Just getting back from Virginia and an investment conference on Monday and Tuesday. A good friend of mine who runs a five-star Morningstar market neutral fund says that, for the first time in a year, he can see the clouds breaking for the financial markets. He said that large cap stocks would rise sustainably first and to expect small caps to take a while to rebound.

He had an interesting point about emotional investing in tough market environments like the one we’ve seen this year, with the Dow down 13.9%. “When markets are turbulent, and people are losing money, our fund suffers, “ he said. “People start acting impulsively and draw money out for almost any reason. But when people take the time to sit down and read our market commentary’s and study the companies we choose, then they do a lot better.”

His point? Don’t panic in a bear market. If anything, redouble your efforts to study what your investment firm is doing and why. Like my friend’s fund, they usually have a good reason why they pick the companies they do. Find that reason and see if you don’t agree before you pull the parachute.

Otherwise, the market is way up this afternoon (plus 104 points by 1 PM). A good durable orders number (meaning companies are increasing their investments in big products like trucks and metal and lumber, etc) has helped. Also, we saw some good news on the housing front. Yesterday’s Case-Shiller Index reports that the rate of home-price declines slowed from May to June and that 9 of the 20 cities tracked by the index posted minor month-to-month gains. Okay, it’s not a huge turnaround but it is movement in the right direction – finally.

On the tech front, Hewlett-Packard is in the news with its purchase of Electronic Data Systems (EDS) for $13.9 billion. EDS is a big technology services company and the merger should help HP battle IBM for market share in that area.

HP is nothing if not resilient. The company stock was plastered in the 200-2002 tech bubble but has fought back to a historic all-time high. Sure, it’s trading at 12% off those highs this summer, but it could have been a lot worse. But good management and steady earnings have kept HP’s ship well afloat. HP also isn’t above taking a risk with a big buyout like the move with EDS and that should help the stock rally.

Company financials are solid, too. Reports Investors Business Daily today, “the Palo Alto, Calif., company last week posted Q3 earnings that rose 21% and beat views by 3 cents a share. That makes 15 straight quarters of upside surprises. HP also expects to top Street forecasts in Q4. Its guidance calls for $1.01 to $1.03, above analysts' outlook for $1.00.”

IBD says that HP’s financial numbers rose in Q3 due to strength of computer and server sales, which helped offset softness in the company's printer segment. International exposure also helped.

HP may be one of those large-cap plays that my friend was talking about. With EDS on its side, HP stock should really pick up in the coming months.