Ever notice how much easier it is to pick winning stocks from a strong Sector or Industry Group rising in Price? Why is that?
Simply put, it’s because a rising tide lifts all boats. Take the Bank (Investment) Industry Group. It includes the Big Six plus another five smaller banks. Much smaller. After a modest rally off the March 23rd market bottom, you could see on the Industry Graph that banks were gaining traction in November. Price hit a new 5-month high on November 16th, and the rally has continued through March 16th as I write this essay.
If you threw a couple of darts at the Big Six and landed on the best and the worst, you would have a 27.1% gain with Bank of Nova Scotia, BNS, and 14.0% with Royal Bank, RY. If you had a third dart and chucked it at the group of five smaller banks, you might have landed on Senevest Capital, SEC, for a gain of 101.9%, or VersaBank, up 129.3%.
The same “rising tide” principle is true for the overall market. The creator of VectorVest, Dr. Bart DiLiddo, always said, “The most important thing you, as an investor, need to know is whether the market is rising or falling.” It’s the reason VectorVest developed powerful tools for monitoring the market along with timing systems to suit every type of investor, from the most conservative to the most aggressive.
THE PRIMARY WAVE
Dr. DiLiddo’s early studies showed the week-to-week movement of the broad market Price, represented by the VectorVest Composite, or VVC/CA in Canada, was significant. When Price is higher than it was one week ago, the Primary Wave is Up, and the opposite is true. It is a fast yet reliable indicator of a short-term “turning point” that can develop into a long-term trend.
During a downtrend, Senior instructors will encourage subscribers to manage their current positions with their Stop-Prices, but wait for the primary wave to turn up before adding anything new. Here’s an example of how it can work. On October 19th, 2020, VectorVest signalled a Primary Wave Down, PW/Dn. The market fell for two weeks before a PW/Up was signalled on November 4th. If you went out and bought the top 10 VST stocks at the open of November 5th and held them until the PW/Dn on December 14th, the basket would be up about 27.4%, with six winners and four losers. Not too shabby.
THE TWO-WEEK RULE
VectorVest created a slower but more reliable signal of market turning points for conservative investors by analyzing the two-week Price movement of the VectorVest Composite. When Price goes up week-over-week for two consecutive weeks, it gives a preliminary signal of a sustainable uptrend and vice versa. When the trend is confirmed by Price rising above its 65-day moving average, and the MTI rises above 1.0, we have a Confirmed Up Call (C/Up). Subscribers are encouraged to get in early and manage their positions until the trend reverses.
Recent history. We had a C/Up on 10/08/2020 that fizzled out quickly and ended with a C/Dn on 10/26/2020. Such ‘whipsaws’ are rare, but it happens, so you sell what needs to be sold for small profits or small losses and wait for the next C/Up. It came on 11/11/2020, and it is still in place. Once again, taking the simple approach of buying the top 10 VST stocks in the Stock Viewer, the basket would be up about 49.6% as of 3/16/21. Eight winners and two losers.
Of course, a PW/Up and a Confirmed Call doesn’t guarantee outsized gains like these every time. But just one winning cycle with a 49% gain, a 30% gain, or even a 20% gain can make up for past losses in a hurry and crush the market’s returns, including the highest yielding GIC’s.
The idea for this week’s essay came from the previous two essays in the US Views written by Ms. Angela Akers. If you missed reading them for any reason and want to understand Market Timing and the VectorVest System more completely, go read them now. They are engaging, instructive, and supported by clear examples.
Most analysts and advisors still say it can’t be done, but VectorVest has been timing the market for more than 25 years. The evidence shows we do an excellent job of pinpointing the MARKET TURNING POINTS.