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18 October 2005
Some geezers are grinning, at least in the short run
By Peter Brimelow, MarketWatch
Last Update:
6:58 AM ET Oct 17, 2005
NEW YORK (MarketWatch) -- Friday's stock market flourish favored a few surprising optimists -- albeit optimism that carries a short-run time horizon.
A quick look at a random selection of the letters whose editors were active in 1974 -- that is, they've actually seen a bear-market bottom, a group I affectionately call the "geezers" -- reveals an interesting amount of very short-term optimism, amid a long-term outlook that's generally taking on a gloomier tone.
One letter that's been bravely optimistic about the longer term is The Chartist, edited by Dan Sullivan. (See Sept. 12 column.)
Friday's 70-point bounce in the Dow Jones Industrial Average (DJIA) , almost reversing the week's losses, must have delighted Sullivan. The previous evening, he put out what now looks like a very prescient bulletin, citing one of his favorite measures of selling excess:
" With the Value Line Geometric versus its 19-day moving average hitting minus 3%, minus 3.72% and minus 3.44% over the last three trading sessions, we think we're getting very close to a turning point. No question -- a snapback rally is overdue. Our advice for long-term investors is to remain in a 100% equity position."
But Sullivan's still worried all the same. He adds this advice for investors in his shorter-term Traders Portfolio -- "Traders are advised to hold fast to current positions but be prepared to see any stock that closes below its mental stop" -- and cited two examples.
"Traders should be aware that Energy (XLE) and Noble (NE) closed below their mental stops today and should be sold," he said.
As Sullivan put it in his October letter: "We remain long-term bulls but we must remain cognizant that technical damage has occurred."
Sullivan was particularly alarmed by what he described as "a descending staircase pattern" seen in the major indexes since the beginning of August. He's holding his recommendations but says he's not offering new ones.
More surprisingly, a couple of weeks ago, James Dines told subscribers to his last monthly Dines Letter that, despite being mostly bearish all year, "we are looking for an imminent beginning of the year-end rally."
That's interesting, because Dines has been generally bearish although does like the uranium and health-food groups.
However, Dines provides this very clear reminder of his overall view:
"We still suspect that the stock market made a major top formation in 2000, before a smash that ended in late 2002, and was then followed by a large rally that we suspect is not a new bull market but rather what we call a 'dead bull bounce' that would be followed by serious market weakness. ... On a very short-term basis, we continue to prepare for a year-end rally."
Meanwhile, Michael Burke of Investors Intelligence has some claim to having called Friday's reversal as well. As he said Thursday:
"Short-term indicators are bearish with quick declines to oversold lows, last seen in the spring. That action allows consolidation and/or a brief rebound. ..."
However, Burke's also sticking with his recently reconfirmed bearishness, saying: "Medium-term [i.e., six-month] indicators continue to weaken, and bases need to form to support any longer-lasting rally. ... We continue to believe that we are in a cyclical bull market in an overall secular bear market, very similar to what was seen in the 1966-1982 market. That limits the opportunities to trading moves..."
Burke's investment conclusion:

"We left our equity mutual fund invested position at 20%. We will keep the defensive team on the field until indicators turn bullish

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