How now, Dow Jones? The index can be misleading

Stock prices soared to record highs -- but nary a word of it in the nightly news. Last week, for the second time in two months, the New York Stock Exchange composite and Standard & Poor's 500-stock index climbed into new territory. Meanwhile, the widely followed Dow Jones industrial average has lumbered along.

``If the Dow had done this, it would have been front-page news,'' remarks Ricky Harrington, technical analyst at Interstate Securities, Charlotte, N.C.

But it is not something to be ignored, in his opinion. ``Historically, when the broader market moves in one direction, the Dow generally follows through.'' In late April, the NYSE composite hit a new high, but instead of following, the Dow dived 40 points. ``That's not the normal course of events,'' Mr. Harrington says.

He says penetration of the 1,300 mark on the Dow is likely. ``We believe we're in a primary bull. We'll probably see 1,500 to 1,800 over the next 18 months to three years.''

Not so, says Philip Erlanger, a technical analyst at the Advest brokerage in Hartford, Conn. This bull is on its last legs. ``Rampant expectations of lower interest rates are coercing the final bit of cash out into the market. The Dow could go to 1,300 or 1,320.'' But he describes the euphoria as a ``lemmings-over-the-cliff syndrome.'' Mr. Erlanger expects a bear market shortly, with the Dow plunging to 1,030 to 1,050 in the next year and a half.

Robert W. Colby, a technician at Smith Barney, Harris Upham & Co., is also cautious. This bull is very old by historical standards, he says. Corporate insiders are selling heavily: at a 5 to 1 sell/buy ratio. And ``institutional cash [as a percentage of assets] has declined 64 percent -- from 16.6 percent to 6 percent. Without cash on the sidelines, it will be hard to fuel the market to new highs.''

Harrington counters that money now in short-term bonds will shift into equities as interest rates decline.

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