Inside The Stock Market ...trends, cross-currents, and outlook

The February 23 memo advised clients of new tactical move into a package of major airlines, a 6 to 12-month tactical play. The sharp 23% decline in Airlines since Jan. 20 is viewed as a rare second opportunity to buy an industry in the midst of a profit surge at pre-recognition levels.

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Our Major Trend Index is down to Neutral temporarily, but we think the market is now in final washout phase of the long complex correction dating back to late June 1983. Our guess at this time is the late February lows will hold.

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The mega merger mania may be about over. Our model scored big with Getty and now Gulf. We cashed in half of the 4% Gulf position at 69 on January 29 and have just sold the rest at 71. $80? Well maybe, but why be greedy? The party may be about over.

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The biggest financial burden may not be the skyrocketing costs of plants under construction. The eventual costs of decommissioning the now operating plants may be even greater.

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Financially sound regional banks that may, in coming years, be swept up in the now emerging consolidation trend may have significant performance potential. In addition, they should experience a profit surge when interest rates come down. We think potential downside risk with these stocks may also be less than the market.

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Our Major Trend Index says it’s still a cyclical bull market. The market is now in final washout phase of the long complex correction dating back to late June 1983. Expect to see lows momentarily, followed by powerful upswing carrying to new market highs by summer.

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Does it make sense to buy the traditional “defensive” stocks in the later stages of a bull market? If upside potential is viewed as only 20%-25%, it may not make much sense at all. However, we think risk can be reduced without giving up much potential reward.

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Frivolous flights of foolishness and fantasy that come remarkably close to reality. First a review of some old foolish fantasy forecasts that came true, or close to being true in the last year. Then, as is our annual tradition, we once again put our forecasting reputation on the line with a new set of prognostications. Not for the more serious readers.

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A little self-examination is always good for the soul, so each New Year we look back over the preceding year or so, critically reviewing the significant studies, portfolio shifts and recommendations which appeared in this publication. Where were we right and where were we wrong?

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We think the cyclical bull market is still on track even though our Major Trend Index did drift down into Neutral territory in the last two weeks of December. An Interim Update concerning this will be sent out January 9 when the first calculation of the new year is made. We suspect the Index has moved back up into Positive territory this first week of 1984.

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It’s now 1984 and thermal pollution time – our annual economic and market outlook. Actually, this (unlike our New Year’s Day Brunch) is a relatively harmless tradition. It is only harmful should investors take it as seriously as do some of the prognosticators.

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The Bond Market – 25 Years Ago: In recent years investors have been conditioned to double digit long-term interest rates, and more than a few think it will always be that way. Memories on Wall Street are notoriously short…..Equity Structure Update: Quite a few changes have been made in recent months. This feature details the current conceptual structure.

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The cyclical bull market, exploding over a year ago looks healthy, but we are not sure the 1983 corrective phase is over. Our intermediate term timing work does not want to turn positive. On a secular basis, the stock market is probably about two-thirds of the way through the move beginning in 1974.

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The cyclical bull market, exploding over a year ago, looks healthy. The 4-5 month corrective phase may be over. The excesses have been worked off and the next up-leg is due momentarily. On a secular basis, the stock market is probably about two-thirds of the way through the move beginning in 1974.

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Short-term, an October decline may be in order, but nothing serious. Most excesses have been worked off in the third quarter. The cyclical bull market, exploding over a year ago, is looking much healthier.

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Big equity structure changes in the last 30 days, one of the most dramatic shifts made in 12 years. Oil Patch holdings reduced, new position in Ethical Drugs and “new” Let’s Get Competitive thesis (improving manufacturing and industrial productivity). Other small sector shifts not very significant.

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A preview of this issue’s “In Focus” feature on the relative attractiveness of “Zero” Treasury securities. Also, an Inflation Watch update: The caution flag is still up, but our monitoring tools are in no worse shape than a month ago. Actually, a few are just a shade less ominous.

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Short-term, the DJIA is charging but a lot of market troops are hanging back. We are not so sure the correction is over. However, the cyclical bull market, exploding over a year ago, is starting to look healthier.

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Inflation Watch - Will inflation accelerate significantly in the next 12 months? Some indicators are again looking more ominous. Gold for Pension Funds? We have been long-time believers in individuals holding gold as a form of insurance protection against possible future hyperinflation. Why not for pension funds, too?

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The current cyclical bull market exploding in the summer of 1982 is no longer so healthy. The Major Trend Index is still positive but deteriorating. The expected intermediate correction is upon us and could be greater than most now think. The duration could be as long as 2 months.

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