US flag surrounded by floating cash © Getty Images (US flag surrounded by floating cash © Getty Images)

I know it doesn't seem like it, but the stock market is in the midst of a downtrend pattern that's now in its third month. The evidence is building that it has about run its course, assuming the political turmoil in Egypt dies down.

The losses have been modest: Peak to trough, the Dow Jones Industrial Average ($INDU) lost a little less than 1,000 points, or about 6.4%. But the decline, the associated volatility and the catalyst for the drop -- the possibility the Federal Reserve would pull back on its economic stimulus efforts -- struck some fear into the hearts of what were grossly overconfident investors.

Losses in other areas, such as corporate bonds and emerging market stocks, have been much deeper. The iShares MSCI Emerging Markets Index (EEM) exchange-traded fund lost more than 20% into its June low. The iShares iBoxx $ High Yield Corporate Bond (HYG) EFT lost nearly 8%.

Investors have been shaken on a scale not seen since June 2012. It was then that the Risk Appetite Index maintained by SentimenTrader, an amalgam of various Wall Street risk indicators, last dropped to levels we're experiencing now.

Yet at the same time, so-called "smart money" traders, such as hedge funds working in the equity futures market, are feeling increasingly frisky. The last time they were this confident was back in November.

While the fundamental outlook is still darkening -- with China's economy stalling, Europe in a widening recession and U.S. job growth slowing -- that's actually a positive in the minds of Wall Street traders who are looking for only one thing: A continuation of the flow of cheap money out of the Federal Reserve.

Image: Anthony Mirhaydari - MSN Money

Anthony Mirhaydari

In this context -- with various technical measures of market strength recovering; the commodity complex about to get a boost as miners and suppliers cut production in response to lower prices; and the Fed looking increasingly desperate to sooth the stock market -- the stage is set for at least a short-term relief rebound rally in July.

That's assuming, of course, the situation in Egypt doesn't entirely blow up. Oil prices are already rising on the news, so keep your eye on how the market reacts.

But if you think this situation won’t stop the rebound, here are five picks to consider, ranked in order from more conservative to riskiest:

1. iShares MSCI Japan Index (EWJ)

Front and center of the "liquidity drives all" dynamic is the Japanese stock market, which has been rising and falling dramatically in the wake of the decision by the Bank of Japan to double its monetary base over the next two years in a last ditch effort to reinflate the Japanese economy and end a long deflationary malaise.

EWJ - Japan ihHares

The Nikkei 225 tipped into a bear market from May to June as officials there looked like they might lose control of their massive government bond market, which in turn risked destabilizing Japan's banks and pushing government borrowing costs towards the point of insolvency.

Since mid-June, after consultations with bank executives and better dialogue with the market on its bond purchase program, the Bank of Japan was able to calm the situation. That in turn has allowed the Nikkei to stabilize and push higher.

As a result, Japanese stocks have pushed up and out of their consolidation pattern and have made an upward cross of their 50-day moving average for the first time since November. That makes the iShares MSCI Japan Index (EWJ) EFT an attractive buy on the breakout as volume rolls back in.

2. Flagstar Bancorp (FBC)

Regional banks been one of the best-performing industry groups this year, barely pausing for breath in May and June as investors priced in a firmer housing market, increased credit demand and an improvement in the difference between short- and long-term interest rates. The last translates into a "net interest margin" banks collect by paying for short-term deposit funds, then turning around and investing the cash in new loans or bonds.

Flagstar Bancorp

That makes finding turnaround plays harder and harder. But Flagstar Bancorp (FBC), which is pushing up and out of a five-month consolidation pattern, presents a rare opportunity. The Michigan company is still recovering from the fallout from the financial crisis; it has yet to repay its government bailout money, faces legacy costs related to bad mortgage securities sold during the boom and continues to suffer from nonperforming loans.

But it appears FBC has finally turned a corner. In the first quarter, total nonperforming loans dropped by nearly 8%, while the cost of writing off bad loans dropped nearly 30%. It has posted four consecutive quarters of profitability, and it should soon start cashing in on a deferred tax allowance, which will pad results.

If shares can return to their January high, the move up will be worth a gain of nearly 43% from current levels.

3. Genco Shipping & Trading (GNK)

One of the main reasons I've been so negative in my recent economic outlook has been the decimation in the commodity complex. Copper lost more than 24% from its September high as Chinese demand slowed and stockpiles grew. It was the same story with industrial metals such as steel and aluminum.

Genco Shipping & Trading

And that weighed on metal-producing stocks. Steelmakers were hammered. The Market Vectors Steel (SLX) ETF lost nearly 30%. Southern Copper (SCCO) lost 36% from its January high.

Companies down the supply chain were hurt as well, especially the dry bulk shipping operators that transport raw materials from places like Australia and Brazil to China. The Baltic Dry Index, a measure of charter rates for dry bulk vessels, has been depressed since early 2012.