Has the Market Finally Found Its Bottom?

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tdp2664 InvestorPlace It’s one of those landings that make your pilot’s 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 Monday’s big one — to tense our knuckles. Where’s the runway? We can’t see the tarmac quite yet, but the ground lights are twinkling through the gloom. Thank heavens, I’ve got instruments to guide us. My daily stochastic indicator, which I briefly referenced in Monday’s 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, won’t 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 there’s no need to be redundant. I’ll just add one observation: From a contrarian standpoint, it’s 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 don’t get me wrong. I’m still very cautious about the market’s prospects in 2012. Between now and year’s end, though, I think we’ve got a brisk rally ahead of us. Traders should start positioning themselves to take advantage of it. Here’s what I suggest. Technology stocks have held up much better than the market as a whole over the past three months. If you’re 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 shouldn’t decline any more than that. My upside target is $57, the vicinity of the Nasdaq ’s September high. I’ll 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. That’s 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).