A Turn for the Better?

10/23/2002 12:00 am EST

Focus:

"A doctor can bury his mistakes but an architect can only advise his clients to plant vines," said Frank Lloyd Wright. Perhaps only investment advisors have even fewer options. Indeed, they are constantly on the front line, being continually judged by their latest forecasts. Several leading seers fortuitously called for a successful test of the July bottom and a turn for the better. Here we look at their well-timed calls, as well as their outlooks through the fourth quarter.

Technical analyst John Murphy (www.murphymorris.com) had been looking for an early October dip below 7500, which he felt could set the stage for a cyclical bull market rally, perhaps running from mid-October through January. He says, "The S&P 500 held its summer low and has since exceeded its 50-day average. The NASDAQ also exceeded its 50-day line. We think that adds a lot more credibility to the idea that the October bottom is in place - and that we've probably seen the lows for this calendar year. In Elliott Wave terms, a minimum 38% retracement of the seven-month decline would carry to about the 920 area. A full 50% retracment would carry to the August high near 965. That's our upside target zone, which we think will probably be reached by January. In the case of the Dow, that would yield a potential upside target to 9,000. We're not prepared to say that we've seen the final bottom in this secular bear market. With the market entering its strongest seasonal period, however, (and given the history of October bottoms) we think the time window for further gains should extend into January. After that, we'll have to see."

Near the recent market bottom, technical analyst Martin Pring notified his InterMarket Review subscribers: "The odds are pretty high that the recent low marked the bottom of the recent decline and therefore, the year as a whole. The S&P has broken out from a small broadening formation with a flat top. These patterns are quite unusual but are often followed by rallies that are far, far bigger than their size indicates. The downside is that the rallies are also fraught with great volatility. Our short-term indicators have gone bullish from a deeply oversold condition seen barely more than ten times in the last 20 years. In almost all cases such reversals have been followed by very powerful rallies. We expect that the rally will extend significantly in the coming weeks spearheaded by the NASDAQ."

Technical analyst Larry McMillan (The Option Strategist) adds, "Since this is the mid-year in the Presidential Cycle, we have been saying for some time (nearly all year) that we expect a major bottom to be formed this year. It’s just that so far, our indicators have generally been bearish, so we couldn’t get behind the "new bull market" scenario. Now we can. The long-suffering bulls are finally having their day. I admit it feels somewhat strange to move over from the bearish camp to the bullish camp, but that’s what the indicators dictate, and so it’s what we have done. From a broad perspective, this is the most bullish agreement we have had from our indicators in quite some time - since September, 2001, in fact. This makes us think that the next bull market has started. This could carry upward for six months or more, and could take the market as much as 50% higher by some estimates. For now, enjoy the bullish trend."

It’s encouraging that these technical views are also supported by a value-oriented fundamental market seer – Richard Band (Profitable Investing), who almost precisely at the recent lows, said, "The bottom we've been waiting for is finally here. We expect the market to form a major bottom, leading to a powerful rally that will extend well into 2003." He now says, "There are still much bigger gains to come. The most-reliable indicator of a big move - the S&P Relative Strength Index - had dropped within an eyelash of the low it touched at the bottom of the Great Depression in 1932. And from that point, the market doubled in less than a year. You must understand, I'm a very conservative guy. I don't make this call lightly. I'm a true New Hampshire Yankee that loves a bargain and hates risk. However, I believe even conservative money can earn 30%-50% in the next six months. And if you want to get a bit more aggressive, I believe you can double your money by the end of this year."

In his MPT Review dated October 7th, Louis Navellier told subscribers, "The best buying window that we will likely see in a long time is emerging. Aggressive investors should be fully invested by October 11th, just before the third-quarter earnings season commences. I strongly recommend that all investors be fully invested just before Thanksgiving, when the seasonally strong flow of funds into the stock market begins. If you’re a 'timid' investor, you can wait until the US-led coalition invades Iraq before you invest. But I believe that you may miss the first 15% to 20% of the gains, so I recommend that you don’t wait too long to get fully invested."

Navellier see five reasons for continued bullishness: "Third-quarter earnings season will likely be very strong due to the weak economy one year ago. As the third-quarter earnings season draws to a close in November, the stock market will likely be bolstered by seasonally strong inflows around Thanksgiving that typically cause a year-end rally and the famous January Effect. The impending attack by a US-led coalition on Iraq will likely be very bullish since it will remove much of the uncertainty that has been plaguing the oil market. The third year of the presidential election cycle is always the most powerful for the overall stock market and my style of investing. And relative to 10-year Treasury bond yields, the S&P 500 is at least 40% undervalued and is poised to explode."

For the next few days, I will be at The New York Money Show. I'm genuinely excited about the opportunity to meet with many of the advisors featured in the Digest and to hear their speeches and seminars. Indeed, most of the advisors quoted above will be making presentations in New York. I will share some of the highlights from the show in the next issue of The Money Show Digest. I also hope to meet and talk with many of you, the Digest's readers.

Finally, I would also like to mention that my mentor, Dick Davis, will speak at The New York Money Show. Although I am certainly biased in my opinion, I believe Dick is one of the market's most astute observers of investor psychology. His forte is a long-term, common sense philosophy that helps separate the market's short-term noise from its long-standing and enduring trends. Given that he limits his public speeches to once every few years, I would encourage attendees to not miss this opportunity to hear him speak.

Important Schedule Notice:
Beginning with the next issue, the Digest will be sent via e-mail after the market's close on Friday - rather than on its current Tuesday night schedule. Numerous readers have requested that change, so that they can read the issues over the weekend. We agree that this new schedule will be more convenient. The next issue of the Digest, which will be a special report of highlights from The New York Money Show, will be published on Friday, November 1st.

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