Are you ready to time travel? In early October I wrote:

I expect stocks to pull back before the year is out, but absent any major blowups, investors should regard such an event as a buying opportunity. Any pullback in the US market should register somewhere between 5 and 10 percent, whereas emerging markets will likely sustain a bigger hit. (See October 8, Heading Higher.)

The jury is still out regarding the magnitude of the recent correction; the MSCI World Index has lost 5 percent of its value in a week, or 90 percent annualized.

But I continue to maintain that the Institute of Supply Management’s (ISM) index that measures the industrial sector will prove to be a good guide for investors. In early October I issued a Flash Alert to Silk Road Investor subscribers regarding the September ISM numbers, which I characterized as weak but expansionary. (See October 1, Harbinger of a Pullback.)

What I noted then still holds true: A big part of the global rally in equities has been based on stronger economic numbers. Although a reading above 50 indicates expansion, a slight decline could signal that the economic recovery is slowing–a development that might stall the rally in equities.

That being said, an ISM number above 50 is a big positive, and many analysts believe that Monday’s release will be above this threshold. Anything beyond the previous reading would be particularly sanguine.

If the ISM number improves sequentially, my case for a stronger market in late 2009 and early 2010 should be borne out. I still expect markets to move higher through the first few months of 2010, with November, December and January being the “money months.”

Based on this assessment, I continue to recommend that investors give this rally the benefit of the doubt, set aside longer-term economic challenges and buy the dips.

Though it may seem counterintuitive, cyclical industries (especially energy) remain at reasonable levels in emerging markets. At current levels, energy, telecommunications, financial, industrial, and materials companies appear to be the cheapest in Asia.

Emerging markets should see further gains as long as the global economic recovery remains on track, even if it compares unfavorably to the strength of previous recoveries. The point to understand here is that the year-long rally in emerging markets isn’t based on the conviction that the global economy is completely out of the woods and that the Anglo-Saxon financial system has resolved all its problems.

Rather, it should be viewed as a reaction to last year’s extreme negativity and a broadening understanding that emerging markets, and especially Asia, are gradually becoming the most important part of one’s portfolio.

As Asia has rallied 100 percent in the past year, trying to categorize the rally as “the new bull market” or as a “bear market rally” is a futile exercise; a 100 percent annual gain, is something that no one should categorize–unless one missed it.