Beware the Artificially Created Bull Market

You can't force a patriotic rally, especially when caution signals are flashing.
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On my way to a breakfast meeting Thursday, I had the incredibly good fortune to exit Grand Central Station at Lexington and 43rd Street. It was incredibly good fortune because right there on the sidewalk were two young kids (well, younger than me) enthusiastically handing out leaflets and stickers with the proclamation to "Bring Back the Bull."

There was a placard there, too -- the kind that usually says "Venti Caramel Macchiatto: $4.75" -- but this one featured a bull, a flag and the words "Don't Leave the Bull at Half-Mast."

The nonprofit group, Invest in US, has a

Web site with some interesting items on it, too, such as:

  • "Right now, each of us can make a difference."
  • "Together, let's bring back the bull market and show the world we're stronger than ever."
  • "For our country, stock indices -- the Dow, the Nasdaq, the S&P 500 -- are like a pulse, an indicator of our economic health and a measure of our country's self-confidence. When they've fallen, the other parts of our economy suffer as well ... There is now a way for all our citizens to jump into the fray. By bringing back the Bull market."
  • "Creating a Bull market will take a belief that our country is strong ... We will spread the word through a multimedia campaign that encourages people to stay in the market, buy stocks and bonds and add to their IRAs and 401(k)s. Our goal is a long-term patriotic rally that will send a clear message of America's strength to our countrymen, our allies and our enemies."

Patriotic, but Suspicious

First things first: I'm all for better times. Who isn't? It's just that I'm for a transition period first -- something like a bear market, a bottoming phase with a lot of rebuilding, repair and recuperation, and then a bull phase. It's just that I find it

really

hard to believe that a new bull market has begun.

Big rally? Yeah. Did I miss it? Yeah. But I still don't think we've all seen the second coming of Lazarus yet. That's mostly because the Dow Jones Industrial Average took 29 months to top. I don't believe a 29-month top will be repaired in three or four weeks -- even with all of the rate cuts, tax cuts, lower oil and gasoline prices, the armed forces so far pitching a shutout in Afghanistan and a media blitz like the one outside Grand Central Station.

But I'm more than a little dismayed that groups like Invest in US are trying to convince investors they have the ability to

create

a bull market. Isn't this almost the same thing most Wall Street strategists have been saying since March 2000? Besides, we're supposed to know already that the investing dish is a meal best eaten without emotion. Their goal of a long-term patriotic rally seems forced. Besides, if history is any guide, investors don't create a bull market; they identify it

slowly

after it's already begun. This isn't a grass-roots movement like trying to convince Major League Baseball to drop the designated hitter.

Yellow Lights

Second, some things happened the other day that tell me, again, why it's still a very good idea to be cautious.

    A ton of stocks with "outside day" action. This technical term suggests that reversals will follow on the downside. For example, check out the action in Qualcomm (QCOM) - Get Report from Wednesday and compare it with the action from the day before. Wednesday's open was higher than Tuesday's. Wednesday's high was higher than Tuesday's. Wednesday's low was lower than Tuesday's, and it closed lower than Tuesday's low, at its low of the day. It's too technical, but easy enough to figure that it ain't a good sign. The inability to ignore the latest anthrax news. I'm not making light of this scare; I'm merely identifying that over the past few weeks, other instances of anthrax news went virtually unnoticed by investors. But the market was unable to ignore the new scares. The inability to ignore bad news isn't a good sign. Negative reaction to the Siebel (SEBL) news. Again, the inability to shrug off bad news isn't a good sign. The same thing goes for other high-profile stocks like AOL Time Warner (AOL) ; EMC (EMC) , which suffered its first loss in almost 12 years; Mercury Interactive (MERQ) ; PeopleSoft (PSFT) ; and RF Micro Devices (RFMD) . Dana's (DCN) dividend drama. The company amputated its dividend from 36 cents to just a penny. Dana doesn't garner as much attention as Cisco (CSCO) - Get Report or other sexy stocks, but its dividend cut was the first one since 1936! I wonder what this will do to the "yield" stock phenomenon that has been the rage over the past few months. Wednesday's declines in the savings-and-loan group. Washington Mutual (WM) - Get Report fell 11%, Golden West (GDW) shed 6.6% and Charter One Financial (CF) - Get Report lost more than 4%. This group's action was important because these stocks had been among the best year-to-date relative performers and because Golden West had announced record third-quarter 2001 earnings, up 49% year over year. The inability to embrace the good news is a negative.

John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback and invites you to send it to

John Roque.