Editor's note: This column was originally published on RealMoney on Jan. 23, 2008 at 9:27 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. It is a follow-up to Roger Nusbaum's column " Recession-Proof Your Portfolio," published last September. For more information about subscribing to RealMoney, please click here.

For most of 2007 in some of my writing both for TheStreet.com and my blog I have been expressing my opinion that the current bull market/expansion would be coming to end. This was based on two things primarily; the abnormally shaped yield curve and the length of the bull market. In fact I think the high from October will be the high for the cycle.

In an article from Sept. 10, I went sector by sector talking about which ones are better to overweight and which ones are better to underweight for anyone who does think a bear market is coming.

I revisit this now because more people are open to the possibility that a bear is here or coming imminently, although the market is transitioning from down a little to down a lot, it's still not too late. (This is how bear markets start; the roll over slowly over a period of months giving you plenty of time to take defensive action)

Get Ready for a Recession -- Diversify

Going sector by sector you will see, as was the case four months ago, that most of this is rule of thumb and does not require much analytical skill. The table at the end of this column shows the changes in the sectors' weighting in the S&P 500 since Sept. 10.

Financials: Back in September I said to be underweight this sector (actually I have been saying this for many months before September). We all know what has been going on there for months. I believe this is likely to continue until the yield curve normalizes. The dynamic at work is that when the curve, I mean the entire curve, is not normally sloped it makes lending money less profitable. This could result in a couple of things but what we have seen unfold is that banks took more risk in the loans they made. I would wait until the curve normalizes again before increasing exposure because the risk and the consequences of that risk is still being quantified and the curve is still not right.

Technology: In September I noted that the case for tech relied on too many "shoulds" and that I was underweight. Since then the sector had a couple of months of noteworthy outperformance but in the last couple of weeks the decline in tech has been much steeper. Tech, as measured by iShares DJ Technology Index Fund ( IYW - Get Report) is down 15% vs. an 11% fall for the S&P 500 since Dec. 26.

A lot of people, both in TV interviews and in print, like technology for a slowdown. I think that is a mistake. I have been underweight and will stay underweight for the foreseeable future. I just don't think the argument for increasing tech spending holds water. We have been hearing this for a quite a while and it never materializes with any staying power.

Healthcare: This sector is kind of a no brainer. The idea is that no matter what is going on in the economy people will still take their medicine. Since Sept. 10, iShares DJ Healthcare Index Fund ( IYH - Get Report) is up 2%, while the S&P 500 is down 9%. despite its 9% weight in Pfizer ( PFE - Get Report), which is down 6%, Quite simply money flows into this sector when it looks like the market's cycle is turning.

Energy: Energy gives a mixed bag for a recession. There is some history for energy doing well during recessions but high oil prices are often a contributing factor to the start of a recession, which seems to trump the threat of less demand due to less economic activity.

I suggested an equal weight in September, which was correct in that the Energy Sector SPDR ( XLE - Get Report) has down 1.7%, but it was wrong in that being overweight would have been the better position. Going forward a slight overweight is probably warranted unless the energy names you own are relatively more volatile than XLE, in which case equalweight should suffice.

Industrials: I suggested being underweight this group and I think that still applies. The Industrial Sector SPDR ( XLI - Get Report)is down 10% from Sept. 10. Not every industrial stock will get crushed in a bear market but 30%-40% declines are common. This is just how it works. If you have a name that ends up dropping that much the chances are good it will come back during the next expansion. But if you end up holding on to a name that does endure that kind of a hit, you need to know whether the decline is a cyclical thing or a problem specific to your stock.

Discretionary: Going underweight consumer discretionary in a slowdown of some magnitude is absolutely a Chapter One concept. As I mentioned in September the decision to delay buying a Harley ( HOG - Get Report) or some other $20,000 toy is common, or at least the market perceives it as such. The Discretionary Sector SPDR ( XLY - Get Report) is down 17.33% in the last four months.

This sector will provide leadership again but its time to shine is simply at a different point the cycle. When things are growing and healthy people feel much better spending $20,000 on a Harley.

Staples: Just like with health care, people will not alter their smoking, drinking or ketchup habits in a bear market. The Staples Sector SPDR ( XLP - Get Report) is up 2% in the last four months, but candidly I am surprised it hasn't done better than that. Still, this is an area to be overweight if you buy into a slowdown.

Telecom: In September I talked about preferring the Ma Bell types of companies and specifically preferring foreign over domestic. I was very surprised by the action in this sector. The iShares DJ Telecom Index Fund ( IYZ - Get Report) has dropped 22% and it's not just because of the recent blow up at AT&T ( T - Get Report). Foreign, as measured by WisdomTree International Communications Sector Fund ( DGG), is up 2% plus a 2.3% distribution in the last four months.

This was really a head scratcher for me because the dividend and usual low volatility should be a place for people to hide in a decline. My preferring foreign here should be attributed to plain luck. I continue to think foreign Telecom will be a good place to overweight as the decline works itself out.

Utilities: What I just said about yield and low volatility worked for utilities and I think will continue to work. The iShares DJ Utilities Index Fund ( IDU - Get Report) is up 2%, which again makes sense if a bear market looms.

While the track record from the last article has worked out pretty well I want to stress how little analysis was employed. The conclusions from the September piece were all textbook, but being in touch with these dynamics can put the wind at your back vs. the market and allow for less pain in the face of a normal bear market.

The obvious question should be if this is a bear market why not get completely out? This boils down to investment philosophy. I am convinced a bear market has started but I could be wrong. To go 100% cash is to bet that you are right about a bear starting and it is a bet that you will know when to get back in. Some will be able to do this but I am not willing to bet I can be one of them. Are you?

Weighting of the S&P 500
Note the shifts among various sectors.
Sector S&P 500 Weight 9/10 S&P 500 Weight 1/18
Financials 19.81 -16.96
Tech 16.35 -16.26
Healthcare 11.73 13.02
Energy 11.41 12.46
Industrials 11.37 11.41
Discretionary 9.51 -8.48
Staples 9.47 10.71
Telecom 3.67 -3.43
Utilities 3.47 3.75
Materials 3.08 3.31

This column was originally published on RealMoney. For more information about subscribing to RealMoney, please click here.

At the time of publication, Nusbaum was long IDU, IYW and DGG, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.