Still Time on Wall Street Before the Fat Lady Sings

My most recent jeremiad in this space drew such a savage response from some quarters that I am obliged to consider the bullish case, which may be firming, at least for the near-term.

"With all due respect," wrote one Examiner reader facetiously, "you are just another mosquito buzzing away, frustrated at being wrong so many times."

Indeed, this market has bamboozled me and many other technically oriented gurus for too long, short-circuiting some of our most trustworthy indicators with vexing regularity, and turning charts which at times seemed to warn of apocalypse upside down.

Where might we have gone wrong? According to the investor quoted above, a Californian who claims to have $112 million of his own money invested in the stock market, I have overlooked some powerfully bullish arguments that even an imbecile could recognize.

For one, he notes that baby boomers are approaching retirement age in record numbers and that their nest-egg money will continue to flood the market until 2008, when most will pass 46, the peak age for investment.

Furthermore, he says, investors from around the world will continue to clamor for a piece of Wall Street's once-in-a-lifetime gold rush, stoked by the attendant opportunity to ride a long-ascendant and seemingly invincible dollar.

Factor in the burgeoning Internet, a medium with the potential to enrich us all by making many businesses more profitable, and it's hardly surprising that millions of investors evidently see no end of bullishness.

"That is it, and nothing else," admonishes my critic, the only self-described centimillionaire from whom I have ever received four angry letters in the space of just two days.

These messages ceased abruptly when, later in the week, the stock market took its record-breaking swan dive on April 14, affirming the thesis of my last column -- that many shareholders could conceivably be decimated by a bear market before they even sense that it is upon them.

Still, there are a few reasons why the financial thunderheads of April may soon give way to sunny and mild skies in the months ahead. The arguments are somewhat technical and have little to do with the broadly bullish arguments noted above, but they are nonetheless compelling. To wit:

• The shares of some blue-chip stalwarts have already been beaten down so brutally that they are bargains even by the standards of most bears. Gillette, Coca-Cola, Proctor & Gamble, Clorox, Del Monte Foods, Loews Corp. and Philip Morris come readily to mind, and all are well overdue for a bounce. Each has shed at least 50% of its capitalization in falling from all-time highs to recent lows, and the last two were down recently by as much as two-thirds. And here's something to further tempt the safety-oriented investor: At its current price of around 21, Philip Morris is paying a dividend of nearly 9%. If you were to buy the stock and "write" covered call options against it, you could probably ride it down to $10 and still come out ahead.
   
• Some key bellwethers in the technology sector look like they are revving for an assault on their old highs. Cisco Systems and Dell Computer Corp. are the stocks to watch, since they represent the best and brightest of corporate America . Both took their lumps earlier this month and fell hard, but they remain no more than a week's distance from record highs if and when Wall Street shakes its current jitters.
   
• Microsoft's shares have been cut nearly in half since the stock peaked at 120 in December, but like all fierce competitors, that which does not kill it will only make it stronger. Even if the trust-busters decide to amputate a product line or two to satisfy the aggrieved, the Redmond, Washington software maker will still be the meanest, toughest s.o.b. in the computer business.
   
• A relentlessly strong dollar continues to support investment strategies that have worked brilliantly for years. While this has created a potentially catastrophic credit bubble that must eventually bring down all financial markets, for now there is nothing to suggest the global trend, or the dollar's upward spiral, is in danger of reversing.
   
• Technically speaking, the bellwether NASDAQ 100 index is nearing oversold levels not seen in years. This suggests that panicky sellers may have spent their fury earlier this month and that the stocks which make up the index now rest more predominantly in "strong hands."
   
• Potentially explosive buying power still exists from bearish short sellers. They have borrowed billions of equity shares and sold them in the hope of profiting by replacing, or "covering," those shares at a lower price. But the stock market's recent lows were so fleeting that the shorts were unable to cover any more than a small fraction of their borrowed stock. They will be under increasing pressure to do so if the market wafts higher, causing their losses to mount.
   

But there are some important caveats:

• Many investors, chastened by the market's most recent swoon, will be more eager than ever to lighten their portfolios as stocks rise. This will blunt the stock market's wonted impulse toward full gallop, and it will also considerably reduce the odds that the broad averages can rally to new highs. Thus could the market remain in limbo, with a moderate upward bias lasting for many months if not longer.
   
• The overhang of stock for sale will be thickened considerably by corporate insiders, who will seize on any rally as an opportunity to unload shares they received for free, or at greatly reduced cost, under employee stock-option plans. Sales of such "restricted" stock hit $22 billion in February and, combined with supply from new offerings, are by now high enough to virtually cancel out the bullish flow of dollars into mutual funds.
   
• Chaos theory says the market's increasingly violent swings of late are likely to become even more so. If true, the trendless drift of the averages that I have hypothesized above might be the best investors could hope for.
   
• As noted above, the dollar's strength is crucial to the resiliency not just of the U.S. stock market, but of all global financial markets. No one can predict when the greenback's bull market will end, but when it does, it will be time for the Fat Lady to sing.