A Pivotal Day for the Markets?


By Gene Marcial To some market strategists, tomorrow -- Nov. 21, 2001, the day before the Thanksgiving holiday -- might turn out to be an important date for the stock market. It marks two months after Sept. 21 -- the day many analysts think the market hit its low in the aftermath of the heinous September 11 terrorist attacks. The market shut down for a week after the hijackings, and trading resumed on Sept. 17th.

It's very possible that "we will see a strong and possibly climactic rally" tomorrow, says market strategist Mark Leibovit of VRTrader.com. Yesterday, Nov. 19, the markets did remarkably well, though they're off so far on Nov. 20. But unless another attack happens, "the stock market and the economy may just continue to climb a 'wall of worry' in the weeks and months ahead," even if Nov. 21 comes and goes without any dramatic move up, argues Leibovit. Ranked by the Timer Digest among the nation's top 10 "market timers," Leibovit and other timers jump in and out of the market based on readings of historical market cycles, investor sentiment, and other technical factors, such as volume and price trends.

On the fundamentals, one of the big bulls is Abby Joseph Cohen, chief market strategist at Goldman Sachs. She estimates the fair value range of the Standard & Poor's 500-stock index at 1300 to 1425, and the Dow Jones industrial average at 11,300 to 12,400. On Sept. 24, she raised her recommended equity exposure to 75%, the highest ever, when the S&P was at 966 and the Dow at 8236. At midday Nov. 20, the S&P is around 1,145 and the Dow around 9910. Cohen continues to be bullish on the market (for more on the market's direction, see BW Online, 11/20/01, "A Baby Bull Could Be Stretching Its Legs").

SHOCKING SETBACK. On Aug. 7, 2001 -- more than a month before September 11 -- Leibovit had stuck his neck out and proclaimed that a "new bull market is well on its way" (see Inside Wall Street Online, Aug. 7, 2001). Indeed, it did appear then that the market was slowly but surely gaining upward momentum: The Dow industrials had advanced from an intraday low of 9100 on Mar. 22, to 10,458 by Aug. 7; the S&P 500 climbed from 1117.58 on Mar. 33, to 1204 on Aug. 7; and the Nasdaq had jumped from 1638 on Apr. 4 to 2027 on Aug. 7.

But then came the shocking September 11 attacks -- and panic and fear gripped the market. But since it reopened on on Sept. 17, volatility seems to have moderated, and stock prices -- in spite of all the negative economic news such as falling corporate earnings, massive layoffs, and a sliding GDP -- are again heading upward.

"Looking strictly at the technical position of the market, there is plenty of reason to be apprehensive," acknolwedges Leibovit. But it may be "more of a function of vertigo rather than real danger," he asserts. The market's intraday action on Friday, Nov. 16, was a tad negative, notes Lebovit, but unless the indexes start breaking below that day's lows, "we could simply have set the stage for another surge to the upside," he says.

CASH ON HAND. Leibovit bases his analysis mainly on his "volume-reversal" rule. He believes that big volume in up or down markets precedes price and momentum. Based on his volume-reversal technical work, the Dow could possibly climb to 10,900 -- or even higher, over the next two to four months.

On fundamentals, the bulls point to the massive cash that has been accumulating and needs to go somewhere. The robust federal spending in response to the September 11 tragedy -- and the prospect of an unprecedented fiscal stimulus package to rescucitate the faltering economy -- along with aggressive interest rate cuts, could only be a tremendous boost to the equity market, argue the bulls. And progress in the war in Afghanistan has also put a positive slant on the market.

For long-term investors, Leibovit argues that a strong rally starting on Nov. 21 could indicate a continuation of the upward momentum that started from the market's March lows -- before September 11 quelled the rally. The maket's current recovery may well be signaling that the bull market is back in place, says Leibovit.

NEXT STEPS. So how should investors maneuver? Leibovit suggests that they "buy the market." Specifically, he recommends buying shares in the Nasdaq-100 Index tracking stock (QQQ), an exchange-traded fund repreenting ownership interests in the Nasdaq-100 Index Trust; the Diamonds Trust Series 1 (DIA), an investment trust that holds a portfolio representing all 30 stocks in the Dow industrial average; and the SPDR Trust Series 1 (SPY), which holds all of the stocks in the S&P 500-stock index. It reflects the investment results and price and yield performance of the S&P 500.

According to his recently revised estimates, Lebovit expects the QQQ, now trading at 39.61, to hit 57 in three to six months and to advance to 70 by the end of 2002. He sees the DIA, now trading at 99.28, going to 109 in three to six months and vaulting to 115 by yearend 2002. And he thinks the SPY, now at 115, should hit 135 over the next three to six months and jump to 150 by yearend 2002.

It's quite possible that some backsliding or corrections could ensue, including an unsuccessful test of the Sept. 21 lows. But on the whole, says Leibovit, the plus signals are all in sync for the market to march higher. Marcial is BusinessWeek's Inside Wall Street columnist


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