What a start to 2022. There have been huge intraday swings in both Canada and US markets and the dominant trend until the final days of the month was decidedly low. Only the strong performance of the Petroleum Sector kept the market from reaching “correction” levels.
For weeks there was substantial selling pressure on the market. In Canada, we got VectorVest’s strongest warning, the Confirmed Down Call, on November 22. By Friday, January 21st, the VectorVest’s BSR, Buy/Sell Ratio, was at 0.17, below the historical benchmark of 0.20. At that level, we know from history the market is oversold and searching for a bottom.
In the US, January 21st BSR was 0.13. In her Views essay that evening, Angela Akers wrote, “It is a good time to start preparing your shopping lists to go bottom fishing and bargain hunting when the market starts moving higher.” The essay, titled Anticipate Market Turning Points, was a clear explanation of how to read VectorVest’s market timing guidance and where to find it.
But wait a minute. VectorVest says it doesn’t predict where the market is going, so why would we advise subscribers to get their shopping lists ready? VectorVest Founder Dr. Bart DiLiddo provided the simple answer in his 4/29/05 essay, “You want to buy low, don’t you?”
Listen, the market and the BSR can go lower than 0.17, and it can remain at low levels for days and sometimes even weeks. But when it does, it just means we are even closer to a bottom. Take a look at the market timing graph. Set it up in 6-month, daily mode and place a horizontal line on the BSR at the 0.20 level. Remove the MTI and RT for now, then click and hold your mouse on the date bar at the bottom right and slide it slowly all the way to the left.
Notice as you go that the market has always rallied shortly after the BSR fell below 0.20, the further the better. A few times the rallies were short, trading rallies, but most were powerful, explosive rallies resulting in long, smooth uptrends. The force behind the initial bounce tends to keep the Price moving higher even as momentum eventually loses strength. They provided wonderful opportunities to buy stocks at low prices and that’s what bottom fishing is all about.
There are many ways to play this game. Prudent Investors, for example, will look for beaten down stocks with good fundamentals. In UniSearch, VST+YSG Bottom Fishers in the Searches – Retirement folder finds high quality stocks that are great for bottom fishing because of their low RT, Relative Timing scores. Run the search at Tuesday’s close and you will find well-known, previous top performers such as Stelco Holdings, STLC, CI Financial, CIX, TFI International, TFII, Premium Brands, PBH, and Savaria Corp, SIS. In 2021, these stocks gained 81%, 67%, 116%, 25% and 32% respectively, and now they are on sale.
For Aggressive Traders, VectorVest has created several searches. You will find them in a UniSearch folder called, Searches – Bottom Fishing. The Sort is the key in every search. Blyar’s Bottom Feeders/BMB, for example, uses RV/RT. This brings to the top stocks that have the best combination of high Relative Value and low RT. Bottoms Up/CA and Jailbreak/CA use the combination VST/RT; and Odd Fellows Long uses GRT/RT. You get the picture. Low RT is the key, matched with whatever fundamentals are most important to you.
In Chapter 16 of Stocks, Strategies & Common Sense, VectorVest Found Dr. Bart DiLiddo explains why bottom fishing works and how VectorVest can help you do it correctly. Go to the Welcome tab to download your copy of the recently released Third Edition.
Dr. DiLiddo writes, “One should remember that bottom fishing is a contrarian strategy. Bottom fishers savor falling stock prices during a downturn and think about buying when everyone else is selling.” So, if you are thinking about buying stocks at bargain prices, you should get your shopping list ready when the BSR is near or below 0.20, but wait until we see a Primary Wave Up signal in the Color Guard and then get ready to go BOTTOM FISHING.