Wall Street Seers Say Stock Prices Will Rise Again

SINCE United States financial markets were closed Memorial Day, Wall Street will be scrutinizing the pattern of buy-and-sell orders especially carefully today.

Just call the present phase for the US stock market an ``interim period,'' says one longtime market watcher. Or an ``intervening recovery,'' as another analyst calls it. However it is described, there is a growing sense on Wall Street that the market correction of early 1994 may be over. What is unresolved here, is how long the period of a newly expanding market can last before another downturn.

``The [stock] correction ended in late April,'' says Larry Wachtel, a vice president with Prudential Securities Inc., an investment house. ``What we had from the beginning of the year was roughly a 10 percent decline [in market value]. The market is now in a consolidation phase - a base-building phase.'' The market, as measured by the Dow Jones industrial average, should start to gain ground, Mr. Wachtel says, reaching around 3,900 points later this summer. Unfortunately, it will not stay there. Market technicians for Prudential say they see the Dow slipping to about 3,500 in late fall.

The Dow hit its all-time high of 3,978.36 points on Jan. 31 before tottering up and down in a roller coaster fashion for much of February and March. In late March, the market plunged, dipping below 3,600 points in April. Since then, the market has slowly begun to rise, currently hovering around 3,700 points. Last week was sluggish for stocks, marked on several days by flat-to-light trading. On Friday, the Dow closed at 3,757.14 points.

What are investors buying these days? Apparently, stock mutual funds. During April, investors poured a net $11.3 billion into stock funds, compared with net purchases of $6.6 billion in March, according to the Investment Company Institute, a trade group. By contrast, investors sold off bond mutual funds. In April, investors took a net $4.8 billion out of bond funds, compared with net withdrawals of $7.7 billion in bond funds in March.

Dick McCabe, chief market analyst at investment house Merrill Lynch & Co., says many investors continue to be negative about the market, noting that a recent issue of a newsletter called ``Investors Intelligence'' showed about one-half of all financial newsletters more bearish than bullish. But that is probably good news, Mr. McCabe says, since stock rallies often follow bearish sentiments.

THE Dow, McCabe says, should rise to between 3,800 points and 3,900 points over the summer. But like Prudential, he says he then sees the market stalling - and falling as low as 3,200 points over a period of weeks or months. The total market correction for the year, he says, could be 20 percent from the January high.

Part of the reason for an additional decline, McCabe says, is based on technical factors, such as recent steep declines in the Dow Jones utility index, which has plummeted 30 percent from its peak last August. Historical patterns show a broad decline in the utility index usually presaging a 20 percent decline in the industrial index, he says. Analysts for Merrill Lynch say they are also concerned about a possible ``risk of disappointment'' about falling earnings reports later in the year, if consumers prove unwilling to spend money in the months ahead.

Not all stock technicians here say the market is out of the woods in terms of an interim recovery. Dennis Jarrett, chief market technician for investment house Kidder, Peabody & Company, says the spring correction has not yet run its full course.

Mr. Jarrett reckons that the Dow Jones industrial average will dip below 3,500 points, possibly falling into a range between 3,200 points and 3,400 points over the next few months. He also sees new lows for the broader Standard & Poor's 500 index.

The ``broader market,'' measured by indexes such as the S&P 500 and the Nasdaq Composite Index, will probably need to bottom out before the Dow industrial index does so, Jarrett says. He says bottoming out in the broader market has not yet occurred.