The one thing I absolutely love about a serious market drop is being able to watch the wheat separating from the chaff before my eyes. The wheat -- the better relative-performance stocks -- tends to stand out prominently in all of its golden glory.

One of a few angles I take in screening for the very best stocks is by scanning thousands of stock charts each week, looking at nothing other than the chart patterns. In addition to giving me a real flavor for the condition of the overall market, the best-looking chart formations just pop right off the pages. Additionally, I keep a close eye on the O'Neil industry sub-group rankings throughout a market's corrective process (or bear market).

In some cases, some of the industry sub-groups that were real leaders during the market's prior upward trend hang right in there and show strong relative price performance for the entirety of the corrective process. This happened in 1998 when the Internet-related industry sub-groups led the market's march into the Summer highs of 1998 and showed strong relative price performance throughout 1998's bear market in preparation to lead the new bull market off the lows in October. In other instances, the market gets so defensive that groups like consumer staple or utility stocks show the best relative performance. This happened during the 1990 bear market decline -- with, of course, the various Oil & Gas sub-industry groups figuring in that mix as well due to the Iraq/Kuwait oil conflict.

In the former case, it makes it much easier to see the leadership developing for the next bull market. In the latter case, you have to wait and see which industry groups will move to the forefront once the weight of the market comes off and a new bull market develops. Rest assured, a new, strong, healthy bull market, one reflective of strong expectations in renewed economic growth, isn't going to be led by a soap manufacturer or El Paso Electric. These defensive-type plays that were rotated into as safe havens during the decline end up being just that -- a temporary parking place for institutional funds.

Lucky for us, it's the former situation that's taking shape during this market upheaval.

Some of the leading industry sub-groups that led the Nasdaq Composite's bull run from October are still in charge. Sure, they aren't going up, but groups like Semiconductor Manufacturers, Telecommunications Equipment, Computer-Memory Devices, and Semiconductor Equipment are currently ranked Nos. 1, 2, 3 and 4, respectively, out of 197 O'Neil industry sub-groups. Six months ago, these top groups ranked Nos. 4, 5, 8 and 12, respectively. So, they've all obviously hung right in there in a show of healthy relative price performance. Names like Amkor Technology (AMKR), in the Semi-Manufacturer group, acts great, as does Tollgrade Communications (TLGD)and Powerwave Tech (PWAV), in the Telecommunications-Equipment group, to name a few. However, far more time is needed to complete their possible basing patterns.

This is the early indication. The real test will be to see if each or any of the groups can stay atop the heap throughout the Nadaq Composite's bear market gyrations. But now's the time to do the work -- keep tabs on what's holding and what's folding. Once the market eventually turns for real, the notes you take now will have you immediately and totally prepared for where to focus your portfolio's stock selections.

Speaking of which, the current market environment still has a lot to be desired. For one, following last Friday's heavy-volume drubbing in the major averages, the rallies on Monday and Tuesday came on lower volume -- not a good sign thus far that an important low has been achieved. Even more concerning is the lack of real fear in widely-followed sentiment surveys and, more importantly, in the options arena.

The CBOE Equity-Only, 15-day put/call ratio, my favorite sentiment gauge because it reflects real-money activity, has only managed to move up to a reading in the low .40's to this point. This compares unfavorably with the extreme readings in pessimism witnessed at the last four important market bottoms since 1997. The April 1997 market bottom saw a reading in this indicator of .58, while the readings managed to spike up to .52, .68 and .56 in October 1997, August and October 1998 and September 1999, respectively. Since fear is a much stronger emotion than greed, one would normally expect a spike in extreme pessimism following the market's recent onslaught -- just as has always been the case following sharp market breaks in the past. Not the case here. In conjunction with the market's overall poor price-and-volume action, this lack of fear is a troubling sign.

One final point; following the recent sharp break in the Nasdaq Composite, it simply needs to time to convalesce. So don't expect miracles. Just stand aside. The whole idea in buying stocks for the intermediate-term play is to buy when you have as many variables in your favor as possible. All of the pieces to our strict, buy criteria must be in place. Of course, the market's the biggest one. Meanwhile, let the money-bloated institutional investors do the picking.

In individual stocks, it was interesting to see PC Connection (PCCC) break out from a 16-week, cup-with-handle base on extremely heavy volume Wednesday -- and a real good looking base at that. The company has a strong bottom line, with an O'Neil EPS rank of 97, a high RS rank of 92, and has been under heavy accumulation for the past month as it completed the right side of its cup. It's the first stock I've seen since early March with all of the right, buy-quality characteristics. However, the main variable -- Mr. Market -- is still all wrong.

Another good-looker is Brooks Automation (BRKS). It shot right out of a six-week base on strong volume Tuesday. And it's among the leading semi-manufacturer industry sub-group. I'd be more inclined, though, to watch for a possible base-on-base formation develop from here as the market likely weighs on it. Base-on-base patterns form when a leading stock attempts to break out from base too early in a bear market. Although the stock manages to move somewhat higher, once the market comes in again as part of its bottoming process, the stock settles into another multi-week base right on top of the base it just broke out from. Bears watching.

------------------------------------------------
Greg Kuhn is a general partner of KAMCO Partners, LP, a hedge fund, and appears regularly on CNBC, CNNfn, CNN, and the Fox News Channel`s "Cavuto Business Report."