Sentiment in the stock market is lousy after a month-long crash.

Despite what felt like never-ending selling, many markets actually had a solid bounce last week. The news isn't necessarily better, but they rose nonetheless.

Based on how bear markets work (including the current one), it is possible that a rally could last for a couple months. Maybe last week was the start of one. Or maybe not. But in looking at what to buy into, it makes sense to consider things that were hit hardest on the way down.

One area with many reasons to jump is the U.K., which can be accessed with the iShares MSCI United Kingdom Index Fund ( EWU). At its worst, it had fallen 60% from its peak, compared with 45% for the S&P 500 in the U.S.

The story on the ground in the U.K. seems bleak. The economy is contracting, inflation is on the high side, the housing market may be worse than in the U.S., the banks may be worse off than in the U.S., and the U.K. bailout of its own banks is more stringent than the U.S. bailout on considerations such as dividends.

Despite all of these things, I believe there is visibility for a meaningful bounce for several reasons. In thinking about a bounce being most pronounced in the areas that were hardest hit, EWU has been hurt by its heavy weighting to mining companies and financial stocks. Also, the British pound has dropped almost 20% in the past three months.

EWU has a 23% weighting in financial stocks, down from 29% a year ago. HSBC ( HBC) is the largest financial in the fund and has held up relatively well, dropping 30% this year. In addition to HBC, the fund is heavy in Barclays ( BCS) and Royal Bank of Scotland ( RBS), down 70% and 87%, respectively.

EWU has a large exposure to mining, with Rio Tinto ( RTP), BHP Billiton ( BBL) and Anglo American ( AAUK), down 55%, 44% and 60%, respectively. The three materials stocks peaked in May.

One aspect of a bounce is that the declines were so fast, a corrective bounce (or maybe the real thing) should be coming and may have already started. Last week, as the S&P 500 snapped back 11%, EWU came back 20%. The three mining stocks mentioned above rallied more than 30%, and RBS and HBC were up 17%. (BCS was the laggard, dropping 10% on news of a controversial capital-raising from Qatar and Abu Dhabi.)

The moves in those stocks last week are big when viewed from the bottom but not from the top. BBL is still 60% from its peak. The idea here is that if a bounce continues or happens at some point in the near future (one of the two seems reasonable), industries such as mining and financials have a chance for exaggerated moves up just as the declines down may have been exaggerated.

One other short-term kicker could be EWU's dividend. The ex-date is Dec. 23, but the amount of the dividend has not been announced. The trailing yield is 7.1%, and it is unlikely to be as much as that after this next dividend. Part of the U.K. bailout plan is that banks may not be able to pay dividends on common shares until they have bought back the preferred shares being issued to the government. The details are still being sorted out, but the dividend about to be paid has accrued from dividends collected by the fund previously. AAUK client and personal holding
At the time of publication, Nusbaum was long AAUK, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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