Stocks bouncing like Golf balls huh? Gee, I always thought it was more like Lotto balls.............
Some positive mention of Gold is highlighted in BOLD....... Better short some NEM. -g-
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biz.yahoo.com
Thursday May 23, 5:46 pm Eastern Time
Reuters Company News
ANALYSIS-Gurus see stocks bouncing like a golf ball
By Haitham Haddadin
NEW YORK, May 23 (Reuters) - Wonder what's in store for Wall Street? Climb up to the
top of the Empire State Building and drop a golf ball onto the street below.
The ball likely will bounce back up three-quarters of the height of the famed New York City skyscraper before hitting the
sidewalk again and bouncing repeatedly, each time rising to a level slightly below where it was before.
This, roughly, is the shape the stock market is likely to take in coming
years: A Big Bad Bear market punctuated by Little Rebounding Bull
markets, according to an elite group of Wall Street technical analysts
interviewed at a recent convention in Jupiter, Florida.
Technical analysts study the price action of stocks, looking for chart
patterns to plot market moves. In contrast, fundamental analysts look at
earnings, economic indicators and interest rates to predict what will
happen next to stocks.
"In secular (long-term) bear markets, you will have cyclical bull markets,"
said Phil Roth of Miller, Tabak & Co., during the Market Technicians
Association's annual powwow. "We are essentially in a market like the mid
1970s to mid 1980s. We were not in a secular bull market, but you had
short-lived bull markets."
The tech wizards voiced a growing bullishness on gold, which hit a 23-month high at $322.80 an ounce on Thursday in New York. The charts show bullion bottomed out last year after a 20-year bear market, many technicians said.
"Gold bottomed and is in a bull market," Robin Griffiths, chief technical strategist at HSBC, told Reuters. "It was in a secular downtrend, but has turned. Commodities generally turned, real assets are becoming more valuable than paper assets."
This week, gold rallied as more violence around the globe grabbed headlines. On Thursday, COMEX gold for June delivery (0#GC:) jumped $4.50 to close at $322.80, a 23-month high, after waves of headlines about more violence in Israel, a standoff between nuclear powers India and Pakistan, and renewed fears of more terror attacks against the United States.
DON'T RIDE REBOUND BULL TOO LONG
Miller Tabak's Roth said the Nasdaq Composite Index's (NasdaqSC:^IXIC - News) March 2000 peak above 5,100 is a multiyear cycle top.
"It will last for years and years, like the top of the Japanese market," Roth said, referring to Japan's weather-beaten Nikkei average (^N225 - News), stuck in a vicious bear market since topping out just shy of 39,000 in 1989.
But the beleaguered Nasdaq, which closed on Thursday at 1,697.63, may rebound near term, says a study by Ian Notley of Yelton Fiscal Inc. Jonathan Arter, who stood in for Notley and presented his paper at the Florida meeting, said:
"We believe the potential for a bounce is terrific."
He called such a rally a "Rebound Bull."
The Nasdaq's drop of more than 70 percent from top to bottom -- sinking to about 1,387 in the week after the Sept. 11 attacks -- results in stock-price action "like dropping a golf ball off of the Empire State Building," Arter said.
"It will bounce back up when it hits the sidewalk, but it will not go all the way back to the top," Arter added.
But he also had a warning for investors.
"Don't trust the bull past two 'up' legs," he said. "We are not looking for up legs that will last 44 months."
The rebound's duration? Probably a year to 18 months.
NO PANIC SELLING
Investors should forget Wall Street's mantra of "buy and hold" for now, said Paul Desmond, president of Lowry's Reports Inc., a market timing service based in North Palm Beach, Florida. This approach will not work in a long-term bear market.
"The 'buy and hold' philosophy says: 'Throw away your heavy coat. Don't worry about it ever getting cold again.'" he said.
Desmond, who received the "Charles Dow Award of 2002" at the convention for a research paper on identifying bear market bottoms, believes the market's final low has not been hit yet.
That's because there's no confirmation from two indicators he uses -- 90 percent Upside and 90 percent Downside Days. On a 90 percent Upside Day, points gained equal 90 percent or more of points gained plus points lost, and upside volume equals 90 percent or more of the sum of upside plus downside volume. This is the "panic buying" needed for a new bull market.
The reverse of this is a 90 percent Downside Day, which indicates "panic selling."
The selling after Sept. 11 never reached panic proportions found near almost all major market bottoms in the past 69 years, he said. Not a single 90 percent Down Day was recorded.
"In short, the final market bottom had not been seen in September 2001," Desmond said.
Mike Ladd, senior portfolio manager at Kenn Stern & Associates in San Diego, said the broad S&P 500 Index (CBOE:^SPX - News) may rise to about 1,236 by the end of March 2003. But investors should expect smaller returns on average than those realized during the runaway market gains in the late 1990s, Ladd added.
"One year the market may rally 12 percent and the following year it goes down," Ladd said..
THERE'S GOLD IN THEM THAR HILLS
On Thursday, gold broke through key "resistance" at $320, a price where sellers have emerged in the past, driving prices lower. Technicians look for a clean break of a resistance level for confirmation of an uptrend.
"It's not a roaring bull market, but that is a big change. It went from going down to not going down," said Roth, who has upside targets for bullion prices at $325 and $340.
Gold, often used as a hedge against inflation, soared above $800 an ounce in the early 1980s, a period of runaway inflation. In 2001, first in February and again in April, gold carved out a double bottom, forming a "W" shape when it fell to about $255 -- a sign chartists read as bullish, said Nina Cooper, a senior analyst at Elliot Wave International.
Cooper thinks gold can stage a big rally to about $400, or half the all-time high, in coming years, making stocks such as Newmont Gold (NYSE:NEM - News) a good investment. But investors should buy on pullbacks since these are overextended
now, she said.
Cooper, who analyzes market cycles, is a long-term bear on most other stocks. But she says it's not out of the question to have a rally in a battered market to complete a cycle.
Such a move could carry the Nasdaq 100 (NasdaqSC:^NDX - News) gauge of Big Tech stocks, currently at about 1,260, back up to its high November and December highs at 1,730. The Dow Jones industrial average (CBOT:^DJI - News) may rally back to its record high of January 2000 at about 11,720 and it may even overshoot that. But the completion of the wave calls for the Dow, the dean of market indexes, to fall to about 7,300 in coming years, she said.
"A bouncing bull and a big bear give you a good image," Cooper told Reuters. "The Dow could go sideways to down for potentially another three years." |
