The Coming Week: Still Not the Bottom

Despite Friday's bounce, many market watchers believe equities haven't hit their nadir yet.
Author:
Publish date:

Heading into the final week of Y2K trading, investors can only hope that Friday's rally has legs to it.

Relief found its way to Wall Street on Friday, lifting the

Dow Jones Industrial Average up 148 points to 10,636 and boosting the

Nasdaq Composite Index 177 points to 2517.05.

But even as the Dow is down 7.5% and the Nasdaq is off 38.1% for the year, some market experts still do not think the indices have hit bottom. "The market is in terrible shape," said Todd Clark, stock trader at

W.R. Hambrecht

. "And we're telling people not to buy the advance."

"We've got a shot at a repeat rally on Tuesday," predicted Clark. "But Friday's gains do not indicate an end to what we've gone through." Bottom line: Friday's gains didn't show a lot of conviction.

Put 'Em Up!

According to Clark, the market still needs an emotional selloff, one he believes will be accompanied by an increase in

put volume. "We're waiting for the signal that we're all clear," he added. "We're not looking for a specific price level. It's more of an emotional thing at this point." Clark thinks market players might see a spike in puts on Thursday and Friday of next week.

Over the past few months, market rallies have presented themselves as opportunities to sell stocks. And in the coming days, market pros predict that pattern will continue.

"Investors are all giddy because the market's up," said Brian Belski, stock market strategist at

U.S. Bancorp Piper Jaffray

. "But next week, we'll see selling into a rally. We might see mild upside, but the potential for downside is high."

Volume likely will be light during the next few sessions on Wall Street. "People are not going to make big bets on the market next week," noted Belski. "Many investors have thrown in the towel and are preparing to reload for next year."

Historically, price movements during the last week of the year are small. During the closing days of 1999, the Dow Jones Industrial Average gained 0.93%, while the Nasdaq added 2.4%. And in the final trading sessions of 1998, the Dow climbed 0.49%, while the Nasdaq advanced 0.58%.

Safe money says the coming week will be pretty quiet. Still, economists point out that important numbers are due to hit Wall Street, namely the

Consumer Confidence Index

results for December.

An important gauge of consumers' moods, the Consumer Confidence Index has been declining since July. "Next week's results should enforce the view that consumer spending is declining meaningfully," said Michael Moran, chief economist at

Daiwa Securities

. "As far as the

Fed goes, the confidence numbers will likely reinforce the notion that the central bank will reduce interest rates."

While Moran does not think the Federal Reserve will step in before the next

Federal Open Market Committee meeting on Jan. 31, he thinks the Fed might cut interest rates by as much as 50 basis points at its upcoming powwow.

"There's a lot of fear out there that's been aggravated by actual conditions," noted Mary Dennis, economist at

Merrill Lynch

. "We're calling for the Fed to wait until Jan. 31 to cut rates, but we're not ruling out the possibility of something happening before then if conditions are exceptional." Dennis is looking for the Federal Reserve to decrease interest rates to 5.25% by midyear.

When the Fed finally does cut rates, the market will get a real break. Before then, trading will probably be choppy.

"Investors seeking trading opportunities next week should look to the varsity leaders of the technology world," said Belski. "They're good short-term trading bets, and they'll continue to grow more than the market."

Whether on the sidelines or on the playing field during the coming week, market players will most definitely hope for better things to come next year.