Timing the Market: A System that has Never Failed by Dr. Bart DiLiddo

Being on the wrong side of the market is the worst thing that can happen to an investor. It doesn’t have to happen to you.
Old Joe Granville always said the market tells its own story. All you have to do is read what it is saying. Unfortunately for him, he didn’t take his own advice.

Joe Granville was one of the pioneers of technical analysis. He used several novel methods of “reading the market.” The most popular of which is “On Balance Volume.” Initially, he was quite successful and became the market “Guru” of the early 1980’s. He was so influential, that his forecasts became selffulfilling prophecies. Then, he missed the call on the great Bull market of the 1980s and ‘90s. On August 16, 1982, the market broke out of a steep slump and Joe Granville said it was a folly. He said that it was a Bull trap, rising stock prices were like balloons that were about to burst. He remained a Bear for over 14 years while the market soared. What went wrong?

Mr. Granville’s fatal error is that he went from timing the market to forecasting it. There is an enormous difference between the two. Market timers are messengers. They study indicators of market activity to determine whether it is rising or falling and communicate their conclusions on market direction.

Forecasters consider economic factors and whatever else they think is important to predict what the market will do. Market timers need never fail. All forecasters will fail eventually.

Theoretically, forecasting the market is far more powerful than timing. Everyone would like to know what the market is going to do, when it will happen and by how much. In the real world, however, nobody has a crystal ball. Forecasting deals with the unknown and eventually, error is certain. The landscape is full of forecasters who have gone wrong. Their stories are well documented and they were viewed as stars when they were right. Now they are viewed as losers. Joe Granville? He just happened to be the most flamboyant of the bunch. He finally turned Bullish in 1993, but nobody cared what he said anymore.
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This chapter is not about forecasting the market. It’s about timing, i.e., reading our indicators and letting them tell us when the market is rising or falling. It’s about sensing turning points and knowing when to invest aggressively and when to take defensive actions. We want to buy within five percent of a bottom and sell within five percent of a top. Can we do it? It’s really very simple.

The market timing system described below was discovered in March 1995 and depends upon two key indicators: 1. The Price of the VectorVest Composite, and 2. The VectorVest Buy/Sell Ratio.
Both indicators were developed by VectorVest, a stock analysis system which analyzes over 8,000 stocks each day for Value, Safety and Timing and gives a Buy, Sell or Hold recommendation on each stock each day.
The Price of the VectorVest Composite, VVC, an arithmetic index of all the stock prices in the database, is the most important indicator used in timing the market. When the Price of the VVC has moved in a given direction, you can bet that the market has moved in the same direction.

The VectorVest Buy/Sell Ratio, BSR, is the second most important indicator used in timing the market. It responds to the directional movement of the Price of the VVC and increases as the market moves higher and decreases as stock prices move lower. This indicator is amazingly sensitive to the inner movements of the market. When the ratio of Buys to Sells is above 1.00, the market is robust. Correspondingly, the market is weak when the Buy to Sell Ratio is below 1.00.
From the very beginning, (1988), we recognized the measured pulse of the market and it was used to help guide our thoughts on the direction of the market. But, it was not until March of 1995, that we discovered how the Price of the VVC replicated the direction of the market. We examined our data back to April 1991 (the time when we first began computing the VVC), and found that tracking the direction of the market with the Price of the VectorVest Composite was incredibly simple and reliable.
Here’s how the system works:

If the Price of the VVC moved in a given direction, up or down, over a five-day trading period, it gave a preliminary signal of the market’s direction. This signal is called the Primary Wave. If the Primary Wave is followed by another five trading-day move in the same direction, the preliminary signal was reinforced, but not confirmed. We must turn to the BSR for confirmation of the market’s direction.

A Confirmed Up, C/Up, is given when the Price of the VVC has gone up for two consecutive five trading day periods, closes higher than the previous day and the BSR is above 1.00.
A Confirmed Dn, C/Dn, signal is given when the Price of the VVC has gone down for two consecutive five trading day periods, closes lower than the previous day and the BSR is below 1.00.

Although we discovered this timing technique in March 1995, the first major C/Dn signal given in “real time” did not occur until 09/22/95. The market had just completed a marvelous Bull rally, lasting 39 weeks. Signs of weakness had begun to appear in July, but the market did not peak until 09/08/95. Two
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weeks later, we got the C/Dn signal. Here’s what we said on 09/22/95: “The Price of the VVC has now gone down for the second week without an intermediate up move. Our studies have shown that this event signals a market correction. The still favorable investment climate suggests, however, that it will be only a mild correction.”
From September 22nd on, we tracked the correction week-by-week, until it bottomed on January 12, 1996. Two weeks later, we said, “The Price of our VectorVest Composite rose for the second week in a row, signaling that the market’s correction is over. Although the green light has not been confirmed by the BSR, it’s OK to buy high VST-Vector “B” rated stocks. It’s a good time to go Bottom-Fishing. For a FREE copy of our Special Report “Bottom-Fishing: The Art of Buying Low and Selling High,” call 1-888-658-7638.”

As of the current time, February 13, 2015, we had just received a C/Up signal the prior day. Here’s what I wrote as my weekly Strategy guidance, “The Price of the VectorVest Composite (VVC) gained $0.54 per share since last Friday and released a Confirmed Up, C/Up, signal on Thursday, February 12, 2015. I was skeptical that the Price of the VVC had truly broken above the upper jaw of the Wicked Wedge last Friday and became fearful of another drawdown on Monday. But the Bulls took charge on Tuesday and finally broke out of the Wicked Wedge, to the upside, on Thursday. Today’s follow-up rally and a confirmed green light in the Price column of the Color Guard gives us hope that this rally has legs. With three green lights and an UpUp situation, the Color Guard is Bullish. Prudent Investors may buy rising stocks as the market rises. Aggressive Investors and Traders should play the market to the upside.”

You might believe that the market moves in a random fashion. It does not. While there are periods where the market moves up and down from week to week, it always happens within the framework of an underlying trend. This system of timing the market has never failed to signal a major move...and it never will. The reason is quite simple: we don’t predict the market, we track it. Big moves start with little moves.

Since we keep track of every little move the market makes, we will never miss a big move. Even the apparently abrupt crash of October 1987 occurred nearly two months after the market peaked in late August 1987.

We warned our readers to take profits at the very top of the bull market on March 10, 2000, to go long at the beginning of a new bull market on March 21, 2003, and we issued a strong warning at the onset of the bear market on November 2, 2007. We also nailed the beginning of the current bull market at the very bottom on March 6, 2009. What more could you ask for?
The drama of the market’s moves is vividly displayed on the Home page of the VectorVest software in a clear, easy to understand tool called The Color Guard. There’s no guesswork. Green means the market is Bullish. Red means the market is Bearish and Yellow means the market is in transition.

You may call 1-888-658-7638 or log on to www.vectorvest.com to order a Special 5-Week Trial to VectorVest. Databases are available for the following markets: United States, Canada, United Kingdom, the Euro Zone, South Africa, Singapore, Hong Kong and Australia. You’ll receive FREE technical support and instructional material.

Click Here or call 1-888-658-7638 to order a Special 5-Week Trial to VectorVest.

Click Here to read Stocks, Strategies & Common Sense by Dr. Bart DiLiddo