When I take into account the recent 4% drop in the averages, color me more bullish. But always color me "permanently flexible."

The key to assessing the short-term investment mosaic remains a quilt consisting of psychology, fundamentals and, perhaps most importantly, in figuring out when the market has fully discounted what most now know -- namely, that the domestic economy is in recession and corporate profit growth expectations remain too optimistic.

From my perch, we are moving closer to (or at the stage of) a tradable rally. Nevertheless, I suspect the rally will be contained to something less than a 5% advance as I remain of the view that the intermediate-term headwinds have mounted and will provide challenges for corporate managers and investment managers in navigating the economy and the markets.

Pick stocks, not markets. And, above all, keep investing/trading positions at below-average levels, err on the side of conservatism and remember some of these 12 principles of investing.

Doug Kass writes daily for RealMoney Silver, a premium service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass' daily trading diary, click here.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.

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