Jesse Livermore, a man many investors consider to be the world's all-time greatest trader, had a simple approach to speculating in the financial markets: When stocks trended higher, Jesse would aggressively buy the market leaders.

When equity prices trended lower, though, he would sell short the previous leaders. And when stocks traded sideways, Jesse would literally get on his 300-foot yacht and sail to Palm Beach, Fla. He would sit on the sidelines, in cash.

In early February, I recommended for subscribers to our ETF Strategist newsletter to follow the Livermore approach by allocating a significant portion of their investment capital to cash-like securities, since my models indicated that stock prices in general would trade in a volatile sideways pattern throughout the month of February.

Looking back, my advice seems to have been correct, as stocks did in fact trade essentially sideways from the beginning of February to the end of the month. However, on March 4, all of the major stock market indices broke down through intermediate-term term price-support levels and now appear to be in danger of trading significantly lower (see chart).

Although certain short-term trading oscillators and several market sentiment indicators suggest that stocks are due for a temporary rebound, most fundamental indicators suggest that stocks could be headed considerably lower over the coming weeks.

Hence, as Jesse would say, the path of least resistance for stocks is clearly down!

However, I'm not advocating for you to begin selling short stocks at this time, because one should always consider the possibility that some unforeseen action or event might halt the decline in stock prices.

For example, there is increasing "political risk," that government will intercede in our supposed free markets: Numerous foreign central banks have recently been increasing their pressure on the Federal Reserve and the U.S. Treasury into taking steps to stem the descent of the U.S. dollar.

Meanwhile, the U.S. Congress is continuing to pressure the Federal Government into implementing measures that might temporarily halt the decline in housing prices and lessen the fallout from the sub-prime mortgage debacle.

My research strongly indicates that any of the above-mentioned measures would serve to only temporarily improve investor psychology. Yet the implementation of such steps could result in a big rally in stock prices for a couple of weeks.

Hear more about what my investment models are indicating and how you can make big profits in both up and down markets.

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