A bounce off recent lows? Another souse through key support levels? A long slog near current prices? Experts tell BW strategies for each

By David Bogoslaw

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For chiefly the masses, this feels like a very uncertain and hazardous time to be invested in the stock market. Even as the U.S. ruling power becomes more clear about the first-class infusions earmarked for a expanding amount to of banks, and credit spreads show encouraging signs of narrowing, equity mart volatility continues to head skyward. There appears to be little buying to in opposition to overwhelming selling pressure by fence and other funds desperate for cash to cover impending redemptions.

Making things even more unfaithful for stock investors are a heap of unknowns—from how forcible the worldwide financial rescue efforts will prove to exist, to the duration and depth of the recession that is taking hold of the global good housewifery.

It’session precisely in this kind of environment that technical charts—ones that track patterns in price and volume activity for stocks and indexes—can offer place of traffic participants more semblance of order. Two weeks of relentless selling culminated on Oct. 10, when the three major U.S. stock indexes all hit intraday lows before bouncing modestly into safer territory.

With market players now in appearance attaching little, suppose that any, importance to business fundamentals, those technical put up with levels have become elucidation points of converging-point for experienced investors. On Oct. 24, the Standard & Poor’session 500-stock index fell to within 14 points of the intraday low of 839 it hit adhering Oct. 10 before rebounding to polish at 876.77, below its closing price of 899 exactly two weeks ago.

What do investors need to do in the current situation? The recommendations equity strategists require been giving tend to exist more confusing than comforting if you don’t know their underlying market and economic assumptions. To provide some clarity, BusinessWeek ran three basic "war game" scenarios by a exquisite group of investment professionals to get their views in continuance how to navigate through these treacherous emporium waters.

If the broader market were to retest the Oct. 10 lows and clinch, that would have being an encouraging sign, but it wouldn’t necessarily be conclusive that a bottom has been reached, says David Joy, chief market strategist at RiverSource Investments (AMP). What it would prove more than anything otherwise is that in that place is some trustworthy buying weal at those levels, he says.

The market activity of the past couple of weeks has been strong enough that at an ad hoc auditory of its quarterly asset allocation committee on Oct. 17, RiverSource decided to start slowly rebuilding U.S. equity positions, after having gone to an underweight allocation in June, says Joy. But the firm is so more distant buying only equity indexes, not individual stocks. The most attractive sectors rightful now, he believes, are energy, industrials, technology, and—from a contrarian standpoint based purely on low valuations—consumer discretionary stocks. Joy believes that traditionally defensive sectors such as utilities and health circumspection are overvalued and wouldn’t reward investors on the upside admitting that a "snapback" rally in stocks were to occur.

Jim Dunigan, chief investment officer at PNC Wealth Management (PNC) in Philadelphia, says he would take a retest and clutch of the Oct. 10 lows for the reason that reason to resume buying, but advises sticking to high-quality names in the consumer staples, health circumspection, and information technology sectors. The forced liquidations by the agency of hedge funds strongly suggest that some high quality individual stocks be in actual possession of been oversold, and their elevated dividend yields are an indication of condign how cheap they are now, according to Dunigan.

Determining when the U.S. economy began to contract—and how long the recession is likely to last—be able to also help investors configuration when to start buying funds, says Linda Duessel, equity market expert manaeuvrer at Federated Investors (FII) in Pittsburgh. She believes the recession started at the outset of 2008 and may be over by the agency of the middle of 2009. Since stock prices start to recover long before a recession ends, investors have historically gotten good returns if they bought former following what they estimated to have been the midpoint of a recession, she says.