Some market-watchers see an early dip, as prelude to election-year rally

The stock market is heading for a brief downturn. Even so, by the end of 1983 and into the election year, the market will move very strongly forward. This is the view of several market analysts who have been noting technical and sentimental indicators of a coming ''correction,'' despite continued signals of overall economic strength in the United States.

''Forty-nine percent of the market is bullish, so it seems overbought,'' says Philip B. Erlanger, chief technical analyst at the Advest brokerage firm in Hartford, Conn. ''The directions are now negative, and we are recommending hedge positions.''

Nevertheless, Mr. Erlanger, who describes himself as a contrarian, projects the Dow Jones industrial average at 1,400 by year-end and predicts a Dow of 1, 600 by mid-1984. The DJIA closed Friday at 1,2xx.xx, off xx.xx points. Noting that the key gauge has moved up 50 percent since August 1982 (during the recession and well before the election year), Erlanger says jumping another 30 percent in 1984 should not be difficult.

But because the long-term sentiment of the market is bullish, he says, a correction now is appropriate. He recommends selling into market rallies.

Another analyst who sees a higher market next year - but a dip downward first - is Robert J. Nurock, publisher of ''The Astute Investor'' newsletter of Payoli , Pa. Mr. Nurock thinks the Dow's near-term peak might have occurred last Monday , when it hit 1,284.65. He believes investors' expectations had become unduly optimistic that Federal Reserve policy would cause lower interest rates. Last week optimism apparently gave way to uncertainty again.

''There seems more potential now for a downside turn,'' Nurock says, predicting it will occur ''between now and early December.'' At this point he recommends stocks of either large- or small-capitalization companies that are well managed, have cut costs, and will be in growth positions as business picks up. Among his choices are Emery Air Freight, Superior Industries, Triangle Pacific, and G. C. Murphy.

Another newsletter publisher, Robert Nicholson of ''The Nicholson Report,'' Coral Gables, Fla., has been watching the tops and bottoms of the market's up-trend line. If the Dow drops below 1,230 in the next few trading sessions, he thinks, then a correction will have begun. He expects this to be a significant turndown.

Both Mr. Nicholson and Mr. Nurock note the very low ratio of cash to assets held by big institutional investors, mutual funds in particular. This indicates there is little liquidity on which to base market growth. Nicholson expects that institutions, concerned that interest rates may not in fact drop, will begin selling to increase cash. Because of the size of their holdings, an institutional sell-off could cause the market to drop sharply.

Nonetheless, Nicholson believes the correction will be ''quick and dirty'' and the second leg of the bull market could begin by year's end. He recommends an interim defensive investment posture in industries such as foods and soaps. Interest-sensitive companies, especially utilities, are also attractive, because they offer 11 or 12 percent yields and the possibility of future growth as the economy picks up steam.

His favorites include Cleveland Electric Illuminating Company, Commonwealth Edison, and Texas Utilities. The Federal National Mortgage Association is also a good buy now, Nicholson believes, because it is busily tying up huge sums in 12 to 14 percent mortgages; if interest rates drop, that means huge profits for Fannie Mae.

One analyst who does not think the market will hit a major correction in the coming days is Robert J. Wibbelsman, vice-president and portfolio strategist at Cantor Fitzgerald & Co. of Beverly Hills, Calif. Mr. Wibbelsman says the market has actually been going through an internal correction for the last six months. In the past two weeks the Dow has broken into high ground and seems to be completing its consolidation, he says. Auto stocks are very strong, and retail stocks are stirring.

''I'm giving the market the benefit of the doubt,'' Wibbelsman says. ''I think to say the market is going to have an October massacre - which is a popular notion - is questionable. One feature of this market is that it is not selling out of hand. There seems to be an underlying positive attitude.''

Acknowledging that institutional cash is not very high, he wonders whether cash flow, rather than a sell-off, might make up for it. He thinks the market will broaden from its current emphasis on high-quality issues (AT&T, IBM, etc.) and show strength among smaller-capitalization stocks. There may even be a glimmer, he says, for high-tech stocks, which have felt a major shakeout in the past three months.

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