Volatility confounds investors

The Dow Jones industrial average has
chalked up triple-digit moves
in 13 of the past 15 sessions

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By Amy Baldwin
Associated Press

NEW YORK >>When the Dow Jones industrials fell to a five-year low this past week, wearied investors found themselves wondering again how much more the battered stock market can fall.

The question didn't go away with two straight triple-digit rallies. It just changed a little, to whether the market had finally hit an upward groove.

In any event, the answer isn't one that's likely to hearten investors desperate for good news after three years of declines.

As long as companies continue to warn of weaker profits and lay off employees, there's a limit to stocks' upside and no limit to their downside.

Experts are dubious the market will be able to hold the gains of Thursday and yesterday, saying the surges could give investors an excuse to sell stocks to lock in profits.

"On the surface of it, it looks nice. ... In my gut, I am worried it is a trap," said Richard A. Dickson, technical analyst at Hilliard Lyons in Louisville, Ky.

The rallies themselves have had a bearish element to them, thanks to a practice called short covering. In short covering, investors who had sold shares on expectations that the market will keep dropping are forced to buy stocks to adjust their positions when the market advances.

In other words, many investors still don't have faith in the market.

Stocks remain vulnerable to the factors behind its selloffs -- tensions with Iraq, disappointing earnings announcements, and the possibility that the economy slips back into recession.

"The rally is long overdue," said Michael Murphy, head trader at Wachovia Securities. "But there are still so many distractions out there from a corporate (profits) standpoint, from the Iraqi situation."

The market has responded with extreme volatility. The Dow has posted triple-digit moves, up and down, in 13 of the past 15 sessions. Eight of the moves have been declines, including Wednesday's 215-point drop that brought the Dow industrials to 7,286.27, their lowest close since October 1997.

According to analysts, those kinds of big swings typically occur in bear markets -- but not at the end of them.

"Generally bottoms are rather quiet," Dickson said. "It may be the end of a leg down in a bear market and a potentially nice bear market rally. No one is going to complain about that, but that does not represent that we are going higher in 2003."

Once expectant of an upturn in late 2002, analysts and Wall Street observers now express low expectations for 2003.

Even Wall Street itself, with financial firms like Credit Suisse First Boston announcing new rounds of job cuts this past week, apparently thinks little of the market's ability to achieve upward momentum and the frail economy's ability to rebound.

"What we don't have right now is this perception of having to invest and be opportunistic," said Barry Honig, president of Honig International, a New Jersey-based executive search firm that specializes in the financial industry. "There is not this wholesale notion that things are going to be better."

The market's three major indexes -- the Dow, the Nasdaq composite index and the Standard & Poor's 500 index -- recorded their first weekly gains in seven weeks.

For the week, the Dow climbed 321.89, or 4.3 percent, after rising 316.34 yesterday. The Dow closed the week at 7,850.29.

The Nasdaq had a weekly gain of 70.57, or 6.2 percent. Yesterday, the Nasdaq advanced 47.10 to 1,210.47.

For the week, the S&P index rose 34.74, or 4.3 percent. Yesterday, the S&P advanced 31.40 to 835.32.

The Russell 2000 index had a weekly loss of 3.05, or 0.9 percent, despite rising 8.75 yesterday. The Russell ended the week at 344.93.

The Wilshire 5000 Total Market Index -- a capitalization-weighted index that measures more than 5,700 U.S. based companies -- ended the week at $7.873 trillion, up $274.41 billion from the previous week. A year ago, the index was $10.049 trillion.