Everyone was buying on Friday, except for Musk. The S&P 500 ended the week 16.50% off its 52 week high, as the index broke a six-day losing streak, the Nasdaq turned in its second positive session in a row, and the S&P 500 was up 2%. The reprieve for equities could continue, but any single-day or short-term stock gains in this market are not very good. For the first time in over a decade, the Dow was down for seven-consecutive weeks.

Nicholas Colas says the same thing in 2000 and 2001. You knew the asset prices were going down, but trading action gave you hope. In the past three months, I have had many memories of 2000. You don’t forget if you haven’t seen it before.

This may be the first time that investors have danced with the bear since the bull market seemed to have one direction. There are a few lessons Colas learned from his time at the former hedge fund of Steve Cohen, which he believes saved a lot of heartache.

People with umbrellas pass by a bull and bear outside of a stock exchange.

Kai Pfaffenbach is a reporter.

The standing philosophy at the trading firm was to never short a high and never buy a low. As investors who have never experienced a bull market are learning, momentum is a powerful force in both directions. stabilization in stocks isn’t going to be measured in a day or two of trading, so investors shouldn’t take any particular stocks off their radar. There are signs of stabilization over a period of one to three months. A stock that rallies on bad news may be signaling to the market that all the bad news is priced in.

Colas said that a big bet on a single stock as a buy-in-the-dip opportunity isn’t the best way to proceed. He said that the No. 1 rule was lose as little as possible. When we get the turn, you want to have as much money as possible, because it isn’t like you’re going to kill it, and investing to lose as little as possible.

Here are a few more of the principles he has at the top of his stock-buying list, and how they relate to the current market environment.

The defining feature of the stock market right now is volatility, and the clearest signal that investors can look to as far as the selling being exhausted is the CBOE volatility index. The mean has been two standards deviations away from the average since 1990. Colas said that the difference was meaningful. We have had the hardcore panic mode when the VIX gets to 36. During the most recent bout of selling, the VIX has yet to reach that level.

The stock market has only had one close this year. Before the situation deteriorated again, that was a good entry point for traders because stocks rallied by 11%. Colas said that even if you bought that close, you needed to be very cautious. The washout in stocks isn’t over yet, according to the VIX. He said that they are dancing in between the rain drops.

A short-term bounce is often a reflection of a short squeeze. He said that short squeezes in bear markets are vicious.

Colas says that buying those rallies is a tough way to make a living, a tough way to trade, but back in 2002, when the stock market was at its peak.

Colas says that it is a good time for investors who made a lot of money in the recent bull market to be careful, even with the stocks they love the most.

This is a way of reminding investors that the most important rule for investing is to take the emotion out of it. He told them to trade the market they have.

Apple was down more than 6% in the past week and many investors learned that lesson. Apple dipped into its own bear market before the Friday rebound.

Colas said that Apple had just one job to do in this market.

The stock market’s closest equivalent to a safe haven trade is over after Apple broke down as quickly as it did. Colas said that they have gone from mild risk-off to extreme risk-off and that it doesn’t matter if Apple is a great company. The financial assets people are looking for are the safest things out there, and Apple is still a great company, but it is a stock.

With valuations in the tech sector as high as they have been, it’s not a slam dunk to invest in it.

It has a market cap of $2.3 trillion and you can buy it at a price of $140 after Friday. It is worth more than the entire energy sector. Colas said that was hard. Tech has some pretty crazy valuations.

Colas says that health care is the best growth trade, even if that comes with a caveat, because it is still working. Based on its relative valuation and weight in the S&P 500, it is a good place to be if we get a rally.

During periods like this, health-care stocks will get larger bids because growth investors bailing out of tech need to cycle into another sector and over the years, the options they have available to turn to have narrowed. The rise of online retail killed the trade of growthy retail names that investors used to turn to when volatility was high.

Colas said there is no evidence yet that growth investors are cycling into anything. He said that health care isn’t seen yet, but that there aren’t many other sectors.

Colas said that there is always a case for blue-chip stocks in a bear market. One example of how to think about blue-chips for long-term investors is the autos, which Colas covered on Wall Street for a decade.

Ford’s dumping of Rivian shares may be the first lesson it learns from this market.

Colas said, “Ford does one thing well, and that is stay alive.” If you hit the sell button, you’ll get some cash. They want to be prepared to keep investing in the EV and ICE business.

Ford and GM are likely to be around for a while, and in fact, guess who just bought GM for the first time: Cathie Wood.

This doesn’t mean Wood has soured on her favorite stock of all, top holding Tesla, but it does suggest a portfolio manager who may be acknowledging that not all stocks rebound on a similar timeline ARK’s flagship fund, Ark Innovation, is down as much as the Nasdaq was between 2000 and 2002 and has some work to do.

I don’t have a point of view on whether she is a good or bad stock picker, but it was smart of her to look at a GM, not because it is a great stock He didn’t know if Teladoc or Square would follow Wood’s top stock picks.

Wood believes the multi-year disruptive themes she bet heavily on are still in place and will be proven correct in the end. Buying a blue-chip like GM can help to extend that vision. Colas said that GM was a second order stock buy without having to bet the farm on the ones that are not profitable.

There are names to trust in a market that doesn’t love any stock. The great trades of the 2002-2021 period were Amazon, Microsoft and Apple.

Bear markets don’t end in a “V,” but rather an exhausted flat line that can last a long time, and stocks that do end up working don’t all work at the same time. Even ifTesla is at a billion dollars three years from now, GM will benefit. Colas said that there will be things you get wrong with a portfolio at different stages.

Wood will make more trades to diversity the duration of her funds, but investors will need to watch where she takes the portfolio in the next few months. Colas said that he likes the QQQs if it remains a conviction bet on the most disruptive companies. He said that they don’t know what will be in ARK, but they know what will be QQQs. Colas said that he would much rather own the QQQs.

It has to come with a caveat at the moment. Colas doesn’t know if big tech will be the same as before, because valuations are so high. He said that Microsoft is worth more than several sectors with the S&P 500, but you don’t have to bet on Teladoc and Square.

If you have to trust the next Apple and Amazon, that is a hard trade.

There are many reasons to be skeptical of a rally, from the Federal Reserve’s ability to manage inflation to the growth outlook in Europe and China, which all have a range of outcomes so wide that the market has to incorporate the possibility of a global recession to a greater. The earnings estimates for the S&P 500 are one of the key market data points where this is not being incorporated yet. Colas said they are too high.

The fact that the forward price-to-earnings ratios aren’t getting cheaper is telling investors that the market has work to do in bringing numbers down Colas said that Wall Street is forecasting 10% growth in earnings from the S&P 500, which doesn’t happen in this environment. Not with inflation and GDP growth of 2% or more. The street is not right, the numbers are not right, and they need to come down.