It goes without saying that investors have been a bit reluctant to deploy new money to stocks in the past three months: persistent worries about Italy's finances and related European debt concerns, along with still sub-trend U.S. GDP growth, have created a cloudy U.S./Europe economic outlook as 2012 dawns.

Still, the new year is a time when many investors make a decision regarding how much money to allocate to stocks and which stocks to invest in.  

Meanwhile, each side of the institutional investor community -- the bulls and the bears -- is trying to make a compelling case that the data support their view of the world: the current demarcation line is Dow 12,000, with another key battle line being the 11,800 and 11,700 support levels below it and 12,750 and 13,000 resistance levels above it.

Where's the Dow likely to head in the next six months?

Bulls and Bears: Two Different Views of the Investment World

The market's bulls argue that despite the fact that the U.S. economy grew at just 1.8 percent in the third quarter, the economic expansion is accelerating, corporate earnings growth remains adequate to good, private sector layoffs most likely have peaked, the worst U.S. financial and economic news probably is over, and that the Dow's recent push above 12,000 is a signal by institutional investors (IIs) that better days are ahead.

Conversely, the market's bears argue that the U.S. workforce is still far too small, with stagnant median incomes in many job classifications, and the nation's job deficit remains staggering, about 11 million full-time jobs at minimum; further, that ongoing gnat called Europe government bonds or sovereign debt means the Dow is sending a false signal, and is likely to move decisively lower in the winter of 2012.

Let's do a condensed, cross-methodology analysis to see if we can arrive at an informed investment decision / conclusion regarding where the Dow is headed, near-term.

Technical Indicators: Slightly Bullish. The Dow is above the 50-day (11,918) and 200-day (11,994) moving averages -- which is bullish. The 50-day is also approaching the 200-day, and if that trend continues it would achieve a golden cross. However, buying pressure as measured by the MacD Histogram has been modest, which is bearish.

Fundamental Indicators: Slightly Bullish. The third-quarter earnings season turned out to be slightly better than expected. Initial jobless claims are below 400,000 and are in a downtrend, auto sales are rising, housing starts unexpectedly jumped to a 685,000-unit annual rate in November, from a 627,000-unit annual rate in October, the manufacturing sector continues to expand, and consumer confidence is rising. On the downside, the U.S. unemployment rate remains an unacceptably high 8.6 percent with roughly four applicants for every job opening.

Monetary Policy: Bullish. Despite three phases of quantitative easing (QE, QE2, Operation Twist) by the U.S. Federal Reserve, inflation remains moderate, running at a 2.2 percent 12-month core rate, which excludes food and energy prices, and a 3.4-percent rate overall. That moderate inflation, combined with the output gap, means the Fed will at least continue to reinvest the proceeds of the second stage of its quantitative easing policy to help stimulate the economy, 'QE2,' through at least the start of the second quarter, and perhaps for longer. Also, the Fed, in its most recent statement, maintained its language that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

Fiscal Policy: Bearish. Most recently, the U.S. Congress, overcoming the objection from the Tea Party-pressured Republican majority in the U.S. House, barely passed a two-month extension of unemployment compensation for those who can't find work, and an accompanying extension of the payroll tax reduction for employees. The issue will come up again in February, and the threat of further fiscal cuts, a loss of short-term fiscal stimulus, and/or a government shutdown remains.  What's more, Congress implemented austerity measures too soon. Deficit reduction and weeding out needless programs are laudable goals, but reducing the deficit too fast - especially if spending cuts affect the social safety net -- reduces demand, and could very well increase social problems -- leading to even higher social costs down the road.

Credit Markets: Recovering, but still strained, with still too many small/medium-sized businesses arguing they're not getting the level of credit they need to expand operations. Home mortgage qualifications terms remain very high. Home mortgage rates, however, are at/near 40-year lows, at an average of 3.96 percent for a 30-year, fixed-rate mortgage, for home buyers with excellent credit.

However, Europe's sovereign debt situation remains clouded, and there could be more financial market ripples. The major question marks concern Italy's ability to implement austerity measures and Greece's ability to service its debt, even with a bailout package in-place. There is concern that a contracting Greek economy will hinder that nation's debt servicing capability.

Conclusion: The view from here argues that the outlook for U.S. stocks and the U.S. stock market is Slightly Bullish for at least the next three months -- through early March.

Given the above technical and fundamental indicators, and the seasonal increase in money flows and trading volume that occurs in January/February, a modest uptrend in the Dow would not be unreasonable.

However, the current stock market remains highly selective, hence the bias is toward deploying capital in companies with substantial international operations (at least 30% of revenue generated outside the United States). 

In sum, the market needs additonal bullish U.S. economic data to help sustain Dow gains: a continued uptrend in monthly job creation would be a good one.