This market is luring buyers out of foxhole - Report
Monday October 12, 1:35 pm Eastern Time
INSIGHT - Dow basks in an oversold bounce
By Huw Jones
NEW YORK, Oct 12 (Reuters) - Monday's rally in U.S. stocks is little more than an oversold bounce after the recent bashing, but tastier bait to lure more buyers out of their foxholes may be appearing, analysts said.
The Dow was poised for its first close above 8,000 points in two weeks amid signs the worst may be over for now.
''My first four telephone calls today were from brokers who wanted to short stocks,'' said Robert Dickey, a technical analyst at Dain Rauscher.
''That's unusual, and when sentiment is that negative, it's a sign that a bottom is at hand,'' Dickey added.
Analysts see the Dow trading between 7,600 and 8,400 points, but with another downside test later this month, especially when mutual funds dump weaker stocks.
Mutual funds have to take losses by dumping their worst performing stocks such as small caps, to offset gains from earlier in the year, because they cannot afford to leave clients with tax liabilities as well as losses from the market drop, Dickey said.
Midsession Monday, the Dow was up 165 points, or 2 percent, at 8065. The Nasdaq rose 62 points, or 4 percent, to 1554.
This Friday's double-witching or stock futures expiry may have helped fuel the gains.
Influential techs and financial stocks led the charge.
''It's nothing more than an oversold rally at this point,'' said Jonathan Dodd, a technical analyst at Morgan Stanley Dean Witter. "Until we see some good back-to-back days and get the breadth to go with it, the rallies will be shortlived.
Others were even bleaker.
''It's a bear market trap,'' said Bill Meehan, chief market analyst at Cantor Fitzgerald. ''Even if everything in the world went well now, in the absence of earnings growth and given the poor prospects, we still have a market excessively valued.''
Merrill Lynch's senior market analyst, Philip Rettew, added, ''Medium term sentiment is not suitable for sustaining the rally.''
The Dow industrials escaped hitting their summer lows of 7,400 during last week's heavy selling, but the Nasdaq slid to a 15-month low and the Dow transporations hit an 19-month low to dent the broader market charts.
''Too much damage has been done to the market to come back too far,'' said Frank Gretz, a market analyst at Shields & Co.
But the rebound in the financials, a key prop in the bull run, was heartening.
Bankers and brokers such as American Express Co. (NYSE:AXP - news), Donaldson Lufkin & Jenrette (NYSE:DLJ - news), Lehman Brothers (NYSE:LEH - news), Bear Stearns Cos. (NYSE:BSC - news), and J.P. Morgan & Co. (NYSE:JPM - news) have bottomed out, said Peter Green, chief technical analyst at Gruntal & Co.
''It's suggests that the banking crisis has abated,'' Green said. ''Net net, things are getting better, but the market is waiting to see how fourth quarter and first quarter 1999 earnings are going to shape up.''
Last Thursday the Philadelphia Stock Exchange's bank index closed at 591.97, its weakest since May 1997. Monday, the index was up 24 points, or 3.7 percent, at 663.12.
''Initial resistance is around 700 to 725 points, and even if it gets to that point, it's a good sign,'' Morgan Stanley's Dodd said.
Still, trading is expected to be erratic for a good while as investors digest third quarter earnings reports and form a better view of earnings in upcoming quarters.
The third quarter earnings season that has just kicked off is expected to be the worst in seven years.
More substantial moves by Japan to tackle its banking crisis and further cuts in interest rates by the Federal Reserve -- already factored into stocks -- should help sentiment.
''A lot of the bearishness is already built into the market, which is looking beyond our current problems, but there will be a rocky road for the next few weeks before a year-end bounce back,'' he added. |
