Why Bear-Market Rallies Are Different These Days

While the recent stock market rebound may not last, it has come with something Wall Street hasn't seen in awhile—buying into a rally.

Oliver P. Quilla for CNBC.com NYSE Traders

Since stocks entered bear-market territory during the summer, investors have been notoriously skittish during rallies. Often there are late-day selloffs as investors move to book quick profits or worry that the rally just won't have legs.

But that hasn't been the case lately. The Dow is now up over 1,000 points in the past four trading days, even in the face of worsening news about the economy.

The market closed sharply higher on Wednesday, pushing the Dow up over 8,700, in the first four-day gain since May.

"The sentiment's starting to switch a little bit," says Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh. "People are talking that this is a bear market rally, but it could go on a little bit."

There are several factors behind the rally this week. Many think stocks are still heavily oversold, which has led to bargain-hunting. The Fed's decision on Tuesday to help unfreeze consumer lending also gave the markets a jolt. And President-elect Obama's naming of his economic team, including Timothy Geithner as Treasury Secretary, was greeted enthusiatically on Wall Street.

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In addition to snapping up some of the bigger market movers, investment advisors are pushing their clients into broad-based exchange-traded funds that take advantage of moves higher in the major indexes without as much risk as buying individual stocks.

Also, municipal bonds are getting a lot of attention as market pros look for ways to protect principal while also trying to squeeze out at least modest yields.

"Most of the tax selling is done and the hedge fund redemptions are over," Baum says. "Hopefully we can turn the old Santa Claus rally into year's end. There are some great companies out there that are trading at major discounts."

Investors also have been finding value in a variety of exchange-traded funds, or ETFs, and a handful of strong companies.

Baum has been using the Vanguard Value ETF, which tracks the MSCI US Prime Market Value index. Some of the companies in the fund include ExxonMobil , General Electric , Johnson & Johnson and Chevron . The fund also pays a 5 percent dividend.

In addition, Baum likes some the Select Sector SPDR, or "Spider," ETFs that are popular among investors and play the broad indexes. He advocates the S&P Deposit Receipts which tracks the movement of the S&P 500.

"You can buy these great baskets of equities and get returns of individual equities," Baum says. "That's a very smart thing to do for individual investors--spread out the risk and still get nice returns."

CONTINUED : Emerging Markets, Plus Playing Santa Claus

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