Market Outlook: Is It Safe To Get Back Into Stocks?

The curb on short sales is giving the market a big lift now, but what happens in two weeks when the ban expires?

The government's decision to suspend short sales on 799 stocks—most of them financial shares—helped ignite a huge rebound on Wall Street Friday. Stocks also were buoyed by plans for a broad government rescue of financial markets being hashed out in Washington.

But for investors trying to figure out what to do now after a tumultuous week on Wall Street, market pros have some simple advice: don't rush back into stocks.

"I wouldn't be a buyer right now until these short-sale rules are lifted," says Michael Cohn, of Atlantis Asset Management in New York. "My recommendation to someone who wants to get into this market is you're going to have plenty of time between Oct. 2 (when the curbs expire) and Nov. 5 (presidential election)."

"After the election there could be a nice rally," Cohn adds. "But I think investors will have a chance to pick and choose good stocks between Oct. 2 and the election."

For those who can't wait, investment advisers are telling their clients to move cautiously, with an eye towards acquiring high-quality oversold companies now.

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"All along we have been telling clients to dollar-cost average into quality," says Quincy Krosby, chief investment strategist at The Hartford, referring to the time-honored practice of investing over time to average out the market's ups and downs.

"Our feeling was quality companies with good cash value, good balance sheets that offer dividends, that are not in jeopardy—those companies are going to weather these storms," Krosby adds. "The key is when the storms subside there will be more sectors and subsectors that are going to be beneficiaries of confidence coming back—not just into the market but into the economy."

Krosby says the Hartford is advising its clients to keep an eye on several critical factors, including the lowering of credit spreads and subsequently the demand for safe-haven Treasurys, as well as for whether traders continue to sell into rallies.

"If this is the beginning of another bull market, you are going to see the upward move touch various sectors. It will not just be in group," she says. "It will start manifesting itself in technology, it will manifest itself in financials, manifest itself in consumer stocks--there will be real buyers coming in other than momentum traders.

"We want to see continuity," she adds. "Watch to see if we start selling into this strength. We still don't know how many of these hedge funds need to liquidate, how many have been caught in this turn of events."

After accumulating financials for the past several weeks—as the sector overall has been pummeled—Cohn says he’s taking some off the table but will look to buy after the short-selling rule passes. He's keeping JPMorgan Chase and a few regional banks.

Beyond that, he’ll be hunting for value elsewhere, with an eye towards alternative energy, basic materials and consumer staples.

In particular, Cohn says he'll be looking at Costco , Cisco , MEMC Electronic Materials and XTO Energy .

"What worked before the financials were cratering and before July and August hit are going to work again and I think very well," he says.

For those with a longer-term investment strategy, the advice gets even simpler.

"You stay the course," says Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh. "You have a plan and you stick to your plan.

"I've been on the phone for probably 10 hours a day this week, talking to clients and comforting clients and saying, 'Wait a minute, You have a plan, you're a long-term investor, you've got to stay the course. You can't have a panic reaction.

Long a believer in high-yielding bluechips, Baum also emphasized the need for quality with stable companies like AT&T , CNBC.com-parent General Electric and Wells Fargo -- "great, great companies that you know are going to be around."

Not everyone, though, is leaning entirely on the big caps.

Smaller and mid-caps, traditionally looked on to lead stocks out of a bear environment, again will be a good bet--particularly those with multinational exposure--as sections of the global economy expand, says Jordan Kimmel, hedge fund manager at Magnet Investing.

"Those stocks have been absolutely slammed as if there is no global development going on anymore," Kimmel says.

Still, there are some who don't believe in the rally and think it's a good time for investors to be both cautious and thankful that the indexes made it through such a volatile week essentially unchanged.

"You don't want to be buying in a big up day like this going into the weekend," says Matthew Tuttle, president of Tuttle Wealth Management. "Stay the course, do what you're doing. If you've got a well-thought-out investment philosophy, stick with it and just count your lucky stars that we get a mulligan on the week."

© 2009 CNBC.com