Are you seeing a light at the end of the tunnel?

It seems like a lot of folks are. The market has gone up about 30% since the lows of early March, leading many to feel like the market -- if not the economy -- is on its way back out into daylight. But while the bullish trend hasn't shown any signs of abating, at least not as I write this on Tuesday morning, there are some good reasons to think that we're due for a significant pullback.

It's true that real bull markets tend to erupt out of pessimism, and as market actors slowly become convinced of the solidity (or to put it another way, become afraid of missing out), they bring more money back into the markets, driving prices up further. Long story short, lots of lingering pessimism -- and I've been hearing plenty -- is normal in the early stages of a bull market.

But ...
That said, I think the bad news isn't over. Despite Warren Buffett talking up Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) holdings in Wells Fargo (NYSE:WFC) last weekend, the banks are hardly out of danger. Likewise the automakers, because it looks as if Chrysler's bankruptcy filing is likely to be followed by something similar from General Motors (NYSE:GM).

On top of that, there's reason to believe that the problems in the commercial real estate market are just a hint of what we'll see. If you've been surfing for values among hard-hit real estate investment trusts like HRPT Properties (NYSE:HRP), which recently cut its dividend, or struggling mall giant Simon Properties Group (NYSE:SPG), I'd hold off for a while yet.

The coming option-ARM foreclosure wave
There's also the lurking problem of option-ARMs, those "pick your payment" mortgages that allowed folks to pay whatever they felt like paying -- up to a particular date, when the mortgage recasts and payments go up.

The number of option-ARM mortgages due to recast is set to spike sharply in the second half of this year, and to stay high until well into 2012. For many homeowners, their payments will double -- which will make currently marginal mortgages completely unaffordable. And of course, they won't be able to refinance (or sell), because the houses are no longer worth as much as they owe on the loans.

Whatever happens then, I don't see it being bullish for the residential real estate market, or for homebuilders like Toll Brothers (NYSE:TOL) -- and that's bound to be a significant continued drag on the economy.

So where does the market go from here?
My crystal ball is still in the repair shop, so I can't say for sure. History suggests that bear markets associated with recessions tend to end several months before the recessions themselves do -- investors don't tend to wait for a recovery to start buying, just signs that a recovery is coming.

On the other hand, there doesn't seem to be much of a basis for this rally, fundamentally speaking, aside from a whole lot of people looking at their big cash positions and saying, "Geez, stocks are going up, maybe I should jump in." The rate of economic decline might have slowed some from the near-vertical drops of last winter, but it's not like this is a recovery or anything. Not yet.

And that makes me doubt that the light we're seeing is actually daylight. But again, who knows?

What to do?
Right now, I have a block of cash to invest. I bought some stocks in early March -- and, wow, does that look like a genius move right now -- but I'm still sitting on a sizeable cash position. I'm trying to decide whether to hold onto it until the market drops back down, or whether to look for value and get that money fully invested. After all, it's entirely possible that the market won't go back down.

But the good news is that despite the market's huge gains over the past eight weeks, I think there are still bargains to be had. Plenty of dividend-paying companies are looking strong despite the economy, and while many stocks have made strong gains in recent weeks, others are still sitting at value-priced levels. So I don't have any shortage of candidates to look at right now.

Of course, when looking for value stocks, sometimes it can be hard to tell whether you're looking at a bargain or a disaster in the making. But if you're careful, you can still come out ahead -- even if you don't manage to catch the bottom.

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Fool contributor John Rosevear has no position in the companies mentioned. The Fool owns shares of Berkshire Hathaway, which is a Motley Fool Stock Advisor recommendation and an Inside Value pick. You can try any of our Foolish newsletters free for 30 days, with no obligation. The Motley Fool has a disclosure policy.