The stock market appears to have found a bottom in its 31/2-month decline, and short-term rallies are likely, a number of Wall Street-watchers say. The Dow Jones industrial average is not expected to slip much below 1,120 on bad days and may climb toward 1,220 on good ones, these analysts say. This is not a wildly optimistic scenario but signals a decrease in the gloominess that has pervaded the market since early January.
In fact, the Dow appears to be working its way up from the 1,150 range. The Dow closed an abbreviated week last Thursday at 1,158.08, up 7.85 points since April 13.
Eric Miller of the Donaldson, Lufkin & Jenrette brokerage firm uses a baseball analogy to describe his investment strategy in today's stock market.
''Don't try for home runs,'' he says. ''Hit singles.''
By this he means: Be selective; don't expect whole industries or similar types of stocks to perform well or in concert, as they did in the initial leg of the bull market beginning in August 1982. The dominant problem on Wall Street, Mr. Miller says, is that credit markets have been sorely depressed; this increases bond yields and provides stiff competition for stocks.
He blames Washington for this and feels ''credible reduction in government spending projections'' would help the economy, ''but the odds for that don't appear to be high.'' A small deficit-reduction package is possible, Miller says, ''but a meaningful reversal in security-price trends requires that the politicians impose spending disciplines, and that is unlikely to happen without a crisis.''
Richard J. Yashewski and Joseph H. Barthel of Butcher & Singer have been bearish for many months; they correctly predicted the Dow's downturn in January. Now, however, using technical measuring indicators, these analysts see ''rapid improvement in sentiment'' and have turned mildly optimistic, if only over the short-term future of the stock market.
Mr. Yashewski and Mr. Barthel point to a positive swing in stock index option activity, higher equity cash levels among institutional investors, and more bearishness among investment advisers (which is viewed, in a contrary light, as bullish).
''There is no doubt that the sentiment improvement and other developments will have a strong influence on the short to intermediate term,'' they say, but add that ''we still view the longer-term trend to be negative.''
An opposing view is voiced by the Value Line Investment Survey, which has made its name by tracking the historical patterns of hundreds of stocks. Value Line recently projected an increase in the Dow industrials to 2,000 or 2,600 by 1986-88; that would be a 75 to 125 percent increase from the current level.
Although it is predicting a long-term bull market, Value Line, too, urges selectivity in investments: A portfolio should be ''predominantly invested in common stocks because of their long-range potential,'' but some cash reserves should be kept.
Like colleagues at Butcher & Singer and at Donaldson, Lufkin & Jenrette, Anne E. Gregory, who publishes the Merrill Lynch Market Letter, forecasts further market improvement. As quarterly earnings reports come in from corporations, she thinks they will show ''the best year-to-year gains since the economic upturn began'' and will support a market rally.
Still, the market is not quite ready for a ''major new advance at this time, '' she says. The risk of a major slide in stock prices appears to be ebbing, and ''any new weakness should be viewed as an opportunity to build positions in stocks that should do well in the next phase of advance.''