction is the single most important thing you need to know to consistently make money in the stock market. You must let the trend be your friend.”

It’s the reason VectorVest works so hard on identifying the market’s trend and then interpreting it in the form of guidance to our subscribers each and every day. We want you to buy long in a rising market and take defensive action in a falling market such as raising cash, selling short, and/or buying contra ETFs.

It starts with presenting market direction as the headline story on our Home Page. The Market Timing Gauge and Color Guard give immediate and visual representations of what the market is doing. Read the Color Guard like you would a traffic light. Green is go, the market is rising, yellow is caution, the market is in transition, and red is stop, the market is falling.

VectorVest Color Guard July 2020

Click or tap image to enlarge.

We understand that investors need to know what to do with this information. Different investors will respond differently to the same analysis. Therefore, in the daily Views, Strategy section, we provide guidance to two types of investors: Prudent and Aggressive, and those who wish to follow our “Riding-the-Wave” system by trading any strategy that appears in both the 1-Day Derby Winners and the 5-day Derby Winners.

Implicit in this daily guidance is the belief that the market will follow the established trend suggested by our key indicators:

  1. Price of the VectorVest Composite Index
  2. RT or Relative Timing
  3. BSR or Buy/Sell Ratio
  4. MTI or Market Timing Indicator, a composite of Price, RT, and BSR.

For example, on Friday, July 10th, we had a green light in the Price Column, yellow lights in the RT and BSR columns, and the MTI was higher day-over-day but lower than five days ago. The overall Strategy guidance, presented in more detail every Friday, advised investors to proceed with caution. “Prudent Investors may buy stocks long only if the market is rising. Aggressive Investors and Traders should play the market as it develops.” For investors Riding-the-Wave, the Bullish strategy Ballistic New Highs was present in both the 1-Day and 5-Day Derby Winners.

When market direction changes, and we have red lights at the top of the Color Guard, you can expect VectorVest’s strategy guidance will be to play the market to the downside. A final piece of the market guidance puzzle – you should not commit to your trades until you see what the market is actually doing at the time you trade. You must go with the flow, ensuring that both the market and the stock are moving in your direction at the moment you place your trade.

By all accounts, this market rally has been fueled by the “Heat of Fed Stimulus” and an influx of retail investors driven by FOMO, the Fear Of Missing Out. Unfortunately, the underlying issues that have sent corporate earnings into a nosedive have not gone away. At some point, rising prices will turn over and start falling, the Fed will be reluctant or unable to continue funding the markets at levels it did at the start of the crisis, and buyers will give way to sellers. A market pullback or correction will happen, followed by another rally up.

Don’t worry, VectorVest’s guidance on the market’s trend will ensure you have the information you need to act in a timely manner, proving yet again that TREND FOLLOWING WITH VECTORVEST IS YOUR EDGE.

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