Wall Street Week with Louis Rukeyser; 0452; On the Technical Side of the Street

Whoa whoa whoa. Whoa. That went over for Public Broadcasting. Production funding provided by public television stations the Ford Foundation and the Corporation for Public Broadcasting. Wow. Wall Street Week produced Friday

July 25. Your host for a Wall Street Week is Louis Rukeyser. Our panelists are Frank Cappy yello Carter Randall and Martin Zweig. Tonight's special guest is Gail am Dudack technical analyst Pershing and Company Incorporated. What do you mean I'm with you guys or this is Wall Street Week. Welcome back. The controlling image for the financial community this week was not a bull or a bear or even a polecat. It was a parachutist Wall Street symbolic hero leapt from the roof of the World Trade Center went into an involuntary freefall for 600 feet when his parachute was late and open in banged inelegantly against the building for a while but eventually had a relatively soft if distinctly ungraceful lending it. The authorities displaying a characteristic lack of imagination took the poor skydiver away for psychiatric examination. Plainly what they should have done was deposit him at the

New York Stock Exchange because his performance faulty canopy and all precisely reflected what went on in the stock market this past week after threatening to jump for nearly 11. No it's nearly eight months now the market finally leapt into its long awaited so-called correction. But what started out sounding like you run a mo ended up with a lot of nervous tugging on the ripcord and what sounded more like I'm not really sure. The wind buffeted parachute is quite clearly has mastered the entire economic scene. Asked why he had performed his skydiving stunt he explained that he was jumping for world hunger. A fellow who can come up with non-sequiturs like that is probably on route to becoming mayor of the city of New York. I certainly wasn't much else to excite the financial community one way or the other. New York's First National City Bank which is bumped its prime interest rate upwards of three straight weeks decided that enough is enough and paused while the other major banks caught up with it seven and a half percent rate. Dr. Arthur

Burns the Delphic oracle of the Federal Reserve Board offered some new assurances that the nation's money supply would be adequate for a recovery but not to understand to adequate. The Congress and the president staged another round in their argument over which is the more indifferent to the nation's energy needs. The cost of living picked up at the highest monthly rate of the year due largely to food and fuel problems and Turkey said it would kick out the US forces in its country. Do it said to the excessive intake of dull modest and retsina by the House of Representatives. You'll figure it out. Better still talk to tonight's special guest a technical analyst whose job it is to draw straight lines amid the confusion. But first let's report the sky diving act this past week on Wall Street. And as the Dow Jones Industrial Average indicates the market is into its biggest dissent since it began its 300 point climb early last December. The Dow has now declined in seven of the last eight

sessions but it did it with a notable lack of fervor. The biggest daily fall was only 10 points and the volume of trading on Friday was the lowest in more than three months. The downhill dribble amounted to about 28 points for the week and the Dow stands now at eight hundred thirty four point zero nine. The broader composite indexes of the New York and American stock exchanges in the over-the-counter market fell even on the one day the Dow was rising and ended at their lowest levels in more than a month. The elves who compile our technical market index are of course delighted since they have been warning and warning that something like this was bound to happen someday. Good domain little elves. Another feature of tonight's program will be an analysis of where the bulls and the Bears really came from. We'll get to that later but first I wanted to report to you the version given to me by a viewer George a Mirsky of Dallas as Mr. Mirsky tells it

a bull in a bear will holding hands one evening while walking in the moonlight the bull said. Isn't that a beautiful move. The Bear replied Yes but it's too damn high. Well how about it is the market's still too damn high. I think it is Lou. For the last several weeks I've been growing more and more cautious on the market and I've advised seventy five percent in cash and I'm afraid I'm going to have to raise that to about 100 percent cash which means totally out of stocks. I think we're going to be heading for 15 to 20 percent decline and we've only seen the first part. We may get a rally back here possibly even approaching the old highs are going a little higher but I still think the market is headed. To perhaps the mid 700 7:40 7:50 something like that. I want to make sure that we're getting from the same advice that people are paying for in your service I know the sales of stocks. Yes clearing out of the market completely I think it's only going to be an intermediate decline and not the full bear market yet but I'm very nervous

about the market the short sales in particular are very light and extremely bearish and every time you are going to this point we've had a good stiff decline. A little afraid that something might go right in the market. I'm always afraid of the middle 770 dramatic line some people talk about 600 500. I guess some of these famous beers bears are still out with their three and four hundred predictions it could come to that I'm not one of those but I think right now I can only see an intermediate decline possibly lower after that by the way another thing that I think is pretty significant now is a very heavy selling by corporate insiders that's officers and directors of their own firms and they're selling about three times as much stock as they've been buying and I wonder if they really think this recovery's sound and last fall at the bottom they were just the reverse. They were heavy black cap yellow we've had some advice for people to get out of the market and hold tight. Would you accept that advice. No I wouldn't I think if the market goes according to plan which apparently is a reaction I'd be a buyer of stocks whose plan is my plan.

People often wonder who makes the playwright. Well we're not trying to predestine the market but the market's going to have some heavy going over the next four to six weeks. The CPI was a great shock the Consumer Price Index increase to a point for the month right which is double the preceding month roughly on an annualized basis and it looks like August will probably be up again simply because of the drag of gas prices and possibly food prices. But after that we should have clear sailing so that you will have some bad news on the CPI front. You might have some bad news from Big Mac that is the rolling over of the New York City debt. But after that I think will be the summer doldrums and I think this is an opportunity to buy. Fundamentally I don't think anything has changed in the market except this correction that everyone's waited for is about to happen. Perhaps we could M&A we've had conflicting advice do you want to. So a lot of stocks and Frank wants to buy him. What will you do in this battle.

Well the both can be right if their timing is perfect. But but I believe this market may fall a little bit more. But then I think it's going to come back so I would agree with both. I don't I don't think though that we have ended the bull phase of this market I think we have several months to go and this is in fact what we've been looking for correct. Well even Frank who is just making what it is in a sense the optimistic case has named a lot of negative factors given that would you hesitate a little bit to commit new funds right now. No I wouldn't. Not for the next six to 12 months. At these prices because we're just beginning an economic recovery and it may be slow but if it's slow it'll be long and the market will benefit greatly. We've just done a lot of business. In any event it's time to move political that's to all us peons and answer a few questions for my viewers. Fred Sperling of Amherst Massachusetts has observed that there are a large number of what he terms investment advisory is currently available. What qualifications of any do the authors of

such market letters have to meet. And is there any objective way to choose among them. About the only qualification they have to have Lou is to register with the FCC which means paying a fee and if they have no prison record for securities frauds it doesn't mean they have any competence at all in predicting the market the FCC doesn't pass judgment on that. Now my advice is that he should buy several trial subscriptions to various services and for a small amount of dollars he can get a good sampling. And what I would look for is a documented track record and a nice detailed statement of the advisors philosophy. And if Mr. Sperling agrees with that philosophy then he can go ahead and take out a longer term subscription but even then I would monitor the service for six or 12 months before committing my ships to it. Their words make sure you feel comfortable with it. OK. Thanks John will home of miners Dale Pennsylvania says he read an article in January that warned of a rush by investors to get out of the money market mutual funds. If the return on these funds drop below 7 percent as this rush happened he asts

given the present lower rates of return. Do these funds any longer make attractive investments. Right the answer is in two parts he's exactly correct in January. The money market funds began to lose funds that withdrawals began to increase primarily because a lot of the money was parked waiting for the stock market to improve so the money came out of the funds the stock market went up. The reason why the stock market went up was because short term rates came down. And so that's therein lies I guess part of the problem. A lot of money market fund money is really park money and the money market funds have continued to lose funds. I guess in April they continued in the month of June. The second part of the question can be answered. There is a place for money market funds. If you have excess cash it's a good place to go. You get competitive rates. The risk is rather minimal. And it should only be though for funds that are going to have a use elsewhere because it's short term investment and it should not be used for long term.

Caught a vandal speaking of parking money at Frank yes was you raised some eyebrows earlier this month when you told us that you thought highly of General Motors as an investment for 1975 for the benefit of Roderick Schultz of Southfield Michigan and others. Would you give us your appraisal of the rest of the automotive group as well. Lou possibly more money can be made in the rest of the industry. But the risks are much higher and Ford and Chrysler and some of the auto parts makers and so on. I'm thinking in terms of risk reward the right time to buy a motorist is when it's selling at a high price earnings ratio the earnings are down and therefore it's a high price earnings ratio when the earnings come back up and it looks cheap then that's the right time to sell. What would you advise people who hold these stocks now. The motor stock yes the non GM auto stocks Ford Chrysler the others. Well I'd have to think about individual situations like tax consequences and so on. I would feel I think that's what's worrying Mr. Schultz as well. Yes I would feel safer with General Motors I think Chrysler is a speculation. Ford is somewhere in between.

OK. If you'd like to drive your investments to distraction instead of vice versa if you have any other questions about the world of stocks and bonds just send your queries along to us here at Wall Street Week Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week Owings Mills Maryland. 2 1 1 1 7. It's been some time since we handed out our mildly coveted Golden Nugget award which we reserve for viewers letters that for some arbitrary reason or rather have particularly struck our fancy. Tonight though our fancy has been well and truly struck by a veritable landslide of letters all contradicting the suggestion of one of our panelists last month that the stock market terms bull and bear came into use in the early 1900s. For example Dr. J.S. Bugbee of Springfield Vermont recalled reading about optimistic goals and pessimistic bears in a book by Horatio Alger who died in 1999. But it soon appeared that even Algeria was a higher

ratio come lately. Several of us trace the animalistic terms to England's South Sea Bubble investment scandal in 1720 and to the fable of The Man Who Sold the skin before he caught the bear. James W. Knight of Orlando Florida said it all began with a specific cargo of bear skins being brought from Canada to England in the early days of trade with the North American continent. Merchants who learn from their lookouts that a ship laden with bear skins was a few days from Port figured that the ship's arrival would flood the market with bear skins and thus lower their price. So Mr Knight went on the merchants quickly and successfully sold enormous quantities of bear skins at good prices for future delivery and unexpectedly severe storm destroyed the entire shipment. Just a couple of days out of port and the traders had to face the economic disaster of buying up the bear skins needed to satisfy their contracts in a market which was advancing

in because of the scarcity. In a word they were short bare skin. And it is my personal experience that there is nothing under the sun more generous than a scared short. The other view is agreed that brokers who gambled on a faulty market were early known as bear skin jobbers. But just how early was as is often the case when bulls and bears meet a subject of dispute. Cleveland professor Louis T Millet confidently place the earliest known quotation precisely in 17 0 9. But then we heard from Joseph M. Poppo of Sacramento California who quoted references to bulls and bears in a book written by Joseph Philip Vega in 16 88. Just about all our correspondents agreed that there was the first term in use and that bill came along somewhat later as the logical opponent of the bear as Edward Luria of Chicago pointed out the terms bull and bear were already in use to

designate the fans of bullbaiting and their baby to popular sports in England at the time and that presumably is the way it was long before the early 1900s. We thank you all for your interest in these really important investing questions and promise that in future our panelists in addition to making you all millionaires will truly bear down on their animal research and no longer be caught shooting the bull. And on that hopeful note let's go over now and meet tonight's special guest Hal am due back. Welcome. Delighted to have you here. Gail Dudack is an unusual of. The phrase technical analysts normally conjures images of gnomes with test tubes or you know Melissa professors with slide rules. This dude act plainly is neither. Even before

graduating from Skidmore College with honors and economics she had begun working on Wall Street and she soon became fascinated with the world of technical analysis. She is now the widely quoted market technician for person in company market letters which bear the misleadingly bland title of technical market comment also revealed a full fledged addiction to shameless pun in which as we all know is the surest evidence of keen intelligence. Brilliant insights and quiet good taste. Girl what's the technical word for the kind of market we're having right now. Well you know Lou it's been a wonderful market for the past six months and we're seeing the first signs of a correction. And I think it's basically due to lack of leadership. It's nothing really to be concerned about. I think one of my fellow analysts put it beautifully when he said. The market's been like a relay race where you keep passing the baton from hand to hand. Right now we have no leadership and I think the race is over for about

four to six weeks after which I think the rest of the market will do very well. Would you explain to us precisely what you mean when you say technical analysis. Well technical analysis is really a study of the internal mechanism of the stock market itself and by using many of our tools litmus paper whatever we try and decide it is supply and demand characteristics of the market. The problem I find so often with technical analysis and with technical analysts is that the charts always do a perfect picture of where you've been but that they're not so perfect about where you're going. Isn't this true and if it weren't true what wouldn't all technical analysts be rich on their own account. For. Well. You know if nothing is 100 percent sure but with technical analysis what we're you can see trends you can see basically where there is support a resistance for price and volume characteristics and

and. Once a trend is in motion it will stay in that that in that trend until there's a bigger force these are the things that you're trying to pick out from your chart patterns. Thinking in terms of the average investor wondering how much technical analysis should enter into his calculations how much can he reasonably expect from these calculations. Well it depends upon really what the timing is of what he's looking for to optimize his timing of his of his stock purchase and sales and I think where the average investor is probably more a long term investor. He can still use it to his benefit by timing his purchase let's say he's interested in a particular stock and he wants to know should he buy it well by using technical analysis he can you know buy it in a in a turnaround situation let's say. Michael you mentioned litmus paper what do you really name some of the indicators.

Well there are probably 30 or so indicators that I use but the advanced declines and you haven't a D-line Dow Theory of volume. Speculative index. There's the specialist shorts the shorts the balance ratio. I could go on putting all these together you're forecasting records been a generally good one over the past year but even you have been calling for nearly six months now for this correction which may finally have started this week. Why didn't the market follow your chart when it was posted. Well while we were looking for a correction that's true and in let's say February March which I think many technicians did because there was this big surge of buying We've got to what we call overbought which means that the the balance of the market was in off balance it was overbought. But. There wasn't a sizable correction and that's basically like what I mentioned earlier about rotation of leadership. While one

group was advancing another group is picking up momentum and then advancing further so that what was happening is there was an internal correction going on and that allowed us to sustain an advance for six months. You know before I turn you over to these fellows you mentioned that you thought four to six weeks with this correction would take. What do you see for the rest of the. Do you have a projection for the Dow Jones Industrial Average. Well we've been looking for around 950. And I would expect that probably you know for six weeks so let's say the beginning of the fourth quarter. How do you think we'll get before then. I'm not looking for anything that great. We are looking for 10 to 12 percent I think something around 800 I don't think the market will go seriously below 800 before I throw you to the fundamentalist wells I think it's only fair to let you can free in with a fellow wealth professors wide. If you're for keeps tabs on public orders to buy and sell and you monitor them and I believe that you found it the public tends to buy heavily at bottom so heavily

tops contrary to what most people think. Can you explain to our viewers that good news if it is. Well perhaps I should explain what it is. Our firm. Represents 50 regional brokerages cross country. So since its very retail oriented we started this indicator. What does the average investor what is he doing. And we took it back 10 years and found out that contrary to theory he does do the right thing in advance of market turns. So he starts to buy let's say two months before a bottom will start two months before a top. He's been we've seen signs of distribution for several months now so that this correction hasn't been much of a surprise. So at this point we're looking for that trend to reverse in for him to start buying again and showing he's confident. Thank you. You said four to six weeks you expect to see the market resumes its upward course. What groups of Stark's would advance

really this advance Yeah. Well there are some stocks that I like now and some in the advance I would say that the advances are really going to be pinpointed with a lot of the transportation stocks like airlines and autos. I think they look good for the next three six month period. You know we've had as was mentioned before a very strong market for about eight months. Can you recall any historic market that had such a strong eight month rise and then all of a sudden did go down and become a bear market. Quickly again I don't bull markets usually last longer than. Just 8 months. Don't they last longer than a month. Actually I don't know if I understand your question but the May 7 day market was six months on the advance before a correction and that turned out to be quite as if it will not

continue. He's suggesting that we last longer than six months. Yes they last longer than six months. Yes it's not unusual I mean it seems it feels unusual to us after two years of a bear market to have just steady advance but in a honest to goodness bull market No this is not unusual at all in fact many bull markets can advance with just 10 percent corrections for 12 months. I just have to say that all these animals we're talking about tonight remember another bear market where it was described big like a tiger crouching for a spring. You name all the animals you want. You know you've projected these things and these fellows always talk quite confident about what's going to happen but if there were a major international surprise tomorrow war in the Middle East whatever what would that do to all your technical analysis. Not very much in the long run I think that.

Extra forces create panic and for a day or two yes it may distort the trend but if you're in a bull market it will continue and it's if you're in a bull market it's usually a very good buying opportunity. Are you able to make any judgment based on your findings about the basic honesty of the marketplace with that show up in your analysis in any way. Basically I have this conclusion is this is a market that's rigged by specialists on the New York Stock Exchange or some authors of claim. Do you have any way to form a judgment on that subject. No I don't think I really do but I my opinion is that there's no way to rid the stock market. It flows in supply and demand just like anything else you can buy a bunch of bananas for 10 cents and you know there are 10 people want to buy it. If you know the price finds its own median or you're a devoted technical analyst not done when you get ready to buy a stock yourself do you not care about the earnings and the prospects of the company or are you only interested in the ones on your graph.

Well for myself it again depends upon whether I'm long term III last year I was buying for yields you know so I do use fundamentals. But if you're going to trade a stock I go on fundamentals and technicals excuse me. So it's a trade. How do you define a trader. Well a trader is someone who basically is going into a stock for a short period of time with you know three to six months rather than buying and holding for let's say a 1 to 5 year period. If you had a little cash kicking around you would wait four to six weeks now would you jump into this market. Well I think that this forty six week period is going to be pretty volatile so we're going to have several sharp up and down movements and I'm getting my cash ready. Well it's nice to have some cash you can get ready and I thank you for it. And extremely lucid and balance discussion of an extremely technical subject which we will return to to check up on you. Thank you very much Gail Dudack thank you very much panelists and I hope you'll be with us again next

week when we recognize that the most appropriate subject to talk about in the middle of summer has got to be leisure as all my guests will be David Londoner an expert on how to make money in companies that cater to the average Americans leisure time. So pour out a nice cool lemonade and we'll try to make you some nice cool cash. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser tonight. And. If you would like to obtain a written transcript of tonight's program send $1 to Wall Street Week. Owings Mills Maryland. 2 1 1 1 7. That's $1 to Wall Street we. Always Mills Maryland to 1 to

1 170. Residents of Maryland. Please include four cents sales tax. Wall Street Week is produced in the studios of the Maryland Center for Public Broadcasting.