• Determine major news-cycle trend: neutral to negative. There is rising concern that the war in Iraq is far from over, skepticism of the Bush and Blair administrations' rationales for pursuing the conflict, and increasing negative noise from democratic contenders here and Tory complainers in the U.K.

  • Determine major market trend: mildly positive. The long-term trend of stocks turned thoroughly bullish in mid-March but has recently stalled, says Paul Desmond at Lowry's Reports, a sterling market-timing adviser of the past few years. Desmond believes a mild correction could shave 900 points off the Dow Jones Industrial Average without breaking the uptrend. He is wary of calling the recent move the start of a new bull market, however. Strong as it was, he says, the strengthening of buying interest and the weakening of selling interest were not nearly as pronounced as seen at the start of major multiyear rebounds of the past 60 years.

  • Determine strong and weak sectors: According to Lowry's, top groups include tobacco/distillers, regional banks, drugs, life insurance, recreation; worst groups include rare metals and real estate investment trusts (REITs).

    According to the work done on Dow Jones sector indices by the estimable Carl Swenlin of DecisionPoint.com, leading groups at the moment are tobacco, Internet commerce, airlines, home construction, wireless communication, transportation equipment and home furnishings; weak groups are trucking, railroads, chemicals, industrial transportation and paper products.

    According to my own work, top sectors include Internet information providers, long-distance carriers, generic drugmakers, national brokerages, regional banks and data-storage device makers; worst groups are hospitals, manufactured housing, auto parts, chemicals and textile makers.

    Before going on to consider some volatile stocks to buy or sell in this climate, it's important to decide whether these bullet points represent views that are widely held, since the consensus view is a winner in the short term but ultimately is a loser. As Michael Steinhardt pointed out in his 2001 book, No Bull , you need an intellectually advantaged "variant perception" to distinguish yourself from every other trader. If your variant perception is correct, you must be prepared to lose a little at first by being early -- but then you should win big as the world ultimately beats a path in your direction. Trading is not a team sport. You can only win at the expense of someone else. As Mr. P has pointed out on numerous occasions, the loser of the future has a false belief. The job of a successful trader is to discover that false belief, and exploit it.

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