Market shows pros' caution over recent push

Professional stock traders remain skeptical about the market's advance. Evidence of these "doubting Thomases" began accumulating last week as: * The short interest, that is, the number of shares sold short, jumped a record amount. The increase of 21 percent in June compared with May, many analysts said, reflected doubts that the gains of the past eight weeks would remain. a short sale is the sale of borrowed stock with the expectation that the price will decline and the seller will be able to buy the stock back at a lower price to return to the lender.

* The number of "bullish" stock market advisers is decreasing -- another indicator that professionals are skittish, say analysts Richard J. Yashewski and Joseph Barthel of Butcher & Singer Inc. When the Dow was barely about 800, some 40 percent of the advisers they surveyed were bullish; since then, with the Dow rising 70 points, only 26 percent are bullish.

Calling this phenomenon the "wall of worry," tehy conclude that as long as the majority of advisers" continue to disbelieve the rally, as they have so far, we would expect any pullback to be moderate."

* The amount of cash that institutions have parked on the sidelines remains high, says Newton Zinder of E. F. Hutton & Co."Some of that cash has been used up in the rally," the analyst says, "but it still remains on the high side."

* A widespread feeling persists that the market is "topping out." Burt Siegel , director of research at Drexel Burnham Lambert Inc., says: "We could get a short-term setback in the market here, since it's pushing at a level where the market has topped out for the last couple of years. There is a lot of supply of stock at these levels. I think it's more likely we will see a correction instead of [its] charging through the 900 level." Any correction, he expects, will take the market down only 10 to 15 percent.

The professional stock traders' expectations had some elements of self-fulfillment to them last week as the market fell for the first time in eight weeks. The Dow Jones industrial average dropped 6.66 points for the week, closing at 869.71. Volume was moderately active.

Mr. Siegel says professionals began to focus last week on some of the fundamental problems of the sliding economy.One of these problems is the reaction of the government. If the Carter administration changes its mind and backs a tax cut, he says, this could act to refuel the inflation fires.

Also, Congress has tacked on another $16 billion to the current budget. Mr. Siegel notes that this spending will have to be funded through increased borrowing. And, as most investors observed last week, almost anyone who could hold a tin cup was begging and borrowing. More than $10 billion in new debt was floated, including $1.7 billion in corporate bonds and $8.26 billion in Treasury bills. Included in the crush were American Express, borrowing $100 million; Chase Manhattan Bank, borrowing $130 million; and St. Regis Paper Company, floating a $250 million debt issue.

This week, Eileen E. Spinner of Smith Barney, Harris Upham & Co. notes, should provide a test for the bond market, since it will have to absorb about $ 750 million in new telephone company debt as well as another $7.8 million in government borrowings. Mrs. Spinner also estimates that the government will have to increase its borrowings in the third quarter from the projected $11-to-$ 14 billion area to the $14-to-$17 billion range.

In the market last week, RCA Corporation was active and lower after it announced that Maurice Valente, its president, had been fired. Auto stocks were also active and lower as sales continued to slide. Signal Companies, which owns Mack Trucks, dropped when it said second-quarter earnings should be depressed. Gold stocks were generally higher.

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