I continue to cut back my market exposure and recommend you do the same. Even cutting back in my favorite sectors because when we get into an economically-induced bear market, everything goes down eventually. So my past strategy has been to ride the strong groups as long as possible and then cut back when I see weakness spreading to them. As I wrote above, weakness has now come to technology, alternative energy and agriculture, my favorite groups, and maybe even gold (we’ll see). So my cash levels are building up although I am about 20% short as well. This is when the new fangled “short” ETFs and inverse mutual funds come into play, for the first time in a downtrend. If you haven’t participated in these short vehicles yet, I would suggest putting one toe in the water to begin, now. Put on a small short and then see how well you sleep that night and during the following days, especially when the market posts up days which is always does. If you can mentally handle the short going against you, that’s step one. Step two is to get a little profit on the books as a buffer. If your entrance timing is good and you’re ahead of the game, take the next step. Go short a little more of the same position or put on a different one for some diversification. Right now I would still recommend indices, shorting small and mid caps, and the S&P since it includes the financials but is not only financials. Down the road, we can expand our shorts to the Dow and Nasdaq. Actually, my next step is probably to short the Nasdaq since it’s so tech heavy. But do all this with mental stops in mind, and in small amounts and in steps. For a list of shorts, see this past Monday’s letter. I’ve started posting my positions on Mondays, so don’t miss that day.