By Gene Marcial One veteran Wall Street maven who combines technical analysis with money-flow studies in deciphering the market's behavior is Laszlo Birinyi -- a no-nonsense investment strategist with an impressive record. Major institutional investors pay big bucks to get his perspective on the market. And for good reason: Birinyi, the global market strategist at Deutsche Banc Alex. Brown, is almost always on the money with his projections.
Birinyi had noted at the beginning of 2001, before it turned so horrible, that "fundamentals were becoming less useful," and that "systemic risk in the business had increased" for various reasons. The market has made a transition, he says, from one where investors dominate "to one ruled by traders."
His expertise is mainly in being able to pinpoint where the big cash in the market is going and which areas of the market it's having an impact on. So it's not surprising that Birinyi's market opinion is highly valued.
"POSITIVE SIGN." With 2001 near the end, is he now bullish or bearish? "He who has the gold makes the rules," says Birinyi, quoting an old market cliche. "Our view going forward is that the stock market will continue higher in the long term as money flows on the Dow Jones industrial average are constructive," declares Birinyi. It shows that investors have taken advantage of price dips -- which is a very positive sign, he says.
"People are becoming more confident," Birinyi says, and this is supported, by the "classical technical approaches" that he sees in the market today. Among these technical factors: The advance/decline line on the New York Stock Exchange is "confirming" the move. Most stocks, he notes, are trading above their 50-day moving averages, and most groups are in rally phases. Few of those are overextended, he adds.
But he hastens to note that many stocks are extended in the short term: Of the 30 stock components of the Dow Jones industrial average, 17 are above their normal trading ranges, he says. But he doesn't think this is unusual during the first stage of a bull market. However, he also frowns upon what he calls the "applause and greetings" that has accompanied the start of this new market upsurge: Bull markets do not generallly start that way, he notes. It seems different this time around, "which, if nothing else, gives us pause."
TECH-FRIENDLY CASH. Still, he emphasizes that the market is headed higher and that its driving force has been liquidity, which by definition, he says, creates equal opportunity for investors.
Where are those dollars heading? "Our aggregate flow of funds shows that the money is going into all sectors -- but primarily in technology," says Birinyi. Since September 11, tech has been the most favored sector -- 25% of total money flow went there, he says. The other top sectors for getting new cash are financials, consumer cyclicals, and health care. In technology, IBM (IBM) got the bulk of the money flow, he notes.
The list of stocks under strong accumulation includes 17 new additions. They were purchased mostly by individual investors -- in nonblock trades -- which Birinyi says is a positive signal. Institutional investors are also buying, he says, but individuals were the bigger accumulators.
BEATING THE MARKET. Those stocks include techs companies Analog Devices (ADU), currently trading at 47 a share; Solectron (SLR) at 15; Teradyne (TER) at 31; Jabil Circuit (JBL) at 30; and Electronic Data Systems (EDS) at 71.
Other stocks under strong accumulation included DR Horton (DHI), 30; Eastman Kodak (EK), 32; Exelon (EXC), 44; International paper (IP), 41; Lehman Brothers (LEJH), 69; Eli Lilly (LLY), 81; EOG Resources (EOG), 38; Morgan Stanley (MWD), 57; Northrop Grumman (NOC), 95; and Sprint PCS (PCS), 25. Among the retailers, the new additions were Sears Roebuck (S), 45; and Williams-Sonoma (WSM), 40.
Stocks that come under strong accumulation usually beat the market averages. Last month's list of stocks that were heavily bought appreciated in value by 10.72%, vs. a 7.65% gain by the S&P 500-stock index.
Is it too late to buy into these stocks? Well, If the maxim that says "the trend is your friend" is true, then you still have time. In fact, many on Birinyi's list continue to be under heavy accumulation in December. Among them: Cablevision Systems (CVC), Home Depot (HD) -- and IBM. Marcial is BusinessWeek's Inside Wall Street columnist