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Byline: CRAIG SHAW
Believe it or not, bear markets have their advantages.
For one thing, they give investors a chance to brush up on trading skills. For another, they let future leading stocks form the bases that will launch them to fresh highs when a rally begins.
As you wait out this rocky time, look for stocks that are holding up as well as the major averages -- or even beating them. That's a sign of power that can't be ignored.
In a normal bear market, growth stocks can correct 1 1/2 to 2 1/2 times that of the major indexes yet retain strength to forge into new highs. So if the market falls 20%, a good stock can decline up to 50% and still be in good shape.
In the current steep downturn, with the Nasdaq off 71% from its March 2000 peak and the S&P 500 down 36%, some former highfliers have plunged as much as 90% from their highs.
Instead of bottom-fishing for those fallen leaders, search for stocks forming bases that make moderate to small declines. Look for up weeks on above-average volume in the base, a sign of accumulation by mutual funds and other institutional investors.