Besides the underlying problems that are yet to be seen, there is a lot of technical damage that has been done to the charts. If you have been following my columns, you know that I have been suggesting that investors start moving to cash for several months now. In fact, I started talking about the topping process in the market back in August of 2007, pointing out that in the months to come, my intermediate-term and long-term indicators were pointing to the beginning of the primary downtrend. There was a lot of talk about the fundamental strength and the low valuation of stocks in the market at that time. I certainly believe in the value of looking at fundamental and economic indicators, but it is extremely important to keep a close eye on the technical picture to confirm your research. That is where a lot of research firms lead investors into a false sense of security, by pounding the table on being heavily invested because their fundamental and economic indicators are pointing to solid valuations. What these well-intentioned firms miss in their research is that fundamental and economic indicators often dramatically lag the market. The key to well-rounded research is to do your fundamental, historical, psychological and economic research, but make sure that your technical indicators -- along with price and volume on the indices or stocks you follow -- are confirming your conclusions.
Let the Trend Be Your Friend
That is why it is important that we keep a close eye on the indices' trends. It is the only accurate tool that can give us the leading edge of important changes in the market. Remember, when the major indices are in a primary uptrend or downtrend, the majority of stocks are going to follow suit, no matter what the fundamentals say.