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Strategies & Market Trends : Making Money is Main Objective -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (1996)	3/5/2002 1:42:06 PM
From: Softechie	Read Replies (1) \| Respond to of 2155

POINT OF VIEW: Stocks Should Break Feast/Famine Cycle 05 Mar 10:25 By Gene Colter A Dow Jones Newswires Column NEW YORK (Dow Jones)--In life, we often try to play it down the middle, taking care neither to gorge ourselves in feast or starve ourselves in famine. Why can't the stock market do the same thing? At issue is the market's tendency to do everything in extremes - like the last two day's worth of major rallying. It's not that cumulative gains of roughly 5% and 7% in the Dow Jones Industrial Average and Nasdaq Composite Index, respectively, aren't welcome. Rather, it's that were the gains of a magnitude more in line with underlying fundamentals the inevitable snapback wouldn't have to be as painful. The source of the rally was unassailably good economic news, including reports last week showing much better-than-hoped-for growth in manufacturing and overall economic activity. Taken together, the economic data suggest a fast recovery from the recession, maybe by sometime this year. The old saw holds that investors should buy stocks six months or so before a sustainable upturn because that guarantees they get in when prices are low. So now might well indeed be a good time to buy stocks. But in bidding up the Dow Industrials nearly 500 points in two days the market had to do more than glean the economic news. It also had to dismiss weeks' worth of accounting-impropriety fears. Then there's the matter of prices: In the last couple of days analysts (skeptics and bears, to be sure) have warned about historically heady values on shares as disparate as media and retailers. And most companies still lack "visibility" about a recovery in earnings. Considering the above negatives, and the sideways trading seen early Tuesday is perhaps a welcome development - one that might keep the market from overheating. The risk is that the next hint of improper accounting at a company major or minor will drive shares deeper into the red. It's a pattern as old as stock trading itself - feast or famine, run up sharply or fall down hard. Does it have to be this way? If the U.S. economy is recovering faster than expected, and the rest of the world isn't in danger of further, major economic contraction - and the latter is a big "if" - then a gradual rise in equity prices seems warranted and pragmatic. But it probably won't play out that way. Traders trade. Individuals can provide a leveling, calming influence by regular investments in mutual funds and retirement plans, but that money often gets held on the sidelines and poured in all at once, exacerbating the "feast" effect. Too bad. At a time when positive economic fundamentals need to be balanced with negative overhangs, a steady approach might just be the best path for stocks. The payoff? Sustainable gains. - By Gene Colter, Dow Jones Newswires; 201.938.2068; gene.colter@dowjones.com (END) DOW JONES NEWS 03-05-02 10:25 AM