Bears prepare for the last frenzy of the bulls
Australian Financial Review July 18/97
By Richard Salmons
Wall Street stocks are set for a final surge culminating in
a speculative frenzy and the onset of a bear market late
this year or early next year, according to one of the most
bullish of US brokers, Prudential Securities.
The 1994-98 bull market, in Prudential's view, will see
another surge based on small capitalisation stocks
followed by a "blow-off or 'buying panic'", similar to
market conditions in the 1950s and '60s.
"That will signal the end of this portion of our secular bull
market and the start of a bear market," Prudential's chief
technical analyst, Mr Ralph Acampora, said in a recent
report.
The chief economist of Prudential-Bache Securities in
Australia, Dr Dennis Mahoney, said yesterday that Mr
Acampora had predicted that the Dow would reach
7000 in a report in June 1995, but was now looking
ahead to the end of the four-year bull market.
According to Mr Acampora, the Dow will rise to 8250
over the next six months and as high as 10,000 by June
1998.
His theory is that declines in the broad market in 1994
amounted to a "stealth bear market", which has since
been followed by a bull market comparable to that of
1962-66.
As investors gained confidence, share price rises have
shifted from blue chips, which Dr Mahoney said
benefited from the restructuring and foreign market
expansion of US multinationals, through to smaller stocks
in the form of a sharp rise in the broad Russell 2000
Index in the last three weeks.
"Small to mid-cap names should support our secular bull
for at least another six months," Mr Acampora said in his
latest report, before, "all things being equal, at some time
later this year/early next year there should be another
surge of investor greed."
That surge was described by Mr Acampora as "a
melt-up". "It is a very emotional time where irrational
behaviour dominates," he said.
Investors literally throw money at the market in a vain
effort to catch up. A time when confusion reigns and
normal research becomes near impossible."
Prudential believes the downside risk is a fall in the Dow
to around 6200, and there are likely to be volatile
short-term corrections through the rest of this calendar
year. "Because prices tend to spike up in an abnormal
manner, they will also suffer sharp near-term sell-offs,"
Mr Acampora said.
Since 1994, he said there had been 11 corrections
averaging 12 days and 6.2 per cent in losses each time.
The report added a further caveat: "If one believes that
interest rates will rise higher than 8 per cent any time
soon, our story drops dead in its tracks."
Dr Mahoney said the good news for Australian investors
was that the All Ordinaries Index could rise significantly
in sympathy with Wall Street, although he conceded that
the Australian market was unlikely to match the pace of
its US counterpart.
"The difference is we don't have the corporate earnings
growth, and we don't have the speculation, the eagerness
to put money into mutual funds," Dr Mahoney said. |
