BOSTON — Is that rumbling in the stock market the sound of a prowling bear, or just the bull getting back on its feet?
Should investors regard a Dow Jones Industrial Average at 8700 as being 700 points off its record high in July of 9412, or 300 points higher than its recent low near 8400?
Many market analysts see a bear-shaped shadow draped across Wall Street, despite the impressive market gains of last week.
It began last April as no more than a pesky cub, tugging on the pant cuff of the market and bringing down the prices of hundreds of small company stocks.
In late July the cub grew teeth, strength, and some attitude, emboldened by uncertainty over corporate profits, financial turmoil in East Asia, US economic growth, and repercussions from President Clinton's sex/perjury scandal.
Whether it emerges as a full-fledged bear market, one that declines at least 20 percent, is a tough call. But the growling is hard to ignore.
By mid-August, the average share of stock had lost 20 percent of its value, and the Dow Jones Industrial Average had dropped 11 percent, a shade more than the average 10 percent loss for corrections.
And now, that sort of weakness may loom larger than the seven-year bull, threatening the blue-chip stocks that have led the market higher.
The question: Are the rich, paper profits of millions of investors the target for a brutal shredding?
Analysts disagree over whether this is a passing correction or a stubborn downturn. But they generally agree that stock prices will probably not stage a sustained rebound anytime soon.
"We're a long way from the bottom on this market," says John Murphy of Dallas-based MurphyMorris Inc.
Investors might consider selling some equity holdings and switching to bonds, say investment advisers.
Investors who need money within the next five years should be especially careful, because their shares would have less time to recover from an encounter with bear claws, analysts say.
First, though, analysts say investors should steel themselves for the classic signs of a rousing bear.
Since April, the Dow Jones Industrial Average has failed to sustain new highs and stay above 9000 for more than a few weeks. And it has jolted badly downward twice since mid-June.
Moreover, Wall Street's chart-watchers note that in recent weeks the rising number of stocks reaching 52-week lows and the ratio of rising stocks to falling stocks signal the first fangs of a bear market.
"Stock market crashes are not like earthquakes, which come without warning and then create aftershocks," says Robert Schiller, economics professor at Yale University. "In the stock market, we see shocks before a crash."
So far, the big institutional investors - such as pension-fund managers - have done most of the selling. Individual investors have held on, as they did when the Dow lost 500 points last October.
The big players have fled because East Asia has crimped the growth in corporate profits, and Tokyo, the region's linchpin, has so far done little more than pay lip service to grand plans at economic revival.
Moreover, the weakness in the Japanese yen could prompt China to devalue its currency, the yuan. That could spark a wildfire of devaluations that would scorch regional financial markets, analysts say.
"The market is usually driven down by inflation, but this time it is deflation," says Mr. Murphy.
Deflation is simply a sustained decline in prices - including stock prices and commodities such as food and metals.
Murphy and others think such declines will spread to stocks. He sees the Dow at 7500 within a year.
Still, some leading analysts believe the market has already fallen too far, and investors are too gloomy about East Asia's meltdown and corporate earnings.
Consumer spending - which drives the economy - remains strong in the US, and the economy continues to grow, albeit at a slower pace. And with inflation flat on its back, interest rates are not likely to rise.
Peter Canelo, investment strategist at Morgan Stanley Dean Witter in New York, believes uncertainty in Asia will deny the Dow "a firm footing for a long time" and it could fall as low as 8200.
But, he notes, "the economy is fine, there is no inflation, and I can't imagine [the Fed] will raise interest rates."
Investors can watch for signs of a market bottom and prepare for bargains.
The first indicator is impossible to miss - "PANIC!"
A pell-mell rush for the doors similar to the October 1987 crash usually purges the market of all but the hardiest buy-and-holders. Bargains are plentiful, but a sustained recovery can take several months.
Another possible signal: Internet stocks. Investors have lunged for stocks tied to the World Wide Web. Many shares have more than tripled, even though most firms have never made a profit.
A washout in the market's most speculative slice of stocks would herald a bottom, says Bill Meehan, chief market analyst at Cantor Fitzgerald in Stamford, Conn.