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Another opinion, from this week's Barrons ("Sizing Up Small Caps"):
[...]
Our misgivings about the market springing from such fundamental concerns, we
must confess, were intensified by the most recent communique of crack
technical analyst Alan Newman, editor of HD Brous & Co.'s Crosscurrents. A
veteran market observer, Newman is one of the few technicians we know of who
has been right on the money about the stock market. As major indexes ran up
to yearly highs in late May, he was forecasting a low on the Dow for this
year of 8800-9200. In subsequent updates, he reiterated his target for the
Dow and forecast yearly lows for the S&P 500 of 980-1020 and for Nasdaq of
1465-1560.
All three indexes, of course, hit and then crashed through his downside
forecasts in the first week of trading after the terrorist attacks. So can
prices go lower still?
"I believe they will," he told us Friday, even as the market was enjoying a
brisk rally. "Everybody's convinced we're making another bottom --
everybody's buying."
But the break last year in the long-term trend line in place since '94, as
shown in the accompanying chart, is a particularly ominous sign, he argues.
The S&P 500 is currently testing the October 1998 low of 923.32, and he now
believes will break through that level and, sometime next year, test support
at 817.67. But even if the test of the 1998 low is temporarily successful,
he stresses, he sees "no validity for a renewed bull phase." The break in
the '94 trend line, he insists, is the kind that suggests a secular, not a
cyclical, bear market.
That's not to say he rules out short-term rallies -- in fact, he suggested
one was in the offing in his Monday missive, that the market looked very
"oversold." But short-term moves, he feels, are pretty much a matter of a
roll of the dice. A quick strike into Afghanistan and the capture of Osama
bin Laden could trigger a mighty "short-covering rally" that could send the
Dow up 1,000 points or so, he suggests.
However, the longer-term trend, in Newman's view, is that we are "in a bear
market and likely the worst of our lifetime." The bottom is nowhere in
sight, he argues, "because too many stand ready to buy. We need to see
strategists tone down their bullish stance and raise cash. We need to see
mutual funds pile up cash. We need to see the public sour on the long-term
mantra to invest and go to cash." Only a massive buildup of cash, he
asserts, can provide the firepower for a broad advance.
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