Remember the old saying "the trend is your friend"?

It goes well with this one: "A rising tide lifts all boats." And when the trend turns against us? When the market plunges, run for an exit until you see blood in the streets (or hear the sound of cannon). Then it's time to get back in on the cheap.

Yes, markets with strong trends are relatively easy to navigate.

But how about a market without a strong, discernible trend to drive stock prices? One that seems at the mercy of news? And that has rallied far enough so that while it's not especially expensive, it's not especially cheap either?

What do you do as an investor then?

I think that's the kind of market we're in right now: one without a strong trend in either direction but seems inclined -- maybe -- to drift higher in the absence of bad news. In this kind of market:

You can go for broke, swing for the fences, double down. You can make a big directional bet on the market and hope that you've called it correctly. If you're right, you'll make out like a bandit. Get it wrong, though, and you'll feel as if you've been robbed by a bandit.

Or you can play "small ball." You take what the market gives you as its search for direction creates temporary bargains in individual stocks that you'd like to own for a while. "Small ball" is time-consuming. It takes a whole lot more effort to invest this way than to simply load up on gold or to short Chinese banks.

Image: Jim Jubak

Jim Jubak

But in a market that's searching for direction, "small ball" can allow you to make some money while limiting your exposure to getting the big picture wrong. It has the added value that if, as I believe now, the trend of global stock markets will be a whole lot clearer in six months than now, you will have preserved your capital diligently enough so you can take advantage of an easier market.

First, let me review where we are, in terms of the technicals of the market and its macroeconomic underpinnings. Then I'll give you my three small-ball picks.

Rally hits stall speed

Beginning on Dec. 19, with the Standard & Poor's 500 Index ($INX) at 1,205, U.S. stocks staged a major rally, reaching 1,368 intraday on Feb. 21. That's a gain of 13.5% in about two months.

And then the U.S. market went into a stall, moving essentially sideways over the next week or 10 days. And Wall Street analysts started talking about the need for this rally to take a rest. Stocks were overbought, and they needed to either pull back or at least move sideways to build up a new foundation for a further advance.

And, for a while last week, it looked as if investors might get exactly the downward trend some of these analysts had been forecasting. After closing at 1,374 on March 1 (with an intraday high at 1,376), the S&P 500 fell on Monday and Tuesday, March 5 and 6, to a close of 1,343 (with an intraday low of 1,340). It looked as if stocks might indeed resolve the sideways move from an intraday high of 1,368 on the S&P 500 by moving into a correction.

But that wasn't to be. The S&P 500 recovered pretty much all it had lost at the beginning of the week by the end of the week, closing at 1,371 on Friday, March 9, with an intraday high of 1,374.

Now I'm sure most investors -- all those who are long stocks, anyway -- aren't about to lament the failure of a correction to arrive as promised by the drop in stocks at the beginning of last week. If you're long stocks, you aren't wishing for a trend quite that much.

But it does leave us with the same market -- with the same lack of a strong trend -- that we've had since the rally that began the year, stalled and began to move sideways in late February.

Of course, the rally stalled and started to move sideways because of more than just nervousness about the market's technicals. News from Europe, China and the United States also had something to do with it.

For example, as March began, it started to look as if the Greek rescue deal might come apart because not enough Greek bondholders would agree to swap their old Greek bonds for new ones with a lower face value and a lower coupon yield. At the same time, investors got new data indicating that economic growth in the eurozone would be even lower than forecast -- even in relatively strong Germany. In the U.S., the Federal Reserve said the economic recovery was weak enough so that the central bank would leave intact its policy of keeping interest rates near 0% through 2014, but strong enough so that the Fed wouldn't add stimulus via a new program of quantitative easing in the near future. China cut its target for economic growth in 2012 to 7.5% from 8%, raising fears that China's economy might be headed for a hard landing.

By the end of last week, however, those fears had receded if not vanished. Some 95% of Greek bondholders had agreed to swap their bonds. The U.S. jobs number showed a net increase of 227,000, and aggregate income grew. The lower Chinese target for growth turned from a forecast of a hard landing to one more reason for thinking that the People's Bank of China would lower the bank reserve ratio again -- perhaps as early as this month -- and then move to an actual interest-rate cut in June or so.

That left us with a still-overbought U.S. stock market that hadn't fallen enough for across-the-board bargain hunting -- and where growth trends looked positive but worries about growth hadn't been put to bed.

Continued on the next page. Stocks mentioned: Home Inns & Hotels Management (HMIN, news), Oncogenex Pharmaceuticals (OGXI, news) and Ultra Petroleum (UPL, news).

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