INSIGHT - U.S. stocks seen in near-term pullback
Reuters Story - April 08, 1998 13:58
%INSI %STX %CORA %DPR %ELI %ENT %BNK %FIN %U/I MOT INTC CQP CCI TRV V%REUTER P%RTR
By Richard Jacobsen
NEW YORK, April 8 (Reuters) - U.S. stocks are cooling off
after they surged the through Dow 9000 level and are likely to
pull back at least a few percentage points before making
further gains, technical analysts said.
But if selling gains momentum, questions may arise about
whether Monday's close above the 9000 mark, fueled by the
biggest merger in corporate history, was a climatic event for
the bull market, they said.
Recent readings showing high levels of investor bullishness
and weakness in technology stocks are factors signaling a
near-term pullback.
Alan Newman, technical analyst at H.D. Brous & Co, said he
expected stocks to shed 2 percent to 7 percent before trying to
rally again.
A drop of 7 percent from the Dow's intra-day peak on Monday
at 9095 would bring the blue-chip average down to about 8450.
Early afternoon Wednesday the Dow was off about 42 points,
or 0.5 percent, at 8914, following Tuesday's 77-point drop.
Gregory Nie, technical analyst at EVEREN Securities said
8750 on the Dow marked the low end of a recent trading range
and would be a key marker of the market's near-term direction.
"If you break 8750 that's enough of a pullback to ask if
there has been a change," Nie said.
He said it would lead to "harder questions: Have we
finished off the rally? Are we rolling over? Are we shifting
meaningfully to the downside?"
The Dow has short-term support, however, at around 8850,
Nie said.
Technicians pointed to recently high investor optimism,
which is used as a contrarian indicator because it often
signals there is little buying power on the sidelines.
The latest Investors Intelligence sentiment index showed
bulls at 52.4 and bears at 24.2. The index is based on a survey
of about 170 stock newsletter writers.
Brokerage PaineWebber said its sentiment index hit a record
level in March.
"A dose of jitters will be good for a complacent market,"
Nie said.
One source of jitters could come from technology stocks.
Gary Kaltbaum, technical analyst at J.W. Charles, said
leading technology stocks such as Motorola Inc. , Intel
Corp. and Compaq Computer Corp. were "breaking
down" technically.
"I think the techs, without a doubt are in a bear market,"
he said.
After two days of sharp losses, the technology-saturated
Nasdaq composite was up about two points to 1800 on Wednesday.
Newman said another source of worries for investors was the
market's lack of follow-through after breaking the Dow 9000
barrier and getting news of the record-breaking merger between
Citicorp and Travelers Group Inc. .
"I think there is some fear in the market that that was a
defining moment," he said.
Such a defining moment could mean the end of Wall Street's
bull market, although it is too soon to tell, he added.
The strength, or lack of it, of any rally following the
expected near-term pullback will be a key indicator of the
market's health, analysts said.
"I'm sure we'll try to rally again because this has always
been about buy the dips," Newman said. "I just don't know how
effective it's going to be next time." |
