After major tremors shook stock markets around the world this month, many shell-shocked participants have wondered whether the bloodied bulls will regain the upper hand and continue to take stocks higher
ALEX ROSLIN
SPECIAL TO THE GAZETTE
The
The debacle slapped
Some analysts are invoking fears of the 1987 and 1998 stock smash-ups. “From fear we’re morphing into panic,” said venerable analyst Harry Schultz, author of one of the top-rated
“The ‘other shoe’ will be falling for a long time, so investors should stop waiting for the markets to ‘calm down,’” he wrote in a column at Marketwatch.com.
His advice: park your investments in safe havens like gold and the Swiss franc.
“Quite frankly, it looked like the markets were going to crash on Thursday (Aug. 16), led down by the absolute disaster in financial stocks,” wrote Mark Arbeter, chief technical strategist with Standard & Poor’s Equity Research.
The freaked-out talk was flamed by word of blow-ups at several large
But other analysts say the fears have gotten excessive. They say while there’s a decent chance the selling is still not over, a look at the charts shows the turbulence so far is just an ordinary correction within the broad five-year uptrend that has lifted markets since 2002.
“The major trendlines are still intact, so I’m still overall bullish,” said Matt Caruso, a Montreal-based independent trader who heads the local chapter of the Canadian Society of Technical Analysts. (Technical analysis is the study of market charts to spot price trends.)
Caruso isn’t diving back into the market blindly just yet. He expects more volatility in coming weeks that could send markets spiraling back down to test the mid-August lows, and perhaps even a little lower.
But he believes those levels will likely hold up, providing an opportunity to put some money to work in the markets. “I already have a list of names (of stocks) to buy. Every pullback is another opportunity to buy,” he said.
“It’s normal to have 10-per cent corrections in the markets. There was no major technical damage to the indexes. I see higher prices to come.”
Robert Drach, a Tallahassee, Fla.-based author of a long-lived investment newsletter acclaimed for its accurate market calls, is also a bull.
His reason: corporate insiders and stock exchange members are buying stocks. That’s made Drach so bullish he said he threw all his cash into the markets and got leveraged by an additional 50 per cent on Aug. 10, at the height of the market slide.
Drach cautioned he still expects a “very choppy” market until traders calm down. “The market’s not going to move up and be wonderful,” he said.
Some analysts, however, are more uneasy. Tom Bulkowski, a Keller, Tex.-based technical analyst and author of the Encyclopedia of Chart Patterns, is in cash waiting for surer signs of a bottom.
“I tend to think we will pull back from here,” he said. “It’s just a gut feeling.”
Bulkowski’s nervousness actually flies in the face of his own chart-reading and number-crunching.
He agrees the selloff hasn’t violated any important uptrend lines.
The markets also appear to have already finished correcting based on similar drawdowns in the past he has studied.
The Dow Jones industrial average, for one, has completed a textbook example of what Bulkowski calls a pullback out of an “ascending, right-angled, broadening formation.”
Past such patterns led him to forecast the Dow would bottom at around 12,497.
In fact, it touched bottom not far away—12,456—on Aug. 16, then rebounded smartly back above 13,000 last week. That should mean the correction is over, he said.
Yet, Bulkowski isn’t breathing easier. “I’m just kind of nervous right now. I guess we’ll know in a month or so. If the (Federal Reserve) decides not to cut interest rates (at its next meeting on Sept. 18), then the markets could resume the downtrend,” he said.
Another dean of technical analysis, John Murphy, is also unnerved. Even though he feels the “worst may be over for now,” he added a note of worry in a recent market brief.
“The market will have to do a lot to repair that damage,” he said. “I suspect the recent lows will be retested at some point over the next couple of months. It’s extremely important that they hold.”
One of the concerns of some analysts is the seasonal period of weakness that often trips up markets in the fall.
“We are at a critical juncture at the very beginning of the historically weakest time of the year,” wrote Jeffrey Hirsch in the latest issue of the Stock Trader’s Almanac newsletter.
“(September) is the worst month of the year by nearly all accounts,” he said, as it is the only month with a negative average performance historically.
Hirsch also noted years ending in “7” have historically been trouble for markets, with crashes in 1907, 1937 and 1987 and nasty selloffs in 1917, 1947, 1957 and 1977.
Hirsch isn’t completely pessimistic, saying the damage so far “has not been that bad,” but he warned that a deeper credit crunch “could cause a pullback of historic proportions… So much for the summer doldrums.”
[The published version of this story was accompanied by charts of the S&P 500, TSX composite index and Nikkei average showing their uptrend lines since 2003. The caption was titled “Keeping the uptrend intact” and read: “The bull market’s five-year ride had a wild turn in recent weeks. But despite the turbulence and panicked talk, major global stock indexes all survived the correction with their uptrends intact. Analysts advise watching those uptrend lines carefully in the often-volatile autumn months to see if they hold up.”]
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