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Fickle Stock Market Keeps Many Investors Guessing

Job losses suddenly jump. So do worries about a recession. Investors brace for a huge selloff in the stock market

So what actually happens? Stocks rally, then head lower.

Wall Street followed an increasingly familiar pattern on Friday: Bad economic news sends stock futures plunging. But shortly after the market opens, bargain hunters and those looking to cover short positions swarm in to send indexes higher.

Broker works the trading floor at the New York Stock Exchange.
AP
Broker works the trading floor at the New York Stock Exchange.

Then, after they make their profits and pull out, the markets fall again and spend the rest of the day struggling for direction.

"A lot of this bad (economic) news is kind of old news--I think it's already priced into the market," explains Matthew Tuttle, president of Tuttle Wealth Management. "As soon as I saw the bad (February jobs numbers) coming out I said, 'You know what? I'm going to buy.'"

In such a topsy-turvey market--where short-term traders seem to dominate--average investors might well want to remain on the sidelines.

"Until those numbers change, you don't want to get into the pricing game," says Tom Busby, CEO of Day Trading Institute, who is advising prospective investors to wait out the market turmoil even though he has been making money on short trades. "You just want to really protect yourself. It's better to be safe now than try to buy things at value."

Still, there are plenty of pros who think investors should wade into stocks now and not wait for the market to hit bottom.

"I think it's a healthy situation, moving these prices down to where they should be with all the uncertainty in this marketplace," says Warren Myers, of Walter J. Dowd. "Eventually it will be a buying opportunity...But again, you've got to be a little nimble on your feet and be selective in what you're looking at."

"This is a normal deleveraging process," agrees Vince Farrell, of Scotsman Capital Management. "We got drunk, we're sobering up, it's a process we have to go through."

With the current market climate in mind, Farrell is advising plays on large-cap multinationals like CNBC.com-parent General Electric, Honeywell and International Business Machines.

Large-caps aren't the only stocks attracting attention, though. Stocks on the Russell 2000 small-cap index also are generating interest.

"Small caps will tend to lead the market coming out because they have earnings growth," says Mary Lisanti, of AH Lisanti Capital Growth. "They survive or prosper by the uniqueness of the product or service they offer, so they tend to be somewhat recession-resistant."

Lisanti recommends health care provider ICON, Carrizo Oil and Gas and Rubicon Technology.