Stocks resist profit takers to keep 'spring' rally going

Is there a bull market for all seasons? Investors have begun asking this question as the market rally that began in the spring and continued through the summer is poised for the fall.

"What this market has shown us," says Larry Wachtel, an analyst with Bache Halsey Stuart Shields Inc., a brokerage house, "is that it has staying power."

Last week was another example of this, as the market refused to break under profit taking and the Dow Jones industrial average closed the week at 963.74, gaining 27.22 points. Most other market indexes, including the New York Stock Exchange index and Standard & Poor's 500 index, hit new highs for the year. Volume was extremely heavy, with mroe than 63 million shares traded on two days of the week.

Internal dynamics continued to fuel the advance noted Mr. Wachtel of Bache. For example, cash reserves of pension funds and mutual funds remained high, and pressures mounted for portfolio managers to be in the market. At the same time, short interest held at record levels as professional traders remained skeptical that the market would continue its rally. Short interest is the total number of shares sold short. A short sale is the sale of borrowed stock by a stock trader in the hopes of buying it back later at a lower price and returning it to its original owner.

Foreign interest in the stock market has also contributed to the surge, says Alan R. Ackerman, director of foreign research and investment at Herzfeld & Stern, a brokerage house. He says that "foreigners believe it's the time to invest here -- that this is the place to be for the next ferw years -- and if they are successful, that the dollar will be stronger in the next year or two as well."

To Frank Parish, portfolio manager for the Puritan Fund, part of the Fidelity group of mutual funds, buying in the last few weeks has been indicative of "smaller, very aggressive money managers eager to get into the market."

He says that in some ways the rush to buy stocks reminds him of the 1968 period rather than the 1980s. For example, he notes, the new public offerings market has been "crazy." Stocks without sales or earnings histories have been bid up sharply as Wall Street looks on each issue as part of the "wave of the future."

Even the market for seasoned issues has been "silly," he notes. For example, Pillsbury had announced that it would not have a very good quarter, then raised its dividend and reported higher earnings: The stock soared six points. "How long this kind of market can last," Mr. Parish says, "is the $64 question."

Robert Errigo, director of research at Prescott, Ball & Turben Inc., a Cleveland-based brokerage, says the market's actions signal "caution" for investors. "We're in a two-tier situation," he explains, "where the economic situation is very bad for the country, but there is a lot of money around looking fro a place to go."

He holds that no matter who is elected president, there will be high inflation next year, which might be beneficial for the stock market, since it is often perceived as an inflation hedge. Mr. Errigo says the brokerage house is continuing to recommend energy stocks and high-technology, labor-saving companies as the best investment areas. But he warns that "people have to be selective."

The bond markets last week mirrored the mixed economic news that was reported. When the 0.5 percent gain in industrial production was reported, the bond markets rallied because it was less sharp than expected. Then, when the government reported that housing starts climbed 12 percent last month, it dropped, since investors were afraid the economic snapback would be too sharp.

By the end of the week, howeveR, investors began to look at the 11.93 percent yields on two-year Treasury notes and the money markets closed the week on a firm tone. In the corporate arena, new offerings remained thin, which helped to bolster prices and lower yields.

In the market last week, Sony remained active and sharply higher. Analysts expect the Japanese electronics manufacturer to report better earnigns in the quarters ahead. Oil companies, however, were net losers. They continued to be squeezed by the large inventories of aoil and slow consumer demand. In fact, five of the major oil companies dropped prices on gasoline last week in an attempt to woo the public back to the gas pump.

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