Image: Time to buy © Nicholas Monu, iStock Exclusive, Getty Images

Our long economic nightmare has taken a new turn for the worse this week. The U.S. jobs picture remains bleak, debt woes in Europe are getting worse, and American politics is locked in struggle over the debt ceiling. It seems investors are flying blind, with fortunes dependent on the whims of politicians and central bankers.

In response, stocks and other risky assets have tanked. Now we're poised to face another long, hot summer of political intrigue and economic uncertainty -- just as we did last year. Investors, still shellshocked from the market's springtime slump, are taking risk off the table.

It's not just retail investors. Hotshot hedge fund managers are losing money, too -- especially the global macro traders who are supposed to thrive in such an environment. In a recent note to clients, analysts at Standard Chartered pointed out that cash holdings at hedge funds and proprietary trading desks are now higher than at the beginning of the year even though the so-called economic soft patch appears to be fading.

But going with the crowd is rarely the smart trade. Plus, there are fundamental reasons you shouldn't fall victim to the steely chill of fear. No, this isn't a time to sell and hunker down. It's a buying opportunity.

Image: Anthony Mirhaydari

Anthony Mirhaydari

5 reasons to be bullish

First, as I explained in a recent column ("Halftime for the bull market"), the 2-year-old bull market and economic expansion are simply too young to die. The big drivers of growth look ready to accelerate (see "The economy is recovering -- really"). Consumer spending should be bolstered by the fact that debt-service burdens have fallen to levels not seen since the mid-1990s, job growth is poised to reaccelerate as historic and unsustainable productivity gains give way to new hiring, and food and fuel inflation cool.

On the corporate side, ironclad balance sheets and a rebound in industrial production post-Japan disruptions are boosting CEO confidence. Investment spending is up. And spending plans are up.

S&P 500

Second, there are a number of technical reasons the market should rebound and push higher in the coming weeks. A surge of intense buying after the Greek parliament passed tough new austerity measures at the end of June was quickly eclipsed by a surge of selling pressure earlier this week. Is it a stalemate between the bulls and the bears? Not quite.

Technicals are positive

Chartists have flagged a troubling multimonth head-and-shoulders reversal pattern, outlined above, which traces a downside target of 1,160 on the Standard & Poor's 500 Index ($INX) -- which would take shares below last November's Irish bailout lows if the "neckline" is breached at 1,260.

I don't think it'll play out that way. Indicators suggest bulls still have the advantage. Measures of market breadth, or how many stocks are moving up or down, suggest buyers were more motivated in June than sellers have been in July.

This can be seen in the way the McClellan Oscillator, a measure of breadth momentum, recently spiked to its best reading in a year as investors bought everything that wasn't bolted down. High readings typically represent overbought conditions. But they can also represent uptrend initiations, according to Tom McClellan of the McClellan Market Report. (McClellan's parents created the McClellan Oscillator.)

There are other technical indicators worth mentioning here, such as the recent rotation back into cyclical stocks from defensives, which reversed a five-month move into staples, health care and utilities. Since the low late last month, the Morgan Stanley Cyclical Index ($CYC.X) has outperformed that staid Consumer Staples Select Sector SPDR (XLP) by around 6% as traders move into stocks like Deere (DE, news), Alcoa (AA, news), and Goodyear Tire and Rubber (GT, news), instead of things like Kraft Foods (KFT, news) and Coca-Cola (KO, news).

Other short-term measures point to a flameout by panic sellers, creating a vacuum that bargain hunters can move into.

This is represented by the very high reading earlier this week on the Arms Index, which is created when tons of volume move through declining issues as if investors can't focus on anything but stocks that are moving lower. It's fear at work. High readings are typically seen near market lows. And Monday's closing result was the most extreme Arms reading since last August -- just ahead of a powerful multimonth rally in the stock market -- and one of the highest in 60 years.

Third, market history is also positive. According to Jason Goepfert of Sundial Capital Research, stocks typically rebound in the wake of the kind of selling pressure we've seen over the past week. There have been 20 cases since 1950 in which the Arms Index has closed at or above current levels. One month later, stocks moved higher in 80% of the cases, for a median gain of 3.1%. Six months later, the win percentage climbed to 90% and the median gain to nearly 17%.

There's more. The selling seen on July 8 and July 11 was so intense that down volume trumped up volume by a margin of more than a 30-to-1. Given that stocks are above their 200-day moving average (making this a bull market by rule of thumb), this kind of downward pressure has been seen only seven times in the past 40 years. Of those, none marked the end of a bull market. Two months later, all sported positive gains, with an average return of 5.7%. And all went on to push to new highs, taking an average of 34 days to do it.

Fourth, the likelihood of a tail-risk scenario -- a disorderly default by a European country or the U.S. Treasury -- seems increasingly low. The European bailout fund, which was recently enlarged to more than $1 trillion, will likely be used to purchase deeply discounted Greek, Irish and Portuguese bonds in the open market. This will amount to a voluntary haircut by private investors, keeping the ratings agencies happy and reducing the debt burden of these troubled countries.

In Washington, a small debt extension appears to be in the cards -- enough to get us through the 2012 election at least.

And finally, corporate earnings growth and ultralow interest rates should continue to fuel the transfer of wealth from bondholders to shareholders via M&A activity, dividend hikes, and share buybacks -- a positive catalyst I first wrote about last September (see "Get ready for an epic bull market"). Indeed, according to Credit Suisse equity strategist Andrew Garthwaite, corporate buying of stocks has totaled 1.9% of total market capitalization -- nearly triple its three-year average.

It's set to continue: If corporate leverage -- now at 20-year lows -- returns to more normal levels, then earnings per share could jump nearly 20% as stocks are pulled out of the market and moved into business coffers.