Is now the time to buy TAVA?
Friday September 11, 8:39 pm Eastern Time
Pervasive market gloom may be a buy signel
By Pierre Belec
NEW YORK (Reuters) - Wall Street has gone through some tough
times but some experts say the best time to buy stocks is when things
seem to be as bad as they can get.
Sure, the global economic malaise that ravaged the market over the last seven weeks is ongoing.
But what's encouraging is that the contagion may not get worse and spread to other countries.
Some investors, who use early warning signals or contrarian indications, are getting ready for
the next big move up.
They see a break in the clouds, expecting a recovery next year in the battered Asian countries,
which might fuel the next great bull market.
In the United States, the economy is still in great shape with inflation practically nonexistent. The
prospect of a drop in U.S. interest rates before the end of the year makes stocks more appealing,
the experts say.
''The news needs to stay bad to set the stage for what we expect to drive the next super-cycle
bull market,'' says Don Hays, chief investment strategist strategist for Wheat First Union.
He said, for instance, one of the most reliable bull market signals occurs when all the economic
numbers show a recession has started, not when the data show the recession is over.
Right now, most investors are singing the Dow Jones blues, and bullishness is not rampant on
Wall Street.
Investors are worried about lagging corporate earnings and the possibility that President Bill
Clinton may face impeachment proceedings over the White House sex scandal.
Analysts said investors should look for clues that suggest the market might be set for a rebound.
Another reliable bull market alert is the stock trading activity of corporate insiders.
They are the people that have access to inside information -- senior officials such as directors
and chief executive officers -- who draw much of their compensations from stock options.
The officials tend to have a good idea about their companies' future earnings prospects and
professional traders shadow the corporate leaders on the belief that where there's smoke, there's
fire.
Frank Ponticello, senior analyst for Prudential Securities, said there has been a jump in insider's
buying of stocks recently.
The insider buying over the past month soared to an unusually high 61 percent. Normally, the
consensus insider buying ranges between 30 percent and 45 percent.
The insiders have been known to scoop up stocks at the right time, having bought at a feverish
pace after the 1987 market crash, the 1990 panic sell-off and in late 1994 and early 1995 when
the market embarked on its strongest bull run ever.
''The current buying shows bullish confidence by the insiders,'' said Ponticello. ''The buying has
mostly been in secondary stocks, which are in a bear market, and it would appear to be bottom
fishing.''
Ponticello said that while the insiders' buying may be a signal that the market may have bottomed
out, he cautioned that some insiders have been wrong in the past.
''It may not necessarily mean that they are right in the timing or their pricing point,'' he said.
''We've seen insiders buy natural gas and oil drillers six or seven months ago, and the stocks are
still down 30 percent.''
Another contrarian indication says articles in major national publications may signal the time of
a market turnaround.
According to the theory, when non-financial publications issue bearish articles it may be time to
buy stocks, while bullish coverage could be a bearish signal.
The reason is that the publications tend to pick up on Wall Street situations only after they have
been around.
Often, by the time the editors catch on to a market event, Wall Streeters tend to view it as
confirming the maturity of the extreme market move rather than announcing that it is ongoing or
beginning.
Coincidentally, the Sept. 14 issue of Time magazine has a cover story, entitled ''The Bears of
Summer.'' It asks the question: ''Is the boom over?''
(Questions or comments can be addressed to Pierre.Belec (at)Reuters.com)
|
