The latest from RA:
November 6, 1998, 12:12 a.m. EST
Prices as of close on 11/05/98
U.S. Stock Market Outlook
Near-Term
Yesterday, the DJIA closed up +132.33 or +1.51% following bullish comments from Alan Greenspan
regarding the bond markets returning to normal spreads. Additionally, the employment report was released
a day earlier than anticipated. It was indicating that the Federal Reserve has room to lower rates. The
resistance on the DJIA is now at the 8950/9000 and for the S&P 500, resistance exist at 1175/1190.
Secondary targets for the DJIA exists at it's previous high of 9368.
For today, expect the DJIA to open down, as the weekend is near, we are at the tail end of earnings
releases, and profit taking set in. With the recent sharp gains, any hesitation and consolidation would be
considered normal and healthy. The underlying market remains very constructive to the upside. Careful
stock selection is in order and is very appropriate course to take at this time—use any weakness as an
opportunity to research and buy these new ideas.
Intermediate Term
The DJIA is challenging the upper end of our resistance levels. With the recent run up of about 340 point
on the DJIA since October, the market should be at the upper end of a wide trading range that we are
forecasting. The market is stabilizing after the "cyclical bear" decline ended, however, it would be prudent
and more practical to expect a period of sideways market consolidation at somewhat higher levels. Such
movement is normal after a serious decline (e.g. after the 1987 Crash, the market and most stocks flattened
out for about one year). So, it is reasonable to expect that over the next several months the market will
once again stay within a wide trading range. Use this time wisely and be willing to rotate from group to
group, is necessary.
Long-Term
On August 4, 1998 we called for a cyclical bear market. The definition of "cyclical" means a very severe
decline lasting several months. At the time, we felt that the month of October could serve as the period
when this nasty sell off ends. Well, thanks to the Fed, we believe that our "cyclical bear" is over. The
decline from August to October is indeed a very difficult period historically and a time when many stocks
would cascade back down to reasonable levels. We believe that this is the case today—many stocks,
although in need of more stabilization, are in buy territory (see Sector Standings).
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