Posted on: Thursday, March 15, 2001

Fears of market bailout grow

USA Today

Every day that stocks slide further — as they did yesterday when the Dow Jones industrials plunged 317 points to close below 10,000 for the first time since October — market pundits debate whether the relentless selling is finally over.

But despite the countless opinions served up by Wall Street experts each day, nobody really knows. "It's impossible to call a bottom," says Bob Dickey, technical analyst at Dain Rauscher.

Still, past market meltdowns do offer some insight into what it takes for battered stocks to finally roll over for good.

One ingredient that's always present at market bottoms is fear. "People get burned so badly that they swear off stocks," says Gary Anderson of tradersbootcamp.com.

Surprisingly, the Nasdaq's 61 percent drop from its high, the Dow's 885-point plunge since Friday and the Standard & Poor's 500's first 20 percent-plus bear market decline since 1987 haven't spooked investors enough to bail out of the market.

Nor have rumors of serious financial woes at Japanese banks and signs that weakness on Wall Street is spreading to foreign markets.

Other factors slowing down the bottoming process include:

• Investors are too bullish. That's a signal that stocks have further to fall, says Todd Salamone, research chief at Schaeffer's Investment Research.

Citing data from Investor's Intelligence, he notes that 54 percent of investment advisers are bullish and only 34 percent are bearish. At the market bottom in 1998, bears outnumbered bulls 48 percent to 37 percent.

Similarly, major brokerages on average are now recommending a 70 percent stock weighting; prior to the five-year surge that began in 1995, the stock allocation was just 50 percent. Just last week, influential strategist Abby Joseph Cohen of Goldman Sachs said to increase stock holdings.

"The more optimism, the more likely people are fully invested," Salamone says. "That increases the potential for selling" if stocks continue to plummet.

• Cataclysmic selling is missing. Markets typically hit bottom on a day when investors dump stocks in a panic on massive trading volume. The day of the 1987 crash, for example, a record number of shares traded, says Dickey. Yesterday, only 2.1 billion shares traded on the Nasdaq, more than one billion shy of its Jan. 3 record.

• "Get-even" syndrome. Investors holding losing stocks tend to sell into rallies to cut their losses, making it difficult for the market to rebound, says James Stack of InvesTech Research.

• Buy-and-hold investors haven't bailed out. Near the end of past bears, investors yanked massive amounts of money out of mutual funds. "You haven't seen that yet," says Byron Wein, Morgan Stanley's chief U.S. strategist. "We've got to convert this blind belief in stocks into more despondency."