Here are some quick hits on what you need to think about before the next funky move in the market's dance.

Also In This Column

Pioneer Natural Resources Encore Acquisition Westport Resources

Let's get one thing clear -- it doesn't mean a thing that the market rose Tuesday. Don't read too much into one day. Remember what Robert Wilson said last week -- it's the long and well-considered moves that count, not the short, impulsive moves. Right now, the well-considered trend is still down.

The Economy

Forget that most economists on Wall Street are saying that a soft landing, i.e., a V-shaped recovery, is intact. For example, Bruce Steinberg, chief economist at Merrill Lynch and my former colleague at Fortune in the 1980s, writes:

We believe the economy is holding up OK, consumer spending, construction activity are OK and lending activity is accelerating... Inventory imbalances in the broad economy should be cleaned out by mid-year '01, which should allow a faster rate of growth in the economy to occur by 4Q (even by 3Q). By year-end 2001, we think all parts of the economy will be growing more rapidly than they are now, including technology.

Hello? Bruce failed to forecast the current slowdown, and now he says we will be back on the road to recovery in no time. He didn't have the hot hand six months ago, and I doubt he or the other economic optimists on Wall Street do now. Look at the retail sales (definition | chart | source) report for February released Tuesday -- consumers slowed their spending significantly last month. Sales were much lower than economists like Steinberg expected.

Why are they likely to be wrong again?

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It's a Matter of Perspective

First, this is not your garden variety, inventory-led U.S. recession. We are looking at an economy being dragged down by massive over-investment in whole sectors -- most especially in technology and telecom where essentially they were handing out free money in recent years. The problem is not simply too many routers and black fiber (optical fiber that has been laid or bought but not yet activated) in the warehouses; it's too many factories that make routers and fiber and too many warehouses built to house all that stuff. You don't get rid of factories and warehouses in one or two quarters. It's takes a few years to deal with that kind of productive overcapacity. That is why tech revenues and earnings are in free fall. And let's not even get into the bear market in stocks and its profoundly negative effect on consumer spending.

Second, the economic slowdown is a global problem, not simply a U.S. malady. That's not just my view. "We are facing more than just a U.S. slowdown and a bear market in U.S. shares," write Ed Hyman and Nancy Lazar of ISI Group today. "A synchronized global slump has clearly developed." Exactly. Japan remains in the grips of deflation. Gross domestic product growth estimates for Germany and Italy are being trimmed. All these other economies are leveraged to the U.S. economy, and our slowdown is having significant knock-on effects you cannot ignore.

U.S. Stocks

Last month, I warned you that nontech was at risk. That still goes. Whereas last year, you could safely rotate out of tech and into Old Economy companies with stock valuations that had not been taken to absurd heights, 2001 is different. It's one market now, baby.

Why? Partly because tech valuations have come in -- although not enough in my view -- and because Old Economy stock valuations have improved. But also because you can't blow up tech -- the leading sector of the market and the economy -- and expect the overall market to chug along. Here is how Greg Jensen at Bridgewater Associates, who has been bearish and right for many months, put it in a report this week, "Will the bubble bursting in the Nasdaq create a ripple effect throughout the economy that is large enough to sink the prospects of many Old Economy companies despite falling interest rates? The last few weeks in the equity market suggest the damage is spreading from the Nasdaq."

Energy Stocks

You must, however, make sure you do not pay too much for energy. If this slowdown gets as nasty as I think it could, your buying these stocks cheaply will be your only margin of safety. Yes, the oil and gas business is good. Yes, there are a bunch of capacity constraints that should help keep energy prices higher longer than in prior cycles. But, if we see a global recession -- and make no mistake that is the risk -- then oil prices are headed lower too. That means you want to buy on down days.

You do not want to be chasing an exploration-and-production stock like Pioneer Natural Resources (PXD:NYSE - news - boards) when some mutual fund is dumping tech and fleeing into energy. Think I'm kidding? Janus has recently been a big buyer of Pioneer.

What kind of names are yet to be discovered by the Januses of the world? A loyal TSC reader who has spent 25 years doing mergers and acquisitions in oil and gas sent in two new names for consideration after reading yesterday's column. The first is Encore Acquisition (EAC:NYSE - news - boards), headed by Jon Brumley (ex-Southland Royalty, Cross Timbers (XTO:NYSE - news - boards) and Pioneer).