Stocks keep right on going; pullback prospect debated

Is the stock market due for a correction? Wall Street analysts asked themselves this question last week as the market continued its five-month-old advance, ignoring a round of profit taking and the Democrats who were in town.

The upward push last week boosted the Dow Jones industrial average by 12.03 points; it closed at 966.72. Volume was moderately active.

Jacqueline J. Vincent, an analyst with Smith Barney, Harris Upham & Co., says , "We would not be surprised to finally find profit taking of a larger magnitude" which might finally signal a short-term period of weakness or consolidation. To date, she notes, there has been only one brief, three-session , 19-point correction.

Phillip Roth, assistant vice-president at E. F. Hutton, agrees that the market may exhibit some short-term weakness, but he sees "an increasing likelihood of another leg in the advance."

And Robert Farrell of Merrill Lynch, Pierce, Fenner & Smith Inc. is telling his clients that the Dow "seems most likely to make an assault on the 1,000 level during the pre-election period." After that, the technical analyst states, "intermediate-term market risks may be significantly higher."

Possibly because of such continued predictions of corrections, the market has generally refused to bow to profit taking. Mr. Roth of E. F. Hutton notes that the advance is similar to that of early 1975, when the Dow rose sharply, without any major interruptions. At that point, the average rose to 1,000 but was never able to break out of the barrier posed by that level. The market consequently declined.

This time around, the E. F. Hutton analyst thinks the market will work its way to a plateau, although there could be some disappontments with individual stocks. He wouldn't be surprised to see some of last year's hot performers, such as the secondary stocks, make a comeback. At the same time, the areas most overdone, including the high-technology, semiconductor, and aerospace stocks, might come in for a round of profit taking.

Mr. Farrell, for his part, is recommending that Merrill Lynch customers keep their purchases to oil stocks, cosmetics companies, entertainment, and food issues. He would avoid stocks in the small computer, electronics, oil service, and other high-technology groups.

Giving the market some pep last week were some forecasts that interest rates by year-end would be even lower. Mark Biderman of Oppenheimer & Co. has decided that both short- and long-term rates should decline over the next year even if the federal budget expands. He reasons that the weakened economy will keep business loan demand down even if the government is borrowing funds heavily.

William Sullivan, senior vice-president at the Bank of New York, agrees that there is more room for interest rates to decline. He notes that demand for short-term credit plummeted in July, normally a heavy borrowing month. If this trend continues in August, he concludes, the Federal Reserve Board can loosen its grip on the money supply, allowing rates to ease on their own.

However, one factor that may keep Paul Volcker and the Federal Reserve from priming the printing presses in the inflation problem. The government reported on Friday that the producer price index rose 1.7 percent last month, or at a 20 percent annual rate. Most analysts had been predicting a 1.3 percent rise. But the consumer price index, which will be reported Aug. 22, is expected to show only minimal gains.

Economic data for July have been mixed so far. Retail sales rose 2 percent, while industrial production was down 1.6 percent. With inventories comparatively high, this week, housing starts and durable goods orders for July will be released.

In the market last week, Mesa Petroleum was actively traded and higher. The company announced an agreement with Texaco Inc. which provided Mesa with about $ 300 million in new cash, for which Texaco received a major position in some promising domestic drilling areas. Analysts figure this should be good for Texaco, too, since it was in need of some good domestic drilling possibilities.

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