Shorting equity markets continues to be a profitable strategy. Confidence is low, with long only traders getting nervous about the prospects of further significant fall-offs.

Since 1998, the 7,500 level on the Dow Jones has been one of significant support. In 2002 and 2003 the markets fell to this level three times, significantly breaking it once by 300 points but recovering strongly each time in sharp bear market rallies. In 2003 the bounce off the 7,500 level provided the springboard for the massive rally (bubble) of the next four years.

We are now leaning over the precipice of this serious level for the second time in six months, but this time feeling more vertigo. We closed below the closing lows of November on Tuesday and Wednesday last week, indicating significant weakness, and emphasising just how futile economic and political actions have been over the past six months.

Markets are finding it extremely difficult to forecast when this worldwide recession will taper off. One thing for sure is that, over the next few years if not a decade, we won't see anything like the same consumer spending on the high streets as we did during the bubble years. For this reason it would be insane to predict a return to anywhere near our 2007 highs any time soon.

What you could realistically expect to see here is a sharp 10% decline in the value of the Dow, followed by some hefty rallies, with the Dow then trading sideways around 8,500 for the latter parts of 2009.

These are hard times for most people and the last thing you want to do here is get caught trying to beat the trend and getting caught long. Traders and investors alike should instead stay nimble.

In November, when the Dow roughly held the 7,500 level, we saw a bounce of more than 1,000 points in one week. Tight stops and wider limits with the ability quickly to go short or long are essential if you want to make money in the next few months.

Focusing on the Dow like this may make it seem that we are singling out the US. However, the same movements will most likely be mimicked across the globe. If the Dow were to break strongly below 7,500, then one should expect equally, if not more, bearish moves in Europe.

Problems in the new member states of the EU were highlighted last week, creating havoc in European equities and currencies. Many western European banks have significant exposures to eastern European borrowers. Moody's reckons the problems in the accession states will be more severe than elsewhere. The EU has enormous weakness in its fringe economies, like any large economic block, but it lacks the cohesion to tackle the issues.