Possible 20 percent decline in the major indexes getting under way.

Our weekend homework suggests that we may be seeing the credits coming up for a replay of the movie we saw last summer when the major stock indexes sold off by about 20 percent. There's general lack of strength among major stocks and it could easily turn very fast into general weakness. Some stocks like Dell and Intel that have been leading the market upward could sell off very hard indeed.

On the other hand, many small cap stocks that have been in decline for ages seem to be trying to make a stand. Don't count on any attempted stand being successful if high-tech and big stocks like Disney and Coke take the hit that seems to be coming. On the other hand, its possible that the next rebound will favor small caps, which truly have become cheap even as high tech, internet and the majors have been going so strong. So it could be worth selling all stocks with a view to buying different ones from those that did so well before, when its time to buy again.

For those prepared to trade the short side as well as buying stocks to own, there's a case for switching from short the Russell to short S&P so as to get a better bang for the buck, and we officially recommend making that switch.

We also recommend entering new short positions in the S&P 500. Note that there's also the E Mini 1/5 the size of the S&P.

If you have a tax problem with capital gains as a result of holding high tech stocks with big gains, consider selling the NASDAQ index against stocks you own. Although NASDAQ stocks are likely to fall harder, we do not want to sell that index naked. It's too volatile and could go up too much before heading down and, in any case, we could be wrong about the market. It could just be correcting a bit prior to going out to new highs. We don't think so, but you have to prepare to be wrong.

Stockscom