Bull Market: Where's Heads and Tails?

By TOM PETRUNO

April 22, 1998 12 AM PT

They’ve got a new term for this bull market on Wall Street: It’s the Viagra market--an aging rally that suddenly thinks it’s young again.

The Dow Jones industrials, which by April 1 were already up 11.3% for the year, rose 43.10 points to a record 9,184.94 on Tuesday, the fifth advance in seven sessions and enough of a boost to push the index’s year-to-date gain past 16%.

The main index of the Nasdaq Stock Market, meanwhile, is making the Dow look like a piker: The Nasdaq composite is up 21.2% year-to-date. It surged 0.9% on Tuesday alone as investors rushed headlong into many small, obscure Internet-related issues, driving some of them up more in one day than most investors have made in this decade.

An entertainment-software company called 7th Level, for instance, rocketed 411% on Tuesday, to $9.25 a share. By contrast, the Dow index has risen 288% from its bear-market low in 1990.

When smaller stocks make moves like these, many veteran investors warn, it usually means the market has moved into a dangerously speculative phase--which, in turn, usually is a prelude to a sharp, and broad, sell-off.

“This thing is running out of control,” says Michael Burke, analyst at Investors Intelligence, a market newsletter in New Rochelle, N.Y. “I don’t think the average person [buying into the market today] has any perspective on what a stock should be worth.”

But in a 7 1/2-year-old bull market whose obituary has been prematurely written far too many times, many Wall Street pros concede that it may still be far too early to say that we’ve reached a historic top.

“We’re more holders than buyers now, but we still don’t see major ‘sell’ signals,” said Gerald Appel, analyst at Systems & Forecasts in Great Neck, N.Y.

While investor-sentiment surveys show bullishness rampant--often a “contrary” indicator--trading volume has remained active but has not risen to record levels that would suggest a final panic buying surge by desperate investors.

What’s more, despite bearish analysts’ contention that the market advance this year has been extremely narrow--centered in a relative handful of big-name stocks such as Microsoft and General Electric--last week 2,925 Nasdaq stocks advanced while 2,349 fell. That was a healthier winners-to-losers ratio than the New York Stock Exchange showed for the week.

Since April 1, the Standard & Poor’s small-cap stock index has risen 2.7%, beating the blue-chip S&P; 500’s 2.3% rise.

While the bulls say that broadening of interest in smaller stocks is healthy--the current zaniness in Internet issues notwithstanding--the bears contend that it’s another sign of a market nearing a peak, as investors move down the food chain to higher-risk issues.

Yet from a fundamental point of view, smaller stocks are exactly what investors should be buying today, some analysts argue: Smaller companies, mostly dependent on the domestic economy, are expected to post much stronger earnings growth this year than multinational firms, many of which have been hurt by Asia’s woes.

Still, many analysts are puzzled by the strange crosscurrents in this year’s rally. “It’s the most interesting market I’ve seen in a long time,” said veteran market analyst William Raftery at Salomon Smith Barney in New York. “There are so many different things happening,” particularly in terms of very disparate stock groups pushing the market higher at any given time.

For example, the leading stock group over the last month has been gold-mining stocks. Is that a sign that investors expect inflationary pressures to rise--triggering an interest-rate increase by the Federal Reserve?

Or are some investors buying gold stocks just because the shares have been depressed?

Arnold Kaufman, editor of S&P;’s Outlook investment newsletter in New York, says the market overall is rising for one good, simple reason: Investors are trying to get in, and they’ve got the cash to keep throwing at it. That can go on until the cash runs out--or until something convinces investors that the market is no longer the place to be.

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Http://www.speculative.frenzy.com

Some of the Internet-related stocks that soared Tuesday as investors frantically poured money into any issue connected with the sector:

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Stock (ticker symbol) Tues. close and chng. Pct. chng. 7th Level (SEVL) $9.25 +$7.44 +411% PC Quote (PQT) 4.38 +2.88 +192 Market Guide (MARG) 23.00 +15.06 +190 First Virtual (FVHI) 1.75 +0.91 +108 Audio Book Club (KLB) 11.00 +5.44 +98 Image Entertain. (DISK) 7.50 +3.69 +97 Sharper Image (SHRP) 8.00 +3.69 +86 HomeCom (HCOM) 11.94 +5.44 +84 Alpha Micro (ALMI) 2.81 +1.00 +55 Navarre (NAVR) 9.50 +3.13 +49 Cybershop (CYSP) 16.50 +4.63 +39

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Source: Times research

New Leaders

The stock market leadership over the last month has been a disparate mix--which may be a good sign for the rally, some analysts say.

Group: 1-mo. gain

Gold mining: +24.1%

Restaurants: +17.3%

Commun. equipment: +14.4%

Defense electronics: +12.7%

Computers: +11.9%

Photography: +10.6%

Oil/gas drilling: +10.1%