Bears and bulls slug
it out at even odds
Wall Street,
By Alan Deans
Toss a coin. Now that Wall Street officially is suffering a correction - having dropped by 10 per cent or more - history tells us there is a 50:50 chance of it falling further or staging a recovery.
They are odds plenty of investors would prefer not to bet against. The continuing rush to safe havens pushed 30-year US Treasury bonds last Friday to a new low of 5.54 per cent while shoving the Dow Jones Industrial Average dangerously close to the 8400 mark.
There is talk around from value investors that now is a good time to be doing some bottom fishing, but it seems that plenty are happy to punt that they will be able to buy more cheaply in the days and months ahead.
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With President Clinton's testimony before a Whitewater investigation grand jury today and little signs of stability emerging in Asian economies, weakness seems sure to prevail at least into this week.
The man often credited with picking the onset of the August selldown, Prudential Securities' Ralph Acampora, obviously thinks so because last week he published three lists of 55 stocks that are either forming ominous tops patterns, are already breaking down through support zones or have fallen precipitously.
There are some big names, including Disney, Gillette, HJ Heinz, Revlon, Zeneca and the Fannie twins Mae and Mac. The advice is that this bunch of stocks are forming "suspicious technical characteristics", so watch out.
For the opposite view, look no further than Donaldson, Lufkin & Jenrette's Tom Galvin. He says that come October, stocks will have rebounded and he is urging investors to lift their equity weighting from 60 to 75 per cent.
He reckons people should cut their bond exposure from 30 to 20 per cent. It is a brave call.
"Because of our confidence in the intermediate and long-term picture, we view the recent markdown of share prices as a buying opportunity for patient investors," Mr Galvin says. "We recommend putting fresh money into financials, health care, technology and retailers."
CIBC Oppenheimer has become a raging bull on airline stocks, having only just initiated research coverage of the industry. Everyone knows they would not have spent money on expensive analysts unless they thought there was a story to sell and commissions to be earned. Forget the fact that the Dow Jones Transportation Average has dropped to 3002 points, well under its 1998 opening level of 3257 and its April peak of 3662.
CIBC is especially urging purchase of domestic airlines because they are not exposed to the lack of passengers that is afflicting many international carriers. In particular, it is urging clients to go for Alaska Air, America West and Southwest Airlines.
Airlines have been selling cheaply all year, partly because they have not been able to get ticket price rises to stick and partly because of jitters that rock-bottom oil prices could be set to rise. This means that price/earnings ratios are incredibly cheap at 7-9 times 1999 earnings compared with 25 or so for most industry stocks.
CIBC says airline management these days is different, being far more focused on profits rather than market share. It says that a long-term capacity shortage is looming because of new noise regulations, and adds that costs are coming down because of new code-sharing alliances and more efficient ticket sales mechanisms.
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