To those familiar with Martin Pring's work: Sunday April 11 12:43 AM ET
Stock Market On Fire
By Pierre Belec
NEW YORK (Reuters) - Time to stuff money into bed mattresses?
Few investors have any reasons to brag about their 401(k) and IRA retirement plans this year. The
average stock fund in the first quarter fizzled out like a wet fire cracker while the Dow Jones
industrial average and other stock market gauges soared.
The diversified fund customers saw their wealth increase a lousy 0.93 percent over the last three
months, according to Lipper Inc., a Reuters Group company. It happened as the Dow gained 6.6
percent, setting eight record highs and popping through the 10,000-point mark.
The Standard & Poor's 500 stock-index rose 4.7 percent in the quarter and the Nasdaq index
jumped 12 percent.
Fund holders would have done better by investing in the ultra-safe money funds, which paid out 1.07
percent.
What gives?
''While the Dow and S&P jumped to new highs, the gain in the overall market was extremely
narrow and limited to the biggest of the big-cap companies, particularly the technology sector,'' said
Arnold Kaufman, editor of Standard & Poor's outlook, an investment advisory newsletter.
The people who enjoyed Wall Street's bonanza were those that held individual stocks such as
Microsoft, Intel, America Online and other high-flying Internet stocks.
But while most fund holders are not kicking their heels over their first-quarter returns, neither are
they taking it lying down.
''The inflow of cash into stock mutual funds has been going down and it says that people are not
happy with these funds,'' Kaufman said. ''Some investors are now doing their own stock picking and
they're piling into the already elevated technology stocks, the Nasdaq favorites and the Dow blue
chips.''
This ''Do it yourself'' type of investing helped drive the Dow and Nasdaq to record highs this week,
he said.
There is a distinct feeling of ''once bitten, twice shy'' among fund traders who saw a huge chunk of
their retirement money evaporate during last summer's head-spinning fall of 1,500 points in the Dow.
''People are giving up on the second tier stocks -- the small and mid caps,'' Kaufman said.
Investors typically hold a mix of large, medium and small companies via stock index funds. But since
last year, only the biggest names have gotten bigger.
The S&P index of medium-size companies is down 6 percent so far this year and the Russell 2,000
index of small stocks lost 5 percent.
''People are looking at their investment portfolios and saying, 'Gosh, why am I in this dull, old index
fund while I could own only technology and Internet stocks and would be doing so much better?'''
said William Valentine, investment manager at Valentine Ventures LLC.
The Investment Company Institute, a mutual fund lobby group in Washington, reported that the net
flow into mutual funds slumped to $750 million in February from $17.1 billion in January.
''For the first time since 1990, people are cutting back on their fund investments and there has been
a clear cut movement to the 'do it yourself' concept of investing,'' Kaufman said.
''This year's Nasdaq rally precipitated the shift,'' he said. ''The faster the Nasdaq rose, the more
investors wanted to buy the winners and they didn't care much about valuations.''
The proof is that the technology-laced Nasdaq Composite index is now up a whopping 80 percent
from its October 1998 low while the broader market is stuck in the mud.
Is this sort of investment dangerous at this stage of the game, with the market rocketing to the moon?
''It's the typical late stage of any kind of speculative bubble and it's the time when the market draws
the most money and it is very dangerous,'' Valentine said.
He said investors appear to be abandoning the game plans that they have learned over the last 10
years, such as investing for the long-term and letting stocks ride out their bumps and aiming for a
diversified portfolio.
''All of this is being thrown by the wayside,'' Valentine said. ''Today's mantra is buy Internet and
buy technology.''
Wall Streeters say that over the short term, the environment is still positive for stocks. The market's
failure to respond bearishly to the Yugoslavia crisis was a big plus.
''When any market is given an excuse to decline and does not, this is indicative of a positive
short-term technical structure,'' said Martin Pring, president of the International Institute for
Economic Research, a Gloucester, Va.-based investment consulting firm.
But Pring, a master market technician who uses jargon such as moving averages and head and
shoulder formations, said the long-term picture is quite different, and the odds point to a reversal of
the market's current upward trend.
The popular stock indexes may be on a course to set four-year tops. When the technical numbers
turn bearish, the market's fall could be ''unusually significant,'' he said.
''Rarely this century have we ever witnessed such an ominous-looking combination for the Standard
& Poor's index,'' Pring said.
Don't jump ship yet, he said, because the technical indicators are still in the process of topping out.
''However, when they are completed, a major bear market is likely to unfold,'' Pring warned. |
