;-) Acampora Sees Stock Rally to Year-End
Sunday April 13, 4:59 pm ET
By Haitham Haddadin
NEW YORK (Reuters) - Stocks could have scraped bottom last month and are poised to rally to year-end, based on several bullish signals from across financial markets, says Prudential Securities' star analyst Ralph Acampora.
But the top technical analyst, who shot to fame in the 1990s with his famous "Dow 10,000" call, believes that stocks are still locked in a long-term bear market, or what technicians refer to as a "secular" bear market: a reverse image of the spectacular 1990s bull run.
"I think we could rally to year end, and we rise 20, 25 or 30 percent, but after that we correct," Acampora told a press briefing in lower Manhattan this week. "We really have economic problems and (corporate) earnings problems."
But he added: "Your next bull market could last a year."
Going against conventional Wall Street views, the star analyst stunned investors when in the mid-1990s he forecast the Dow Jones industrial average (CBOT:^DJI - News) was entering a huge bull market. He said the gauge would climb to 7,000 from 4,500, which it did, and after that, went on to correctly forecast the gauge would go to 10,000. But he missed big when he predicted the tech-laden Nasdaq (NasdaqSC:^IXIC - News) would hit 6,000 by June 2001.
BULLISH SIGNS
Acampora, one of Wall Street's best know gurus, bases his market calls on technicals such as stock prices and trade volumes, unlike "fundamental" analysts, who look at how interest rates and corporate earnings impact stock prices.
Among bullish technical signs, Acampora said the New York Stock Exchange (News - Websites) Composite index (NYSE:^NYA - News) likely is tracing out a so-called "Triple Bottom," when it hit lows at roughly the same level of 4,400 in July and October last year, and this March.
"These are three failures to go down, and volume is falling, which means selling pressure is falling," he said.
Meanwhile, the tech-packed Nasdaq Composite (NasdaqSC:^IXIC - News) may be forming a "Reverse Head and Shoulders," he said.
This is formed when an index sinks then rises, followed by a steeper decline then recovery followed yet by a decline roughly of the same magnitude as the first one. The second bottom is the "head" and the first and the third are the "shoulders." This signals a declining trend will reverse.
A third bullish sign, Acampora said, comes from the MACD indicator for Nasdaq which has experienced a so-called Golden Cross, formed when a near-term moving average crosses over a long-term moving average, or resistance level. This is seen as a buy signal. A moving average is an indicator tracking an index's trend by averaging its value over a period of time, say 50 days or 40 months. The MACD is a widely used tool to gauge market momentum and can help forecast uptrends or downtrends.
"For the first time in two years we see momentum pick up," he said, noting this signal was spotted about two weeks ago.
Still, he pointed out that the broad Standard & Poor's 500 index (CBOE:^SPX - News) is still in a long-term down trend, the telltale sign that any rallies will be within a broader bear market.
"What we need is the down trendline to be broken. This will be if S&P rallied above 965 and Dow broke 9,000," he said.
The bullish scenario is not valid if five- and six-year lows hit in October are broken, he said. This makes the October lows major "support" at Dow 7,197, S&P 768 and Nasdaq 1,108. They stood at 8,254, 873 and 1,368 on Friday, respectively.
BIOTECH, FOOTWEAR & OIL DRILLERS
Of the more than 100 sectors in the S&P 500, Acampora said he likes a few like biotechnology, footwear and oil drillers.
"There's no real theme in the marketplace," he added. "But there are a lot of individual issues."
Acampora likes stocks like Abercrombie & Fitch (NYSE:ANF - News) and The Gap Inc. (NYSE:GPS - News) among retailers, and in the oil sector Apache Corp. (NYSE:APA - News), ConocoPhillips (NYSE:COP - News) and Ocean Energy (NYSE:OEI - News). These picks are based on technicals, fundamentals and quantitative analyzes.
Others include Amgen Inc. (NasdaqNM:AMGN - News) in biotechnology, Avon Products (NYSE:AVP - News) in beauty products and Foundry Networks (NasdaqNM:FDRY - News), in network equipment. A group that Acampora likes purely on the basis of their charts include health insurer Aetna Inc. (NYSE:AET - News), Web firms Amazon.com (NasdaqNM:AMZN - News) and Yahoo! Inc. (NasdaqNM:YHOO - News) and retailer Best Buy (NYSE:BBY - News).
Among stocks he doesn't like, he named payroll services firm Automatic Data Processing (NYSE:ADP - News), casino operator Argosy Gaming (NYSE:AGY - News), and BellSouth Corp. (NYSE:BLS - News) and SBC Communications (NYSE:SBC - News) in telecommunications.
Finally, he said he was also bullish on the basis of the so-called Presidential Cycle, named for what some believe is a link between stocks and the economy and U.S. elections.
According to the Stock Trader's Almanac, there hasn't been a down year in the third year of a presidential term since 1939, when Dow fell 2.9 percent. The only big decline in such a year over the past 84 years was in the Depression year 1931.
"I don't think you will have a down year this year. I think we break the August (2002) highs and then have a run," Acampora said. These levels are Dow 9,077, S&P 965 and Nasdaq 1,426.
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