Bear's end? Wishing won't make it so

By Bill Fleckenstein

No doubt, long-suffering bulls will proclaim the stock market's bravura March 10 performance as proof that the bottom is in. The bears will beg to differ, citing the insufficient capitulation in evidence.

I seriously doubt that stocks have seen their final low.

When we get to a really recognizable lowest point, I don't think we'll need to reach for a magnifying glass or devise a tricky way to analyze it. As market commentator Justin Mamis points out about the 1982 market low:

"Big black headlines almost as huge as those announcing the end of World War II were spread across the entire top of the New York Times: 'The Market Rises on Huge Volume' (or words to that effect), and up and up the market went for several days after. In other words, you knew a bottom when you saw it. You could have been a few days late and still on time."

Within this bear market, could we have a substantial rally that might last for a while? Absolutely. (In fact, we had one off the November low that ended relatively recently. We may have many more.)

These are markets, and they can do what they want, especially when there are as many moving parts as now exist. But I think the probability that the worst has been seen is extraordinarily low. (Though perhaps some companies will not make new lows; that we will just have to see.)

And no matter how good a rally looks, it must be remembered that the best ones always occur in bear markets. (As I noted last week, "A bear market rally . . . will be captivating, causing people to believe the worst is over, but will almost certainly be a head fake.")

Take a high (valuation) colonic

Here's what I think will be part of the final capitulation process: Valuations in the tech sector will experience the cleansing drop that other companies in corporate America have recently undergone, especially if more progress is made on the nationalization of the banks in the meantime.

So, for those who'd like to see this decline end (and who wouldn't, really?), a rout in tech stocks might be just what is needed.

Hardier than hardware: Software

That said, I have been following software companies closely, as I mentioned last week. Due to their profit margins, they have the flexibility to trim costs; for the better ones, those margins are a function of barriers to entry. (Read "A soft spot for software," in the last section of "Massive forces cloud market outlook," for more on this.)

For an example, consider Adobe Systems (ADBE, news, msgs), which reported preliminary results March 4. Though revenue was a little on the light side, earnings held up nicely and were better than expected (and not because the company was playing games).

Software is a far better business than hardware. Last week I added to my long position in Microsoft (MSFT, news, msgs). (Microsoft publishes MSN Money.)

For some reason, though, today's crop of Jell-O movers continues to lust after the "hard" stuff.

For now, investors should be patient and err on the side of not losing money. But it's always worthwhile to keep looking for names you might like to own -- window-shopping, as I described it last week -- and looking for an opportunity to get involved.

A lot of times, the hardest part of investing (or speculating) is doing nothing.

At the time of publication, Bill Fleckenstein owned shares of the following company mentioned in this column: Microsoft.