By Gene Marcial
Where is the stock market headed?
The answer usually depends on whom you ask. For a number of investment pros, Mark Leibovit is the one to look to for that answer, on both the near- and long-term view. His current advice: "Buy. A new bull market is well on its way."
As one of the few market prognosticators who presciently predicted, in early February 2000, the market's subsequent meltdown, Leibovit, chief market strategist at VRTrader.com, has become a handy market timer to many institutional investors. A market timer, in essence, jumps in and out of the market, based on readings of historical market cycles, current market sentiment, and other technical factors such as volume and price trends.
Currently ranked as one of the nation's top 10 market timers by Timer Digest, Leibovit bases his forecasts mainly on a proprietary "volume reversal" trading analysis. He believes that big volume in up or down markets precedes price and momentum. His volume-reversal strategy works on the theory that a significant change in trading volume, accompanied by sharply rising or falling prices, indicates an important reversal in market direction.
If the market, says Leibovit, is coming down from steeply high levels on unusually heavy volume, that points to a reversal in the market's overall direction, a signal that a deeper downturn is on the horizon. He says the inverse is also true: When the market is coming off its low levels accompanied by unusually strong volume, it indicates that the market is facing a reversal in direction and will subsequently turn upward. It suggests that accumulation of shares is going on and that higher prices are around the corner.
This is exactly what he thinks is happening now. "Currently, there is universal bearishness, based on negative readings on the economy, corporate profits, and other perceived market woes," says Leibovit. These are all "characteristics of a market bottom, when almost everyone is out shorting the crashing market," he notes. Leibovit thinks this is the time to be a contrarian in order to ride the next upward wave that he sees just ahead.
His volume indicator suggests that more share accumulation is going on than "distribution," or selling. Wall Street, he argues, is displaying a bull market pattern: "The chart shows that it is zigzagging higher, a bullish signal," explains Leibovit, who for seven years was one of the 10 "elves" who provided technical forecasts and analyses on Louis Rukeyser's Wall Street Week TV program.
So what is Leibovit's strategy at this point? He strongly recommends that investors "buy the market." Specifically, he is high on the Nasdaq-100 Index tracking stock (QQQ ), an exchange-traded fund representing 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 Jones industrial average; and the SPDR Trust Series 1 (SPY ), which issues funds called S&P Depositary Receipts, or SPDRs, and 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.
Similarly, the Nasdaq-100 Index Trust reflects the performance of the components of the Nasdaq-100 Index, which is currently trading at 42 a share. Leibovit thinks this stock will leap to 70 by the end of 2002's first quarter.
The Diamonds Trust currently trades at 104 a share. Leibovit figures it should ramp up to 115 a share, also by the end of 2002's first quarter. The SPDR Trust currently trades at 120 a share, and Leibovit sees it climbing to 150 by the end of next year's first quarter.
Leibovit thinks a new bull market started in late March, 2001, and he predicts that the current rally, albeit still weak and unspectacular, will continue through the end of this year -- with some bumps and pullbacks along the way. He predicts that the Nasdaq composite index will hit 2500 in two months and race up to 3100 by the end of 2002's first quarter. He says his indicators show that the Nasdaq bottomed on April 5, 2001, when it struck 1600.
The Dow, on the other hand, should reach a new high by the end of 2001. He figures the Dow hit bottom on March 22, 2001, when it dropped to 9100. The S&P 500, he expects, will climb to 1500 by the end of next year's first quarter.
If Leibovit is on the money -- as he was in predicting the onslaught of a bear market last year -- investors will be singing "happy days are here again" before long.
Marcial is BusinessWeek's Inside Wall Street columnist