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The market has been very volatile lately in the usual sense of the term, but if you just look at closes rather than intraday numbers, it has not been volatile at all.


Nasdaq Composite

has actually been down in five out of the past nine weeks and has closed down on almost 60% of the days this year. The 30,000-foot view of the market therefore is not actually volatile but just plain negative.

The early part of this week lifted bulls, to be sure, but if you step back a bit, the market remains in a very bearish phase. For more perspective on this point of view, today I would like to provide you with the comments of two top independent institutional analysts whose work I have admired for a long time, and who, right now, are materially bearish.

The first is Dennis Gartman, who writes with colorful omniscience about everything from the economics of Minnesota grain elevators to the oil politics of Nigeria. He was about as blunt as the business end of a baseball bat in his market discussions when we talked earlier this week. The second is Paul Desmond, who will be familiar to many of my long-time subscribers as the head honcho at Lowry's Reports in Florida, which is the oldest technical analysis research fund in the country. Both are materially bearish.

"No matter what you might hear elsewhere, we're in a recession, and recessions create lower stock prices," he says from his office in Virginia. "That's about as complex as you need to make it. We're in a global bear market -- and that means strength is to be sold and weakness is not to be bought."

The former commodity pits trader said that he recognizes that investors cannot just keep their hands in their pockets in bear markets though, because fast-moving rallies (such as the one we saw earlier this week) that appear out of the blue seem to have so much money-making potential.

Gartman observes that particularly in the early stages of a downtrending market, private investors want to buy beaten-down stocks that look cheap. They are still more habitually angled toward greed than fear until they've had all their optimism crushed.

The public is right 80% of the time about stocks, and pros are wrong 80% of the time, but pros make money and most retail investors don't, and here's why. The public does something like this: Make $100, make $100, make $200, make $100, make $50, make $100, lose $10,000. They take small profits and then stick with a colossal loser. The pros do the opposite: They lose $100, lose $100, lose $200, lose $50, make $10,000 -- and then add to the trade until they've made $100,000 because the market is telling them it's the right trade. The public never adds to their winners, and that is why they always lose in the long run. If it weren't so sad, it would be funny.

Gartman suggests that the private investors who wish to participate on the long side do themselves a favor by just hanging tight for now and not give in to the temptations to jump back into the market early or to get drawn into the point of view that there are safe havens such as agriculture and gold. "Cash is a beautiful thing," he says.

So how will we know when the bear market is nearly over and it is time to wade back into stocks? "People will be throwing up on themselves with anger and frustration -- that's when you'll know," Gartman says. "


announcers will be crying. Hope will be exhausted. Then we'll look for a real bottom."

On that cheery note, let's turn to Desmond, who has a more scientific approach. His work on buying and selling pressure -- described in great detail in the first chapter of

my new book -- started calling for a heavily defensive investment strategy in late July last year. It was a bit premature, considering that the final market peak didn't come until a selective "fake-out" rally in big-cap stocks ended in mid-October, but no harm done. The early warning gave his clients plenty of time to build cash reserves, while demand was still hot, and to shift portfolios out of high-risk positions.

Desmond says that although there have been four days from December through January in which 90% of stocks were down and 90% of trading volume was down, "there is no tangible evidence yet to suggest that the desire to sell has been totally exhausted."

He says that his three most reliable indicators of major market bottoms, which have been developed and used at his firm since the 1930s -- are still halfway between their bull market peaks and the deeply oversold levels found at every major bottom since 1949. Thus, he says, the probabilities favor the continuation of a bear market over at least the next several months.

Desmond further notes that the most intense losses typically occur during the final stage of virtually every major market decline as a result of a wave of panic capitulation characterized by another series of days in which 90% of stocks are down. So, like Gartman, he urges his institutional clients to remain cautious and not be tempted to get involved in every little rally that comes along.

How often do these types of seemingly significant but ultimately costly rallies come along? Desmond says that between the 2000 peak in prices and his major buy signal in March 2003, there were a one-month rally, two two-month rallies and a six-month rally. And during the 1973 to 1974 bear market, there were three one-month rallies, one two-month rally and numerous multi-week rallies.

So Desmond says investors should be prepared for similar rallies within the current bear market, but be aware that they "end abruptly and are followed by intense declines that can quickly dissolve any gains." As a result, he argues, "the best strategy, for all but the most nimble traders, is to stay focused on the primary trend and to use countertrend rallies to build cash positions."

I agree with the viewpoints of Gartman and Desmond. Investors need to stay focused on the notion that any rallies that appear are likely to be mere jiggles within a bear market that is still gathering steam. My current estimate is that the recent rally is about done, though if you want to get long, my seasonal work, which is done in conjunction with Logical Information Machines, says your best bet at this time is natural gas, best owned through the exchange-traded fund

U.S. Natural Gas

(UNG) - Get Free Report


When natural gas futures rally to a new 13-week high amid a rally in crude oil, over the next five weeks the futures have been up 92% of the time by an average of around 24%. Examples include August 2005, December 2003, February 2003, November 2000 and May 2000.

At the time of publication, Markman had no positions in stocks mentioned.

Jon D. Markman is editor of the independent investment newsletter

Strategic Advantage. He also writes a regular column for

MSN Money. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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