The Daily Color Guard An Enhanced System of Timing the Market LIGHTS TRENDS MEANING ACTION

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Pierce Henry
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1 The Daily Color Guard An Enhanced System of Timing the Market Print this page by Dr. Bart A. DiLiddo USING THE COLOR GUARD SYSTEM: The Color Guard provides us with a powerful tool for profiting from the up and down movements of the market. Think of the Color Guard as you would a traffic light. Green means go, it's OK to buy stocks. Yellow means caution, it may or may not be OK to buy stocks. Red means stop, don't buy any stocks. Can it really be that simple? In a perfect world, the answer would be yes, but there's more here than meets the eye. For example, I'm not going to go through a green traffic light if I see a truck in my path, running a red light. Even though I have the green, I always look both ways to make sure it's safe to proceed. This is why our trend indicators, the Primary Wave and the Market Timing Indicator, are important parts of the Color Guard. We use colors to report the up and down movements of the Price of the VectorVest Composite UK (VVC/UK), the Relative Timing of the VVC/UK and the Buy to Sell Ratio, and we use Up and Dn signals to report the direction of our Trend Indicators. Put it all together and we have a set of three lights and two indicators. Here's a summary of the most likely combinations of light colors and trends, what they mean and the suggested action to take: LIGHTS TRENDS MEANING ACTION 3 Green UpUp The Color Guard is Bullish Buy 2 Green UpUp The Color Guard is Somewhat Bullish Buy 1 Green 1 Green 3 Yellow 3 Yellow UpUp The Color Guard is Mildly Bullish Buy UpDn The Color Guard is Mildly Bullish Buy w Caution UpUp The Color Guard is Neutral Buy w Caution UpDn The Color Guard is Neutral Buy w Caution

2 3 Yellow 3 Yellow 1 Red 1 Red DnUp The Color Guard is Neutral Do Not Buy DnDn The Color Guard is Neutral Do Not Buy DnUp The Color Guard is Mildly Bearish Do Not Buy DnDn The Color Guard is Mildly Bearish Do Not Buy 2 Red DnDn The Color Guard is Somewhat Bearish Do Not Buy 3 Red DnDn The Color Guard is Bearish Do Not Buy The Daily Color Guard is intended to accurately describe the direction and strength of the stock market on a day-to-day basis. It is the successor to the weekly "Color Guard" which was introduced to VectorVest users on December 18, Although we had very good success in timing the market with the original Color Guard, it provided only a week-to-week analysis of the market, and our readers wanted daily updates. Therefore, the "Daily Color Guard" was introduced on March 5, While it was another step forward, it required the application of additional rules to interpret the market's behavior. The purpose of this report is to document and update these rules. Rules for a Confirmed Signal A Confirmed Up (C/Up) signal is given when both of the following occur: 1) Price o The price of the VectorVest Composite UK (VVC/UK) has increased fivetrading-day-period over five-trading-day-period for two consecutive five-trading-day-periods. o The price of the VVC/UK has increased from the prior day. 2) MTI o The Market Timing Indicator (MTI) is greater than A Confirmed Down (C/Dn) signal is given when both of the following occur: 1) Price o The price of the VectorVest Composite UK (VVC/UK) has decreased fivetrading-day-period over five-trading-day-period for two consecutive five-trading-day-periods.

3 o The price of the VVC/UK has decreased from the prior day. 2) MTI o The Market Timing Indicator (MTI) is less than *A historical listing of all confirmed signals can be found in VectorVest UK. Just click on Views and choose Market Calls Viewer. A. THE COLOR CODE: I. The Price of the VVC/UK Green: The Price of the VVC/UK will be coded green when all of the following occur: o The price increases from five trading days ago. o The price color was green or yellow five trading days ago. o The price is up from the prior trading day. Red: The Price of the VVC/UK will be coded red when all of the following occur: o The price falls from five trading days ago. o The price color was red or yellow five trading days ago. o The price is down from the prior trading day. Yellow: The Price of the VVC/UK will be coded yellow if it does not meet the conditions of green or red. II. The RT of the VVC/UK Green: The RT of the VVC/UK will be coded green when either of the following occur: o The RT is > 1.00 and shows an increase from five trading days ago, as well as an increase from the prior trading day. o The RT crosses from below 1.00 to above 1.00 from the prior trading day. Red: The RT of the VVC/UK will be coded red when either of the following occur: o The RT is < 1.00 and shows a decrease from five trading days ago, as well as a decrease from the prior trading day. o The RT crosses from above 1.00 to below 1.00 from the prior trading day. Yellow: The RT of the VVC/UK will be coded yellow if it hasn't met the conditions of green or red III. The Buy/Sell Ratio of the Recommendation Profile (BSR) a) The color coding scheme for the BSR is exactly the same as that shown above

4 for the RT of the VVC/UK. B. MARKET TREND ANALYSIS: It is important to recognize that each of the indicators cited above serve a specific purpose. These are described as follows: 1. The Price of the VVC/UK, is the PRIMARY indicator of the market's direction and strength. If it moves up or down over a single five-trading-day-period, it sends an alert that the market is beginning to move in that direction. If it moves in the same direction over two consecutive five-trading-day-periods, it gives a preliminary signal of a sustainable trend. The stronger the move(s), the more likely it is for the new trend to continue. 2. The Relative Timing of the VVC/UK, (RT), reflects the direction, strength and momentum of an established market trend. This indicator is especially useful in analyzing the momentum of a trend. If the direction of a VVC/UK RT movement diverges from the direction of a VVC/UK Price movement, it signals a change in momentum. 3. The Buy/Sell ratio of the VectorVest Composite UK, (BSR) reflects the strength of the market. It lags the moves of the Price of the VVC/UK, and, therefore, is useful in confirming trends signaled by the VVC/UK Price. 4. The Market Timing Indicator, (MTI), is designed to measure the overall strength and direction of the market. It combines the VVC/UK Price, RT, and the BSR into a single indicator which ranges from 0.00 to The underlying trend of the market is up when the MTI is above 1.00, and down when the MTI is below The strength of a trend is, of course, reflected by the level of the MTI. C. MARKET TREND REPORTS: Both the PRIMARY and UNDERLYING trends are used in reporting what the market is doing. This is done as follows: 1. An "UpUp" report means that the VVC/UK Price has moved "Up" compared to five trading days ago, and the underlying trend of the market is "Up" because the MTI is above A "DnUp" report means that the VVC/UK Price has moved "Dn" (Down) compared to five trading days ago, but the underlying trend of the market is still "Up."

5 3. An "UpDn" report means that the VVC/UK Price has moved "Up" compared to five trading ago, but the underlying trend of the market is "Dn" (Down) because the MTI is below A "DnDn" report means that the VVC/UK Price has moved "Dn" (Down) compared to five trading days ago, and the underlying trend of the market is "Dn." 5. A "C/Up" means "Confirmed Up." Please see the "Rules for a Confirmed Signal" on page 1 for a complete explanation. 6. A "C/Dn" means "Confirmed Dn." Please see the "Rules for a Confirmed Signal" on page 1 for a complete explanation. D. COLOR GUARD COMMENTARY: The daily commentary regarding the Color Guard report is shown in the "Timing" section of VectorVest Views. The commentary is intended to be self explanatory, and adheres to the rules cited above. An example of the Daily Color Guard commentary is shown below: The Daily Color Guard Analysis Thursday, March 30, 2009 ANALYSIS: The Price of our VectorVest Composite U.K. (VVC/UK) closed at pence per share today, down 3.29 pence per share from Friday and down 3.78 pence per share from last Monday's price of pence per share. Since the Price of the VVC/UK fell from last week and was confirmed by today's action, it turned yellow as compared to last Monday's green. The primary trend of the market, which is determined by the week-to-week direction of the Price of the VVC/UK, is Dn. The RT of the VVC/UK closed at 1.02, down 0.01 point from Friday, but up 0.02 points from last Monday's reading of Since this indicator rose from last week, but was not confirmed by today's action, it remained yellow as compared to last Monday. The Buy/Sell Ratio, (BSR), of our Recommendation Profile of 1,878 stocks closed at 0.99, down 0.03 points from Friday, but up 0.04 points from last Monday's reading of Since this indicator fell from above 1.00 to below 1.00, it turned red as compared to last Monday's yellow. Our Market Timing Indicator, (MTI), which combines the trends of the Price of the VVC/UK, the RT and the BSR into a single indicator, closed at 1.12, down 0.06 points from Friday and down 0.04 points from last Monday. Since it is above 1.00, the

6 underlying trend of the market is Up. SUMMARY: With one red light and two yellow lights, the Color Guard is mildly Bearish. With the Price of the VVC/UK moving lower on a week-to-week basis and the MTI above 1.00, we have a DnUp situation. STRATEGY: Sharp losses in the banking sector and a bad lead from Wall Street sent London stocks to a lower close today. With one red light and a DnUp situation: Prudent Investors should move to the sidelines and not buy stocks at this time. Aggressive Investors and Traders should play the market with a bias to the downside. You may see all the action of the Daily Color Guard graphically by clicking View on the main menu bar: then clicking Market Timing Graph. E. DISCUSSION OF RESULTS: Take a good look at our Market Timing Graph in the Weekly mode. You will see that the Price of the VectorVest Composite UK rises and falls in a wave like motion. While past performance is no guarantee of future results, it is quite possible to achieve the results shown in the Special Report, Riding the Wave to Explosive Profits in Up and Down Markets. All this notwithstanding, there are ways of enhancing performance well beyond those shown in the above example. These methods are taught in our investment workshops. Call toll-free from the U.K. or contact us at support@vectorvest.com for more information.

Training Tuesday. Time Stamps. Navigating VectorVest 7. provided by your host Glenn Thompkins

Training Tuesday. Time Stamps. Navigating VectorVest 7. provided by your host Glenn Thompkins Training Tuesday Navigating VectorVest 7 Time Stamps provided by your host Glenn Thompkins Session 1 The Homepage What is the Homepage 11:39 What is the Dashboard 52:10 What is the Color Guard 14:07 How