Trends can be friends, but not in times like these, when European credit markets Wednesday were hit by continued selling of bonds amid higher prices for credit insurance in case those bonds default.

The best current indicator of market sentiment is watching the Nasdaq COMP, +0.74% plummet 6.1% in four days and then seeing no recovery whatsoever on the fifth day. This then set the table for Wednesday's 2.4% drop.

Making matters worse, a whiff earlier in the week that perhaps German bunds are losing their luster as a safe haven grew stronger Wednesday after a bund auction only raised about 60% of its intended uptake.

One statistic stands out: By one estimate, the European banking system is levered 26:1, implying that just a 4% drop in asset values would zero-out equity in euro zone banks.

Another simmering pot on the back burner: How will US banks holding credit default insurance on euro-zone bank debt realize their payouts on these hedges?

In terms of strategy, above all else, trying to catch a falling knife is not a recommended modus operandi for speculators whose focus is the intermediate-term. For those who did not participate in the Bubble Era of the 'Nineties, the lesson learned is that markets can go farther in one direction than one thinks. This applies in both directions, up and down.

At the dawn of the 'Nineties, no one could have imagined that US shares would do what they did that decade. Ditto for the dawn of the 'Naughties, when few could have imagined that the Nasdaq would lose up to 78% of its value early in that decade, not to mention the bankrupt or quasi-bankrupt status of the largest bank, insurer, broker, mortgage lender, and automaker later in the decade.

Thus, depending upon anything other than what the market is actually doing to time one's entry or reentry into US stocks can be fraught with great risk. This includes waiting for sentiment measures to register "extremely bearish" or valuation measures to read "very cheap." What is extremely bearish or very cheap can become more bearish and more cheap.

Therefore, the view here is that the long-only speculator should remain in cash pending an all-clear sign from large investors that the coast is clear. This would take the form of some follow-through behavior in the averages, supported by solid volume. This would provide some means of objective evidence that the current downdraft has run its course.

In Tuesday's report, the concept of distribution days was discussed: "The existence of distribution days, which provide a rough measure of selling by large investors, does not forecast the extent or duration of a decline in an average like the Nasdaq or Dow Industrials. They can, however, do a good job of keeping one on the right side of the tape."

This is used to better understand a market's buying pressure vs. selling pressure. One can simply look at price, and determine strength vs. weakness. Adding volume to price can provide more information as to magnitude of strength vs. weakness.

Therefore, there is nothing magical about a so-called distribution day. Anyone who has spent a reasonable length of time searching for the Holy Grail, that magical chart indicator or trading system that promises to automatically deposit profits on your doorstep, knows that there is no such thing.

Successful trading/investing, whether it be long-term, intermediate-term, swing trading, day trading, or scalping, is all about having an edge, something that skews the probability of success in a participant's favor. Combined with sound money management practices, the heavy lifting is accomplished by an edge being applied over a good number of trades.

Otherwise, for short-selling ideas in periods like this, higher-beta issues can represent one area for consideration, either among the market's former leading stocks or among ETFs with higher betas than the S&P 500 SPX, +0.82% .

In terms of former leading stocks, names that 1) peaked prior to the Oct. 27 top in the major averages, 2) have since underperformed the S&P, and 3) are showing clear institutional selling, represent potential candidates. Apple AAPL, +1.50% , Amazon.com AMZN, +0.12% , Cerner CERN, +1.54% , and Baidu BIDU, +3.27% are four that meet these criteria.

Currently, however, none of these represents an attractive entry, given that they are extended from prior technical resistance as a result of the relentless selling in the market over the past six sessions. A pullback, preferably into a level of resistance, should be waited for prior to entry. Because price declines tend to occur with greater speed than price advances, one's timing must be more precise when shorting as opposed to buying stock.

In the next column, ETFs that appear to offer good potential in the event of further downward price revaluation in the market will be examined.

In summation, the averages and leading stocks remain in a firm downward trajectory, as market participants price in slower economic growth. In most cases, short candidates are extended below recent resistance and do not represent attractive entry.

Cash is king.

Charts created using TradeStation. ©TradeStation Technologies, 2001-2011. All rights reserved. All mutual fund ownership and earnings estimate data provided by Thomson Reuters.

At the time of this writing, of the stocks mentioned in this report, Kevin Marder or an affiliate thereof held no positions, though positions are subject to change at any time and without notice.