Out-of-season bears watch bull market for signs of fatigue

Bear hunting? First, you have to find one -- they're out of season. Last week it was stampeding bulls that ran the Dow Jones industrial average up 43 points in one day. On the next, volume rose to the seconded highest ever as 210 million shares were traded on the New York Stock Exchange. Records were set on all the major market averages. By week's end the Dow had tallied up 92.91 points, after piling on 39.03 points Friday, to close at 1,792.74.

Indeed, trails leading to the entrances of America's brokerage houses are hard-packed, covered with the heavy imprint of bovine hoofs. Nary a bear paw mark to be found.

In surveying the herd, spotters at Investors Intelligence found 61.5 percent of the investment advisers were optimistic about stock prices. Some 25 percent thought there might be a short market drop. And the bears had dwindled to a new low of 13.9 percent.

``In the last six weeks the bears have been throwing in the towel,'' says Michael Burke, editor of the Larchmont, N.Y., weekly newsletter.

Normally, such an extremely favorable psychological reading would cause concern among technical analysts. Historical charts of stock prices swings indicate that too much optimism points to a selloff.

Isn't that right, Joseph E. Granville? (Mr. Granville is a chartist and die-hard bear -- author of ``The Warning,'' a recent book portending a crash of 1929 proportions. He'll set the record straight.) Joe? Joe? Are you there?

Oh, say it isn't so. Is the Joe Granville donning a bull outfit? He even sounds like a longhorn:

``I won't become concerned about these price levels until they reach 250 on the S&P [Standard & Poor's 500], 155 on the NYSE [composite], and 1,880 or higher on the Dow. We could see 1,880 or 2,000 in the next six months.''

The editor of the Kansas City-based Granville Market Letter slipped the steer horns on a few weeks ago. But rest assured, his overall context remains that of a long-term bear.

Mr. Granville sees many parallels between this period and the time leading up to the crash of 1929. It should be noted, however, that he has changed his opinion several times in recent years as to just where this market is vis-`a-vis the 1929 scenario.

Currently, he draws a parallel between the latest rally and the runup in 1927, less than two years before Black Tuesday. He points to the recent coordinated interest-rate cuts by the US, Japan, the Netherlands, France, and Germany.

``It's strangely reminiscent,'' he says, of a similar group effort to cut rates in the spring of 1927.

At that time, the governor of the Bank of England, the governor of the Reichsbank, and the deputy governor of the Bank of France visited the US to urge a relaxation of credit. The Federal Reserve Board obliged, cutting the discount rate from 4 to 3.5 percent. And, not unlike last week, people rushed into the stock market.

``It kicked off the final speculative bubble that climaxed in 1929,'' says Granville. That's what he thinks is occurring now.

``Every stock market in the world is exploding. It's become a worldwide casino. Where it ends nobody knows.''

But Mr. Granville ventures to guess that ``the end'' is at least six to eight months away. ``When you get a mature top that ends a long bull market, that top is preceded by months -- not days -- of technical deterioration. Now, we have zero technical deterioration.''

As confirmation, he points to a multitude of new 12-month highs being hit (almost 500 in one day on the NYSE last week) and only a handful of new lows. He likens this indicator to a hotel: ``When you have more stocks up than down, there are more people checking into the market than checking out.''

As a market timer in 1985, Granville was ranked in the top 20 investment newsletters tracked by the Hulbert Financial Digest. But as a stock picker, last year Granville finished at the bottom of Hulbert's list.

Currently, Granville is advising his subscribers to purchase shares of oil, casino, metals (steel, copper, aluminum, gold mining), and over-the-counter stocks.

Buying has been heavy lately in oil issues, as petroleum prices appeared to be stablizing last week at around $13 a barrel on the futures market.

``Don't get caught up in the euphoria and lose sight of a balance between safety and risk in your portfolio,'' counsels Granville. ``Somewhere along the way there will be a correction.''

So he suggests that every time a stock makes a strong move up, investors should put on a sell stop at 3 to 5 percent below the market. ``That way, you'll be sure to be stopped out at a profit.''

It should be noted that there is a strong contingent of hybrid bull-bears on Wall Street who expect a 10 to 15 percent sell-off any day now. And a few bears are still holding their ground, such as Thomas Holt of the Holt Investment Advisory Letter in Westport, Conn.

But when stock prices rise almost continuously for nearly six months, it creates a rather hostile, off-season environment for the bears.

That must be why one hears the likes of Joe Granville saying, ``If my 1927 analogy is correct, the market could have another year or year and a half to go.''