More Evidence of a Turn Needed

Though recent action has been encouraging, S&P would continue to move slowly

By Arnie Kaufman

S&P chief technical analyst Mark Arbeter sees clues that the worst is over for stocks, that the excesses of the bull market of the 1990s have been pretty much wrung out. But he's still waiting for confirmation that a sustainable advance has begun.

Institutional investors have to be willing to make bigger and riskier bets before an upward trend can take hold. Professionals did edge away from net selling last week. They lightened up on recent leaders, including health care and other defensive issues, as well as small- and mid-cap stocks, while nibbling at the depressed Nasdaq big-cap techs. The latter, though continuing to face heavy overhead resistance, may well be the best bets to provide the leadership needed to keep an intermediate-term market upswing going.

It would take another couple of strong days, however, for the important Nasdaq upside/downside volume indicator to turn bullish, suggesting a switch to accumulation by institutions, says Arbeter. A Nasdaq close above 1750 (vs. last week's 1741 finish) would also be a favorable sign. It would mean a downward trend in effect since March has been broken, though Arbeter would like to see Nasdaq top the 1830 high reached in April for verification of an upward trend.

So far, put and call trading is saying that investors are still skeptical of the market rally. Arbeter regards that as a positive sign. What is held back today is buying potential for tomorrow.

From a longer-term standpoint, the market has consistently hit major lows roughly every four years. The last one was in the summer of 1998, when the S&P 500 slid 19%. Perhaps, says Arbeter, the plunge following the terrorist attacks produced an "artificial" low last September, and the level reached earlier this month represented yet another major low in the four-year cycle.

Kaufman is editor of Standard & Poor's weekly investing newsletter, The Outlook

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