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  1/25/2006, 4:03 PM

  Mohhammed

  Rev Shark:
  
  "To look is one thing, to see what you look at is another, to understand what you see is a third, to learn from what you understand is still something else, but to act on what you learn is all that really matters."
  
  -- Author Unknown
  
  The way you feel about this market depends on the way you look at it. If you focus on the DJIA you see a very weak chart that could easy roll over and head lower. If you concentrate on the action in the Russell 2000 Small Cap Index you see a strong uptend and momentum leading to new all-time highs.
  
  So which index accurately reflects the true state of the market? Are stocks breaking down like the DJIA suggests, or are they in a strong uptrend? Neither description is accurate and that isn't even the question we should be contemplating. The question we need to ask is how to profit from this divergence between the two indices. Are the big-caps going to drag down the small-caps or will the small-caps help support the big boys?
  
  The bears will tell you the small-caps are ignoring reality and that they will eventually succumb to all of the problems and challenges that are lurking out there, such as high energy prices, international political problems and a slowing economy. The bulls will tell you that the big-caps really aren't that bad and as soon as market participants realize that the Fed is about to stop hiking rates, the economy is plugging along pretty darn well, and the consumer isn't going into a tailspin, the big stocks will start to find some buyers.
  
  How you deal with this two-tiered market is a matter of style. My style is to trade strong momentum in small-caps and the sorts of stocks favored by Investors Business Daily. They are acting extremely well and I will continue to play them while they do.