The market action suggests the end of an era. All good things must come to an end, and the 2003 - 2007 bull market is no exception. The averages have just wiped out the entire 2003 - 2007 gain. We can't predict the future but we can go by what we know and make educated guesses about the rest based on current observations.

Stocks have suffered extensive technical damage that will take time to repair. Even if the worst is over, the recovery will take time. Stocks need sound bases to stage sustainable advances. In the absence of those, we are more likely to have violent V-shaped reversals in oversold stocks and sectors.

For now, what sells is doom and gloom. The media are likely to dwell on the negative for some time, and if you are affected by the downturn by being laid off or asked to work more for less, the pain is real. But as investors we must separate the real economy from the stock market. Stocks anticipate, or discount, the future 3 - 6 months in advance. It means that they are likely to turn up while things still look bleak to most people.

Statistically, bear markets last 6 - 24 months. We are now in the 13th month. We can't tell how long this downturn will last, but we can anticipate the next upturn by being ahead of the crowd.

Some of the possible themes on the long side are: large caps, dividend plays, and IPOs / new concepts/technologies/themes.

Large caps

- Simply put, stocks rise when institutions are buying and fall when institutions are selling. The last bull market overwhelmingly favored small caps. Many of them are now "overowned" by institutions, which in some instances hold over 100% of the float. By comparison, institutional ownership of large caps is at record lows. I can see institutional money flowing from "overowned" small caps into "underowned" large caps.

- Current political trends favor the Democrats. Large caps can withstand more regulation, taxes, and higher payrolls and may actually benefit from some protectionism or domestic "job creation incentives."

Dividend plays

There has been so much expectation that stocks will go into a long-term decline when retiring boomers start drawing on their savings that it is not likely to happen.

- Companies can make their stocks more attractive to retirees. For one thing, they can choose higher dividend payouts over other ways of increasing shareholder value such as stock buybacks or acquisitions. Advisors will recommend stocks paying good dividends as a means of creating a rising equity income stream to protect against inflation. Institutions will oblige by offering new dividend funds. Institutional demand will make it easier for dividend paying large caps to raise capital. There you have it: a perfect supply-demand loop. (Again, small caps are less in a position to pay dividends.)

- Many good dividend payers are in the currently depressed sectors: financials, REITs, utilities. Their valuations are compelling, and once the credit crunch eases, these sectors may rebound. Since more funds favor value over growth, dividend payers are likely to enjoy strong institutional backing, along with a rising demand.

IPOs/new tech/concepts

- Even the worst markets produce big winners; they are just fewer and farther apart, and their action is obscured by dismal averages. For example, during the 2000 - 2002 bear market, adult educators did well, followed by home builders. This time around it could be online schooling, energy conservation, wind turbines, electric cars, or e-readers. There are also new discoveries, scientific breakthroughs, inventions, and innovative business concepts.

- There is less capital to go around in lean times. All the more reason for it to concentrate on the most promising tickets. In good times, Wall Street can push a lot of junk out the door. In tough times they have to try harder by bringing the strongest companies public at much more reasonable valuations. When speculators have fewer highflyers to chase, the few that get their attention can zoom.