Longtime Bulls Beginning to Shed Their Horns

Some of Wall Street’s favorite dance partners don’t like the music anymore, so they’re leaving the hall.

Several widely followed stock market timers turned from bull to either bear or “neutral” last week in the wake of stocks’ wild swings here and abroad.

The defections are troublesome because they include timers who don’t change their forecasts frequently. In other words, these aren’t people who just blow with the prevailing wind, a common malady of market forecasters.

Elaine Garzarelli of Shearson Lehman Bros. and Stephen McKee of the No-Load Mutual Fund Selections and Timing newsletter, for example, had been bullish--correctly--for more than a year, until last week.

Do they know something that you should? Here’s a rundown of the advice some of the defectors gave their clients last week:

* Shearson’s Garzarelli: Well known as one of Wall Street’s staunchest bulls all through 1991, New York-based Garzarelli now is officially neutral on stocks. She’s guided by 13 market indicators that she fashions into an index. Last week, when that index slid to 63% from 79%, Garzarelli turned cautious.

The biggest drag on her index, Garzarelli said, was a sharp drop in the cash levels of stock mutual funds. Cash as a percentage of stock fund managers’ portfolios was a record low 4.1% at the beginning of March--meaning that of every $1 in fund assets, only 4.1 cents was cash available to buy additional stocks. The rest was already invested.

Cash is the fuel that keeps a bull market moving, of course. Garzarelli figures that there isn’t enough around to guarantee higher stock prices soon. “Since 1966, there has been only one period (1972) when the stock market continued to advance after cash levels fell to such lows,” she said.

* No-Load Mutual Fund Selections’ McKee: Bullish since January, 1991, McKee changed his outlook to bearish when the Dow Jones industrial average failed to hold above 3,200 in last week’s plunge. The Dow fell a total of 94 points last Tuesday and Wednesday, closing at 3,181.35 on Wednesday before rebounding Thursday and Friday to finish the week at 3,255.37.

While many market analysts had been troubled by the blue-chip Dow’s ability to keep rising in February and March--while the broad market trended down--McKee believes that “divergence” was actually a good sign: As long as the Dow hangs tough, he contends, the rest of the market will eventually turn and follow.

“At every major market bottom, you’ve got that kind of divergence” between a rising Dow and a weaker broad market, he said from his Dallas office, citing December, 1987, and October, 1990, as examples.

So when the Dow began to crack last week, McKee saw the bear’s shadow. Forget the idea that it’s good for the Dow to slide back into line with the rest of the market, McKee said: The last time that happened was in the October, 1987, crash.

* Stan Weinstein, editor, the Professional Tape Reader: Based in the “other” Hollywood--Hollywood, Fla.--Weinstein jumped on the bull bandwagon in December and rode the winter rally. But now, forget it: “There’s so much deterioration going on in this market, it’s incredible,” he said.

Fast-talking Weinstein ticks off a partial list of negatives: “Foreign markets are weak, corporate insider selling (of their own stocks) is the heaviest in five years, and mutual fund cash is very low.”

If you’re inclined to look for clues in the patterns individual stocks trace on charts--the science of stock-market “technicians”--there’s even less good news. “Two out of three stocks are technically negative,” said Weinstein, a veteran chart watcher.

He expects one more big rally, with the Dow reaching a peak sometime in the next few months. But it’s too late in the game for anyone to just be a buy-and-hold investor from here, he said. “I see 1993 as an absolute disaster,” he said.

* P. Q. Wall, editor, P. Q. Wall Forecast: “I’m not a gloom-and-doom guy,” Wall insists from his Denver base. But that may depend on your definition of the term--or at least your investment time horizon.

Wall last week gave his newsletter and telephone-advisory clients this forecast: The Dow will reach 3,600 in June, rocketing off the recent turmoil.

But after that, “The grandfather of bear markets begins,” he said. It could last between two and four years, but in any case the Dow’s bottom will be 600.

Wall is a “wave” follower, one of those analysts who believes that the stock market follows a series of patterns--up and down waves--that vary in intensity and duration. It’s time for a major, major down wave, he insists, coinciding with a worldwide depression.

Of course, this depression call has been around since the 1930s--and been wrong ever since. But Wall insists that the time has finally come, and that last week was the strongest signal yet.

But he also insists that this isn’t the end of the world--just another market cycle.

A 600 Dow, just another number? That, of course, would be a matter of personal interpretation.