09/20/2002: "Market Monitor"-John Murphy, President of MurphyMorris.com
PAUL KANGAS: My guest Market Monitor this week is John Murphy, president of MurphyMorris.com. And welcome back to NIGHTLY BUSINESS REPORT, John
JOHN MURPHY, PRESIDENT, MURPHYMORRIS.COM: Good to be back, Paul.
KANGAS: As an expert technical analyst give us your opinion of the stock market's current overall condition.
MURPHY: Well, Paul, we're still in the midst of a bear market that's been going on for two to three years, we had a nice bounce off the July bottom, not a very impressive one, very light volume, in fact. And over the last week or two that has been rolling over to the downside. Yesterday, for example, the Dow broke some support at 8,000, which was not good. What we're looking for now is for the major averages to come back, retest those summer lows and we think there's a pretty good chance they're going to be broken.
KANGAS: Give us the levels that we should be looking at that could be critical for the major stock indices. Let's start with the Dow.
MURPHY: Well, the Dow, 7,700 is a level that a lot of technicians are looking at. That was the closing low back right at the end of July. I'm actually widening that a little bit, 7,500 to 7,700. The reason for that is 7,500 is also the low that was set at the end of 1998. and right now the Dow is the only major average that's still holding above that level. So 7,700 is important. But to me 7,500 is more important. The S&P, the 800 level. And the real critical one right now is the NASDAQ, 1,200. That is, we're very, very close to that and I suspect that will be the first average to broke down here.
KANGAS: OK. Now, your last visit was March 8 of this year, and you felt the market, after a nice rally, was overextended but it might be telling us the recession was over. Have you changed your mind since?
MURPHY: Well, in fact, I think it did tell us that. That recession was over. But shortly after that, Paul, the market did start to rollover. In fact, it took us till about the end of April, April 29, to be exact, when we mentioned on our site that we had gotten the first major "sell" signal in six months and we started talking about the possibility of a retest of last September's lows. So, since the end of April, beginning of May we've been somewhat negative on the market and, of course, more positive on bonds.
KANGAS: Well, back in March when you were with us you liked some cyclical stocks, like Phelps Dodge (PD), Louisiana-Pacific (LPX), General Motors (GM), Caterpillar (CAT), KLA-Tencor (KLAC). But according to your Web site, you got out of all of those. They broke support and you were gone.
MURPHY: Yes. At that particular, during that six month run-up, the cyclical stocks, the economic were the leaders, and that's what we like to participate in. But as you know, we're chart readers, Paul. As soon as they started to break down we moved out very quickly.
KANGAS: Is there anything right now that you do like that you would actually buy at this level?
MURPHY: About the only group we like now, Paul, and we've liked them for most of this year, and that are the gold stocks. Normally in a low interest rate environment with the dollar weak and the stock market weak, that's about the only group that has held up. They normally do well in this environment. So we've been suggesting to people that, we've been saying this all year, basically, that right now about the only safe haven left are the gold stocks.
KANGAS: So you're really saying that we're going to have a double dip recession?
MURPHY: It looks that way to me, Paul. And, also, another thing, housing stocks broke down this week. That's been the last bubble and I think they're beginning to roll over, as well. So we believe that the markets leads the economy. And it does suggest to us that we are heading into a double dip.
KANGAS: Well, let's get more specific about these safe haven gold stocks. Which ones in particular are your favorites?
MURPHY: Well, our favorite is Newmont Mining (NEM). That is the biggest gold stock, kind of the standard bearer of the group. That is probably the most liquid of the group. But also Anglo Gold or Gold Field (GFI), to name just a couple. But for people, I think they can just put their money into a gold mutual fund.
KANGAS: Do you or your interests own any of the specific stocks you just recommended?
MURPHY: No, we do not.
KANGAS: One last question, John. We just have about 40 seconds left. But when you see a stock like EDS (EDS) lose 50 percent of its value in one day, does that tempt you to jump in for a quick trade on the "buy" side?
MURPHY: No, not really. I know a lot of people like to do that, but, no. When a stock break downs like that, very often you do get a little bounce, but it takes, but normally that bounce doesn't last all that long. So we're not tempted to do that. We don't like to buy into down trends.
KANGAS: OK. And, so stay away from inviting situations like that.
MURPHY: Well, that's not that inviting. An 11 year low, Paul, on massive volume. That's not that inviting.
KANGAS: OK. All right, John, thanks very much, as always, for your expertise.
MURPHY: Thank you, Paul.
KANGAS: My guest, John Murphy, president of MurphyMorris.com.
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btw, Uncle Frank that was a nice fishing picture...a few weeks ago I was on a charter fishing trip out on Lake Michigan (near Saugatauk)...I was out with my new brother-n-law and some friends and we were very fortunate since we all brought in fish. I caught a 20 lb King Salmon...=)
Hope you enjoy the weekend.
-Scott |
