Wall Street's new highs: time to dance a jig or the last tango?

Time to break out the party hats and whoop it up? OK. Maybe that's expecting a bit too much public exuberance from those charged with the solemn responsibilities of a fiduciary. Maybe Wall Street's pin-stripers aren't exactly prone to boogeying on the exchange floor. But one suspects that at least some of those figures of finance relished a few moments of private glee last week as the Dow Jones industrial average cut loose, dancing to a couple of all-time highs.

A 14-point jig early on, followed by a 17-point swing at midweek, landed the Dow at 1,368.50. That topped the old record of 1,359.54 set July 19.

On Thursday, the Dow shuffled slightly higher for another record, at 1,369.29, in heavy trading. By Friday's close, traders cut in to take some profits, bringing the Dow down to 1,3xx.xx, up xx.xx points for the week.

``The turn is here,'' says Cary Retlin, portfolio strategist at Thomson McKinnon Securities in New York. ``Essentially, the market has reversed its 21/2-month decline.''

James McCarthy, technical analyst at PaineWebber, chimes in, ``It might be premature to say this, but we could see the Dow at 1,440 to 1,450 by year-end.''

But the jubilance is far from universal. Some say this Dow celebration is merely the last tango.

``The surge now may ultimately be the last hurrah for the next several months,'' warns Michael Burke, editor of Investors Intelligence, a financial newsletter based in Larchmont, N.Y. He predicts, ``The next good-size move by the Dow will be on the downside.'' By February or March, Mr. Burke expects the Dow Jones industrial average will have tumbled 100 to 150 points.

Indeed, many technical analysts note that while the stocks of the 30 industrails making up the Dow have rallied, the broader market averages have not posted new highs.

The Dow has been inordinately pumped up by takeover speculation in a few stocks. For instance, General Foods, which eventually received a buyout bid from Philip Morris, has risen about 40 points since mid-September.

Looking for signs of this rally's overall strength, Burke finds little to cheer over. The number of stocks posting new highs vs. the number posting new lows has not been improving.

When one compares the January-February rally, Burke says, with the July rally and with this latest rise, each time there are fewer stocks posting new highs along with the Dow. Bellwether IBM, for example, posted a high of about $138 during the February rally. But when the Dow punctured its old record high this week, IBM was still $10 shy of its February high.

``The market is getting weaker and weaker internally,'' Burke states.

But the bulls aren't particularly fazed by such bear talk. ``You'd be crazy to short the market now,'' Mr. McCarthy at PaineWebber says. ``Everyone'' is aware of the technical weaknesses of this rally. ``But with everybody worrying about it, it will probably do the opposite. I think in the next couple of weeks this rally will broaden out.''

And Mr. Retlin comments that if one waits for further confirmation of a rally before buying, one misses the greatest percentage gains. ``By the time breadth comes in, everyone has realized a rally is under way.'' The lack of widespread buying is a ``leftover'' due to the pessimism that had been growing in the last month, he says.

To support his bullish outlook, Retlin points to the Commerce Department's upward revision of the gross national product (GNP) in the third quarter. This broad measure of economic activity showed a 3.3 percent rise, instead of the 2.8 percent ``flash'' figure given a month ago. By way of comparison, in the first six months of this year the GNP grew at 1.1 percent.

``The economy is picking up speed,'' Retlin says. ``That translates into improved corporate earnings, which is very positive for the market. I consider this week a buying opportunity. By the first quarter of next year, we could see 1,430 to 1,440 on the Dow.''

He says Thomson McKinnon is recommending that clients purchase issues sensitive to the economy. Computer stocks, the large mainframe makers, are high on his buy list. Earnings weren't as poor as expected, and a fresh burst of new products should buoy these stocks, he figures.

He also favors specialty retailers, especially Handleman Company. Handleman services and supplies the record and tape departments at major retail chains such as Sears, Roebuck and K mart. With new higher-margin items -- such as prerecorded videocassette tapes and digital discs -- being stocked, Handleman should benefit.

And Retlin says that with retailers worrying about sluggish sales, many are beefing up their advertising programs for the coming months. More store traffic means more profits for Handleman, since 6 percent of all record sales are impulse purchases.

Tandy (Radio Shack) is another favorite. ``They have a strong marketing organization, all they need is new products to sell,'' Retlin says. Those new products -- including videocassette recorders, digital disc players, and television sets -- are coming on stream.

What would he jettison now? Food stocks is the only group that springs to mind. ``With all the takeover speculation, most of them are overpriced,'' he comments.

Mr. McCarthy at PaineWebber agrees the food stocks are getting a little rich and recommends selling on strength. And PaineWebber purchasing suggestions? ``The oversold groups present some opportunities: brokerage stocks, tobacco stocks, and airline stocks.''

What counsel does the bear in this bunch offer? ``Basically, sell your worrisome stocks on any advance rather than getting caught up in the excitement,'' Burke advises. He suggests moving into a more liquid position, adding, ``I would be very wary of stocks not moving up with the Dow.''

Again, Burke says he does not expect this rally -- ``centered totally on takeover stocks'' -- to broaden. And why not?

``When investors see the Dow making new highs and their stocks aren't, the tendency is to be complacent. To wait rather than buy. They think, `Somewhere along the line the Dow will pull my stocks along.' ''

Burke is not alone in his downward prognosis for the Dow. For instance, the brokerage firms of Salomon Brothers and Oppenheimer & Co. have staked out similar positions. The bulls, though, can count Dean Witter Reynolds as an ally.

In the months ahead, just which firms will be whooping it up -- in whatever form that ``whooping'' may take -- remains to be seen. Chart: Interest Rates. *Yields; Source: Bank of Boston.

Percent Prime rate 9.50 Discount rate 7.50 Federal funds 7.88 3-mo. Treasury bills 7.20 6-mo. Treasury bills 7.30 7-yr. Treasury notes 10.00* 30-yr. Treasury bonds 10.43*

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