Turbulence muddies a clear view of stock market prospects

Jean Roche of the Ferris & Co. brokerage firm of Washington cautions against fishing for the bottom of today's muddy stock market. But he's all for individual investors netting some of the better fish - especially the modest-sized companies with good earnings-growth records - at a time when their prices may be affordable.

''We're in a market that doesn't know where to bottom out,'' Roche says, attributing this primarily to the institutional skittishness of major money managers.

Over and over, stock market analysts today echo Mr. Roche's point that the market is too messy to offer an overall clue about when and where it might bottom out - and how far and how long it might rise. Because prices have dipped over the past few months for most stocks, they say, there are some buying opportunities evident. But the market as a whole hasn't dipped far enough for the buying opportunities to be wildly enticing.

For the past few weeks the market, as measured by the Dow Jones industrial average, has slipped into a pattern in which it oscillates up or down five or so points on a daily basis. Then a big rally ensues - and usually this is followed by general disenchantment and a pullback to the old position. The Dow closed such a week at 1,154.84 on Friday, down 29.52 points since March 16.

At first glance there seem few reasons for the fits and starts. Economic data are highly positive. The gross national product is growing at an estimated 7.2 percent annual rate. The consumer price index measures a still modest rate of inflation by the standards of the past decade, running at an annualized 6.1 percent rate for the first two months of 1984, a pace that is expected to slow in coming months.

But many analysts worry not about the current state of the economy. They worry about the future, the time when the investments that are made today should be paying off.

Hence the federal budget deficit (even if reduced from its $200 billion level to $181 billion by 1985, as President Reagan proposes), the possible ''crowding out'' of credit markets at a time of economic expansion, the return of inflation - all are troubling to money managers, especially those whose management performance is on the line with clients. The hike of the prime interest rate last week to 11 1/2 percent by major banks may not be the last during this economic expansion, they fear. The expansion of the money supply may foreshadow both a tighter credit/higher interest policy on the part the part of the Federal Reserve and higher inflation.

Money managers of trusts, mutual funds, pension funds, etc., make up the bulk of the trading activity of the market today. Relatively light volume, such as occurred in most sessions last week, indicates such managers are still waiting for a clear pattern to emerge before moving back into the market. This keeps trading volatile, since the huge positions institutions take in a stock, especially Dow Jones-type blue chips, lend both direction and stability to the market.

Harry Laubscher of New York-based Paine Webber confirms that most most big investors are temporizing due to their worries about interest rates and inflation. Mr. Laubscher says it is possible the Dow will ''test its intra-day low of 1,114'' before the correction has finally ended. But ''on the horizon,'' he says, the roaring economy should be translated into higher corporate profits and higher dividends.

Steven Norwitz of the Baltimore-based T. Rowe Price Associates mutual fund family cites his firm as one that, for the most part, is using this market as an opportunity to buy into companies with ''superior fundamentals.'' This reflects a view that the weakness in the stock market has been the result of a '' correction in a bull market rather than a new bear market,'' Norwood says.

''Each of our funds is currently fully invested, except for our growth-and-income funds,'' he says. ''We feel that the economy is favorable for business profits: Growth is strong, inflation should remain moderate, and interest rates should only uptick slightly.''

T. Rowe Price is predicting corporate profits will increase 22 percent in 1984 over the previous year.

''The kind of stock you buy,'' says Philip Erlanger of the Hartford-based Advest brokerage firm, ''depends on the type of investor you are. You can buy big capitalization (blue chip) stocks, but be sure you buy them on dips in the market.''

More rewarding but more risky, Mr. Erlanger says, is to invest in a basket of over-the-counter stocks. The OTC market has fallen so far, he reasons, that when it revives, these ''should move higher with twice the speed as the broader market.'' But he emphasizes that this tactic might be for the adventurous investor who is familiar with OTC stocks.

As to technical patterns in the market, Mr. Erlanger notes a short-term ''overbought'' condition. But he also cites the Investor's Intelligence Service's measure of market bearishness as a bullish sign when viewed in the contrary way most analysts use it.

Mr. Roche of Ferris & Co. says such signals are fine and important for big investors. For the individual, whom he serves, he recommends this strategy for an investment in a moderate-sized company's stock: ''When you try to decide where to invest, or whether to invest, put your first priority on fundamentals. Is the earnings growth good in relation to the price?'' If so, today's relatively depressed price may represent a good buy in a company that grows over the long term.