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Standing Firm

Aaron Task

SAN FRANCISCO -- Be it caused by month-end machinations or the proverbial bargain hunting for dead cats, traders prostrated themselves in thanks to the Trading Gods (and Goddesses) for the market's advance Monday.

Not only were the closing gains much needed after last week, but they followed some harrowing moments in the early going. The action was embodied by the Nasdaq Composite , which opened at 3692 vs. Friday's close of 3663, but soon tumbled as low as 3615.

Picture yourself as head of a Wall Street trading desk who felt the selling late last week was overdone and had been building long positions, and urging others to do the same. Come Monday, you see an early advance fade like so many blue jeans at the Jersey Shore, circa 1985. How do you think you'd feel?

Probably a bit like Sam Ginzburg, senior managing director of equity trading at Gruntal, who had "a scary couple of moments" Monday morning.

"Seeing the little dip after being wrong three days running, and you can't take the pain," he said. "I have my fingers on the [sell] button. Miraculously, we bounced back."

The Nasdaq closed up 2.8% to 3767.05, while the S&P 500 rose 0.8% and the Dow pulled up the rear (after holding up best last week), up 0.1%.

Aside from noting that the best time to buy -- once again -- was when the market looked gloomiest, Ginzburg didn't seem too concerned about why the bounce occurred. The trader was just content to go with the flow and "enjoy looking at a green screen" for a change, while "breathing a sigh of relief."

Clearly a lot of investors are waiting to exhale, but it's doubtful Monday's advance -- however soothing -- will prove sufficient to cleanse the lingering concerns after last week's undressing.

Which is precisely why investors with a time horizon beyond today and tomorrow should be buying now, according to Tony Dwyer, the Manhattan-based chief market strategist at Kirlin Holdings, a retail brokerage firm.

"All you have now is fears," Dwyer said, citing slowing earnings, more Federal Reserve tightening and the elections among the most prominent/obvious concerns.

"A lot of the negatives are priced in," he continued, noting the average Nasdaq stock is down 46% from its 52-week high and the average tech stock is down 57% from its apex. "What else could come out to dive the market down?"

More new supply of stock -- be it from IPOs , or secondaries, or the end of lock-up provisions -- for one. The calendar was a largely unsung factor in last week's debacle, I argued Friday. (Check out ipoPro.com , which lists more than 50 deals scheduled for this week, for insight into the new-issue calendar.)

But Dwyer didn't pursue the line about supply being the enemy. Instead, he focused on a belief that while technical damage was done to the Comp last week, the fundamental backdrop -- strong economic growth without inflation -- remains intact.

"If the fundamental outlook changed I'd be a seller, but to me it's only gotten better," he said, noting recent economic data demonstrate the economy hasn't slowed as much as was previously feared. "You've got to use significant weakness as an opportunity, rather than something to fear."

Where the (Big) Boys Are

So while Ginzburg and Dwyer are positive about the market's outlook, and focused on the fear generated by last week's selling, their views diverge at an interesting point.

To Ginzburg, one of the big short-term concerns is the potential for one or more of the "big-name gurus" to turn negative. Dwyer, meanwhile, senses most of his fellow strategists are scared and "thinking about turning" negative. But he believes that only accentuates the long-term bullish outlook.

But neither scenario appears to be unfolding, according to the weekly commentaries of some of Wall Street's top strategists -- published either late Friday or early Monday.

• Edward Kerschner, chair of the investment policy committee at PaineWebber, wrote "current levels would be viewed as a good buying opportunity" and reiterated his 2001 year-end target of 1715 for the S&P 500.
• Jeffrey Applegate, chief investment strategist at Lehman Brothers, conceded his forecast of 14% earnings growth for the S&P 500 in the second half of 2000 may be "overly optimistic." Yet Applegate did not cut the estimate, nor alter his view that "by year end, growth will remain well ahead of value, and the best relative performers will be tech stocks."
• Thomas Galvin, chief investment officer at Donaldson Lufkin & Jenrette, actually upped his 2000 earning estimates for the S&P 500 to $58.50 from $58, and argued the index -- priced at roughly 22 times estimated earnings for the year 2001 -- "is quite attractive." The Nasdaq offers "downside risk" to 3400 in the short term, but will revisit 5000 in the intermediate-to-long term, Galvin wrote.
• Greg Smith, market strategist at Prudential Securities, believes -- like Dwyer -- there's too much fear, and that inflation is "really mild" and interest rates won't be headed significantly higher. "Those companies whose earnings remain intact should be rewarded handsomely," Smith wrote.
• PS: Goldman Sachs' Abby Cohen does not publish a weekly comment (at least not one I'm privy to). If she had issued negative comments it would have been reported endlessly, everywhere. In an appearance on CNBC Monday evening, Cohen reiterated a view that the economy and economic growth are slowing, but not to a troubling degree at current valuations. She even used the now familiar "stair-step" analogy.

So whether -- like Ginzburg -- you believe negativity from the top guns will "kill us," or -- like Dwyer -- signals the bottom is at hand, the bottom line is you're going to have to wait for that signal.

That could suggest the market settles into a bit of a stupor until we get closer to the Fed's Aug. 22 meeting, which is bad news for those expecting a rapid reversal. The good news, for those long, is that a lack of direction is preferable to the kind of action witnessed last week.