Technical Outlook: Consider This TIP

The indices certainly took another beating Wednesday as investors wanted no part of buying into an oversold market. As I've said before, this is a classic sign of a primary downtrend, or bear market.

I and other money managers on the RealMoney site have been warning investors that the market was exhibiting bear market characteristics since late last year. I suggested investors start taking profits and move protective sell-stops under current support levels in their stocks and exchange-traded funds in late October of last year.

The hoopla that the talking heads create from day to day keeps average investors so confused that it forces them to react based on their emotions. They're bombarded by either the positive talk as the market is going up or the negative talk as the market is going down. Investing or trading on emotion is one sure way to consistently lose money.

The key is to do your research and look for stocks, mutual funds or ETFs in the top-performing sectors of the market and then diversify your holdings among those areas. Also, you need to make sure the action in the market or your stocks confirms your conclusions. If that doesn't happen, then you need to step back and reevaluate your beliefs.

The only way to do that is to closely monitor the actions institutions are taking. That can usually be done quite easily because institutions usually make moves in fairly systematic and predictable patterns.

The first and easiest way average investors can spot this behavior is by recognizing large volume spikes along with an abnormal move in a stock or sector. That signals a possible change in the current trend of institutional buying or selling.