Headline: Monitor"-John Murphy Of Murphy Morris
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PAUL KANGAS: My guest market monitor this week is undeniably one of the best
known stock market technicians of our time. He's John Murphy, the president
of MURPHYMORRIS.com, a Dallas, Texas based market advisory. And he comes to
us from our New York studios, and welcome, John.
JOHN MURPHY, PRESIDENT, MURPHYMORRIS.COM: Thanks for inviting me, Paul.
KANGAS: When I last saw you at an Intershow Investment Seminar in San
Francisco in early August, you said your charts for the major averages and
stocks in general were the most bearish you had ever seen in 30 years of
technical analysis. And indeed, stocks have been hammered down ever since.
Are your charts presently signaling any end to the carnage and possibly a
turnaround?
MURPHY: Paul, I think on a short-term basis, the answer is, maybe, yes. I've
been looking for the Dow to come down to maybe 7000 during October. The
thinking being, that might set the stage for a rebound of some type. But the
market has held up very well. Like today for example, the Dow has held at
that 7400 level, and the market is extremely oversold at this point. So, I
don't know whether we're there yet or maybe we're, maybe there's another week
or two, maybe a little bit more probing on the downside. But I do think that
we're close to some type of a short-term bottom here, which could lead to a
bounce maybe through the balance of the year.
KANGAS: Is the Dow in a bear market?
MURPHY: The Dow?
KANGAS: Yes.
MURPHY: I think the whole stock market is in a bear market.
KANGAS: OK.
MURPHY: And the Dow has actually been the best performer overall.
KANGAS: True.
MURPHY: But I think the overall market is in a bear market, yes.
KANGAS: Actually, we do have a chart of the Dow over the last, well, for most
of this decade, as long as we're talking about it. And the long-term support
line has not been broken, has it?
MURPHY: No. In fact, you can see on that chart, Paul, if you go all the way
back to the last eight years, which encompasses the last two bear markets...
KANGAS: Right.
MURPHY: ...we'd have to come all the way down to 6000, maybe even a little
bit below it, 5500...
KANGAS: OK.
MURPHY: ...to even come back to the long-term trend line. And I think
eventually that's where we're headed.
KANGAS: What's the major problem? I know you look at fundamentals too. What
is it?
MURPHY: Well, Paul, if you remember in August, we were talking about
deflation.
KANGAS: Yes.
MURPHY: The problems in Asia gradually working its way through the world. It
finally hit us, and I think that explains why, for example, stocks have done
so poorly and bonds have done so well. We're just now beginning to feel the
impact of this. So this has been building for quite sometime, and it's
beginning to suggest some weakness in the economy.
KANGAS: And of course, it's the small cap stocks that really are in a bear
market. We have a chart of the Russell2000 which, you'll see here, it has
broken an eight-year up trend line. And so that's really been in a bear
market, hasn't it.
MURPHY: Well why this is so significant. It was the small stocks that turned
down first.
KANGAS: Right.
MURPHY: They gave us the leading indications, Paul, and on that chart you can
see, again, that same eight-year period, we have broken that long-term up
trend line very decisively.
KANGAS: OK.
MURPHY: So that would certainly seem to suggest that there's more to come on
the downside, for not just the small stocks, but the market as a whole.
KANGAS: But the bear markets are usually a lot shorter than bulls, aren't
they?
MURPHY: Well, on average for this century, they average maybe 12 to 13
months, something like that. For the last several years, they've averaged
only four months.
KANGAS: OK.
MURPHY: And we've had four months now. But I think eventually we'll probably
go down another maybe 12 to 13 months before this is over.
KANGAS: OK. John, what's your strategy? Is there anything to buy in a
situation like this?
MURPHY: Well, actually, Paul, we have favored bonds for quite some time. But
what we have been suggesting this week is that it may be time to rotate some
of that bond money to the short end of the yield curve. We've noticed, for
example, a lot of selling of bonds this week. A lot of buying of T-bills, I
think.
KANGAS: Right.
MURPHY: So we're suggesting to people in the fixed income area, it may be
time to take some profits in bonds or roll some of that money toward the short
end of the market...
KANGAS: OK.
MURPHY: ...toward T-bills.
KANGAS: We just have a minute left, John, but how about any stocks at all.
Would you buy anything here?
MURPHY: Well, I like utilities still, Paul, even though they've gotten very
much ahead of themselves. We've had a big pullback today.
KANGAS: Can we get specific?
MURPHY: Well, the telephone stocks, for example, AIT (NYSE:AIT), BellSouth
(NYSE:BLC),
Bell Atlantic (NYSE:BEL).
KANGAS: OK.
MURPHY: And even some of the gold stocks, on a pullback over the next couple
of weeks, I think are beginning to look attractive.
KANGAS: We saw a pullback in the golds today. You know, it was down $3 1/2
an ounce today, gold. Can you name a specific stock you like?
MURPHY: We like Homestake Mining (NYSE:HM) and we like Placer Dome (NYSE:PDG),
but
they've run up 50 percent, Paul. They're due for a correction here so I
wouldn't chase them here. But I think on a decent pullback, I would take a
look at those two stocks.
KANGAS: All right. So basically what you're telling us is the downturn in
the market isn't over yet. We're going to have to have another downside test?
MURPHY: I think that's the case, Paul.
KANGAS: Well, listen. The truth hurts but, I'd rather have the truth.
(LAUGHTER)
MURPHY: Yes, OK.
KANGAS: Thanks very much, John.
MURPHY: You're welcome, Paul.
KANGAS: My guest, John Murphy, president of MURPHYMORRIS.com out of Dallas,
Texas.
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