QQQQs Trapped in Three-Stage Breakdown

What can you do to prosper in this tough-luck environment? Here are three trading strategies that should work well in the weeks ahead.

1. Cut down position size, frequency and holding period. Be patient and don't try to get rich in a market that's not offering the low-hanging fruit. Sitting on your hands is an aggressive strategy when applied at the right time ... and that time is now.

2. Focus your attention on the handful of sectors that still work in this environment. Katrina plays and biotech stocks illustrate two groups that don't seem affected by index twists and turns. Those are the right places to look for opportunities, if you feel like going long.

3. Build a list of short sales and the prices you're willing to sell on this bounce. But watch out because amateur short-selling has been very active since Katrina. This should trigger renewed short squeezes well into October.

Frankly, I'd rather take advantage of weak-handed sellers right now, rather than look for stocks with more downside after last week's pummeling. But that will change when these folks finally get washed out of the system.

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