Character to Adopt Simple Rules Some Market Statistics

Our model is designed for the next 6 to 24 months and after the last two days, nothing haschanged. Every single indicator we have in Psychology, Monetary and Valuation, which use history as a guide, say the odds are way in our favor. Every single indicator we follow is bullish.

We strongly believe this downturn is short-term in nature, and once any good news breaksthrough, the pent-up demand of tremendous fear, combined with huge amounts of cash on the sidelines, combined with amazing valuation levels will springboard this stock market to much higher levels.

Ben Graham once said that, “People don’t need extraordinary insight or intelligence. What they need most is the character to adopt simple rules and stick to them.” Our rules, developed since 1969, have never let us down in the past, and we firmly believe they will not let us down again. We could use our emotion, but think using our model will get you much further down the road.

Some Statistics that we have shared again and again:

AAII: Reached 200%, average gain of 21.75% with NO INSTANCES OF DECLINE.

Gambill Ratio: Reached 25%, the stock market was up 22% over the next 12 months.

ISEE: With readings under 120, the market was up 21.5% over the next 12 months.

Equity Put/Call: Reached 80%, stock market was up 18% over the next 12 months.

VIX: Since 1990, when the VIX has been between 30 and 40, the market is up an average 10.9% over the next six months and 16.2% over the next 12 months.

ARMS Index: When ARMS climbs above 1.8, market advanced 11.2% over six months and 16.38% over next 12 months.

T-Bill Yields: Yields under 1.5%, stocks advance 23.3% over next 12 months.

Fed rate cuts: Dow has average 18.8% gain 12 months later. When cash outperforms: When cash has outperformed all of the Fidelity Select funds, the market was up 23% on average, with no instances of decline.

Rule of 20 – With current readings, the market is up 17% over the next 12 months.

IBES Valuation: In 2002, market was up more than 30% over the next 12 months.

Jaspon Goepfert of SentimenTrader.com tells us after 4 consecutive monthly losses like we have seen the last four months, the market has had some great returns:

• Goepfert also looked back over the past 65 years at times that the market was oversold then enjoyed two 3% or greater up days within a 10-day window as we just experienced. Only five instances popped up: 05/28/70, 09/05/74, 10/21/87, 09/08/98 and 07/29/02. All of those were times the market was hammering out the end of bear markets.

• March 11thand again this Tuesday had more than nine times the up volume as down volume. David Aronson, author of a book titled, "Evidence-Based Technical Analysis", tested the statistical significance of "Double Nine-to-One" signals. He looked at what happens in the stock market in the 60-trading-day period following a “Double Nine-to-One” signal. In those 60-trading-day windows, the S&P 500 index produced an average annualized return of over 22%.

• So much fear produces so much cash doing nothing. That equates to a huge amount of buying power ready to go. Another Great Mark Dodson chart:

• Fidelity recently published a report stating that this year through February 29th, 2008 is the worst calendar-year start in 75 years since 1933 (-17%), and the second worst 2-month start in history. The best 3-year performance in history began in March 1933 – up 195% - immediately after the worst 2-month start. We believe that is the type of opportunity that exists in this stock market.

Ed Yardeni tells us the S&P 500 P/E down to 12.9 this week. On Tuesday, the stock market enjoyed its biggest point gain since July 29, 2002. That was a good entry point back then, after the DJIA closed at 8624.39 on July 26, 2002, and subsequently rose 64.2% to a record high of 14164.53 on October 9, 2007. Over our history since our inception January 1999, Hays Advisory has annualized 10.46% while the S&P 500 has annualized 3.70% on a gross basis. But every top money manager experiences ups and downs of the market. Here are a few of ours:

6 Months
-14.30% 9/30/2000 to 3/31/2001
-27.62% 3/31/2002 to 9/30/2002

1 Year
-19.67% 9/30/2000 to 9/30/2001

2 Years
-34.39% 9/30/2000 to 9/30/2002

…and that is from a manager who has a downside capture of just 62.3% of the market’s downturns. It pays to stay calm, think with your head, and consider what history is telling you. We believe that will lead you to the big upside gains we all love to enjoy.