Has the Market Finally Found Its Bottom?

Its one of those landings that make your pilots hands sweat. For the past 11
sessions, the blue-chip U.S. stock indices have gradually descended through the
clouds, with several nasty bumps including Mondays big one to tense our
knuckles. Wheres the runway? We cant see the tarmac quite yet, but the ground
lights are twinkling through the gloom. Thank heavens, Ive got instruments to
guide us. My daily stochastic indicator, which I briefly referenced in Mondays
post , has now fallen far enough to suggest that the S&P 500 could already have
touched down for an initial bottom. The weekly stochastic, a slower-moving
gauge, wont send a definitive message until Friday. However, it too is hovering
in an area where the market has often formed important bottoms. I could run
through a whole list of other bullish barometers, but theres no need to be
redundant. Ill just add one observation: From a contrarian standpoint, its
encouraging that so many market commentators have turned snarlingly negative.
Even The Wall Street Journal has jumped on the gloom-and-doom bus, with an
article advising, Now is not the time to let yourself be suckered into getting
back into stocks. Strong language for a publication whose chief purpose in life
since 1889 has been to sing the praises of the American equity culture! Please
dont get me wrong. Im still very cautious about the markets prospects in 2012.
Between now and years end, though, I think weve got a brisk rally ahead of us.
Traders should start positioning themselves to take advantage of it. Heres what
I suggest. Technology stocks have held up much better than the market as a whole
over the past three months. If youre of a mind to do a little trading, buy
PowerShares QQQ Fund (NASDAQ: QQQ ) on a dip to $50 or less. This
exchange-traded fund is designed to track, after expenses, the tech-freighted
Nasdaq 100 index. Set a stop 5% below your entry point. If close to a tradeable
bottom for stocks, QQQ shouldnt decline any more than that. My upside target is
$57, the vicinity of the Nasdaqs September high. Ill take profits there unless
market fundamentals improve a great deal more than I now foresee. For long-term
investors (the bulk of my audience), corporate and emerging-markets bonds offer
better prospects on a risk-adjusted basis than most stocks. Keep buying
Vanguard High-Yield Corporate Fund (MUTF: VWEHX , $3,000 minimum), at $5.65 or
less. Current yield: 7.5%. I also continue to like TCW Emerging Markets Income
Fund (MUTF: TGINX , $2,000) at $11.25 or less. Current yield: 7.3%. You can
expect somewhat more volatility in TGINX than VWEHX. Over the long pull, though,
emerging-markets bonds are likely to outperform their domestic counterparts, if
only because interest rates in the developing world are starting from a higher
level. For the stock segment of your assets, I suggest focusing new money for
now on safe, dividend-rich issues like those contained in PowerShares S&P 500
Low-Volatility Portfolio (NYSE: SPLV ). SPLV dropped with the rest of the
market, but less than the S&P 500 index itself. Thats the kind of cushion you
need in this unsettled climate. Current yield: 3.5%. Buy SPLV as long as the S&P
500 index remains below 1,230 (no problem right now).