My Ideal Setup

As I have discussed many times the VectorVest edge is based on combining three aspects of the market in a very unique way. These are

1. The Fundamental position of a share as ranked by the shares value, earning potential over the next 1-3 years (RV) and the shares safety of earnings flow (RS).

2. The technical position of the share (RT).

3. The technical position of the overall market as defined by the MTI and the Color guard.

The last bit is now being done for us in the UK. Every week a very experienced analyst rates the technical position of the overall market after a lot of research and thinking. It’s available via text and video on the front page of VectorVest. At present the analysis doesn’t make great reading as all apart from the shortest measure of the trend are down. In VectorVest terminology the LSE is in a UP/Dn trend within a Confirmed Down call. To summarize the strategy “VectorVest advocates caution in buying shares at this time”.

I like the fundamentals of many of the top shares in the Stock Viewer on VectorVest but the Interior Service Group (ISG) looks very attractive. It’s on the fringes of the construction industry which seems to take so much of my focus at present. The share is much undervalued and shows excellent earnings potential (RV) and safety (RS). The RV is at a compelling 1.58. The fundamentals certainly get a tick.

The technical position of ISG really appeals to me. If you pull up a chart over the last 18 months the share has doubled in the last half of last year and since that has traded sideways in a text book “flag” pattern. This is a bullish formation which I believe is nearly complete. The pattern is more accurately named by an analyst named Ralph Elliott as a “flat” and within the flat there should be 5 sub waves. It takes a few doubles aboard to see the sub waves but that’s why I reckon the formation is nearing completion.

I particularly like the fact that the share broke the 285 resistance and then came back and “kissed” the level twice.The double bottom charted midway along a move is a strong reason to bet that the move is about to restart after a sleep.

I think it’s quite a simple matter to draw a trend line defining the top of the flag pattern and on a break above this level a move SHOULD occur. I will let the share close up around the 315 level before getting interested.
Let’s review the facts.

1. The Fundamentals look good.

2. If the share breaks as above the technical position also look good.

3. The technical position of the LSE looks poor and any trade (to be a high probability trade) should be taken when at least the longer term trend has turned up and the more conservative will wait for a confirmed call UP.

I show the above as a setup that has worked for me, in both the UK and SA and is not a trading recommendation. It is meant for education purposes only.

David Paul
July 20th 2014