Gurus: War Could Send Stocks to Oct. Lows
Thu January 23, 2003 12:25 AM ET
By Haitham Haddadin
NEW YORK (Reuters) - Top Wall Street pundits painted a bleak picture for stocks in coming months as fears mount over possible U.S. military action in Iraq.
The prognosticators, giving 2003 forecasts at a panel discussion late on Tuesday in New York, said the equities bear market could grow another down leg soon. Stocks were likely to revisit five- or six-year lows hit in October 2002.
For 2003, the experts said they are hopeful stocks will end up for the year, but warned investors not to expect fireworks.
An important low was made in October, but "it may only be a provisional low, which is part of a much larger corrective process," said Woody Dorsey, who heads advisory firm Market Semiotics and is an authority on investor sentiment.
This is not encouraging considering the Dow Jones Industrial average .DJI and the broad Standard & Poor's 500 index .SPX erased the new year gains on Wednesday, while the tech-laden Nasdaq Composite .IXIC is about 2 percent away from shedding its gains this year.
The market lows in July and October of 2002, Dorsey said, were symptomatic of some "capitulation," or the throwing in of the towel by the investing public, which market watchers believe is needed for the birth of a lasting bull market.
The "final capitulation," Dorsey argued, would come as a battle for regime change in Baghdad is fought.
"Perhaps the next buying opportunity will be coincident with the final capitulation," he said.
PANDORA'S BOX
Concern about Iraq was a common theme in the market forecasts given at the panel discussion hosted by the Society for the Investigation of Recurring Events (SIRE), which studies cyclical change in the economy and financial markets.
President Bush said on Wednesday there would be "serious consequences" for Iraqi President Saddam Hussein if the United States had to disarm him by force.
Ralph Acampora, one of Wall Street's best known analysts, sees stocks pressured in the run up to a showdown with Iraq. That is because jittery investors will fret over the uncertainty tied to military involvement in Iraq.
"People think (war) will be quick, but I am not too sure," Acampora told the panel, summing up the risks.
But if history is any guide, Acampora thinks the market could rally once the bombs start falling.
The last example of this was the Gulf War of 1991, when stocks rallied after falling in the run-up to hostilities.
For coming weeks, Acampora tells investors to keep eyes peeled to the 8,200-point area on the Dow. That is because he sees that level -- 8,242.91 to be exact -- as "support," or an area where buyers have emerged in the past to snap up stocks.
He pegs support at 869.45 for the S&P, and 1,327.19 for the Nasdaq. All three levels are the intraday lows on Dec. 31, and if breached, mean the October lows beckon.
Acampora, in his outlook for the year, expects stocks to churn in a wide trading range. For the Dow, it will be defined by 7,100 on the low end and 11,000 at the other extreme.
"I think we go toward the 7,100 (level) fairly soon, but I think those lows will hold," Acampora told the panel. "Then we will have one hell of a rally."
In a note to clients on Wednesday, Acampora said the jitters "could be related to the rising tensions in Iraq and may not end until the situation is resolved ... The market appears vulnerable to us in the short term."
Longer term, he tells investors to forget the spectacular 1990s and should now expect the mirror image of the longest bull run in U.S. history: an extended bear market interspersed by powerful, but short-lived rallies.
More upbeat pundits sounded cautiously optimistic at best.
Giving her economic forecast for 2003, top-rated independent economist Kathleen Camilli said she was looking for a respectable nominal growth of 5.1 percent in gross domestic product and 3.1 percent real GDP growth.
But corporate earnings are likely to be meager, at 1.7 percent growth, warns Camilli, ranked by The Wall Street Journal among the best economic forecasters in 2000 and 2001.
She is looking for deflationary pressures, or falling prices, in some sectors like technology and consumer goods, but says deflation will not be broad based as services and war- related commodities may face inflationary pressures.
"This view is still consistent with modestly positive returns in equities and bonds," she said in a presentation.
Arch Crawford, another well-regarded technical analyst, said he is also nervous near-term.
"I believe we could easily break the October lows by the middle of March," Crawford told the panel.
In October, the Dow scraped out a multi-year low of 7,197, the S&P hit 768 and the Nasdaq sank to 1,108.
Focusing on the market's long-term technicals, Crawford is bearish because of what he calls negative chart signals such as the "Head-and-Shoulders Top" in the S&P 500, a formation that signals a lot of overhead resistance, or barriers to up moves.
On the Nasdaq, he sees a bearish 1929-type top, a parabolic rise to mania levels, followed by a steep decline.
"I think the downtrend is going to put on one or more legs to the downside," said Crawford, who publishes the Crawford Perspectives newsletter.
For the whole of 2003, Crawford said he is looking for another "fairly bad year" after three years of declines.
"Hopefully, it will be positive on the year. I am not that positive about it, but I am hopeful," he added |
