Those who size up technical charts see a market top in spring

Wall Street savants were rubbing their hands in gleeful anticipation March 1 when the Dow raced to within a hair of the 1,300 mark. This past week, the elation faded.

The Dow Jones industrial average lumbered back to 1,269.66 amid disheartening uncertainty -- at least for fundamentalist market-watchers.

The quest for meaning in Federal Reserve chairman Paul Volcker's every twitch and pause resumed as Mr. Volcker testified once more before Congress.

The conclusion: definitely, er, possibly, leaning toward tightening credit -- slightly. As for actual economic events, the money supply jumped again. Interest rates inched upward. The dollar went back to pinning foreign currencies to the mat.

And the Dow lost 29.70 points in five days as it followed the bond market south.

But such economic events are merely fodder for idle minds (or future graphs), contend technical analysts, also known as chartists. ``The market does what it will and people use the news to explain it'' is a common attitude among the technicians.

Instead, this breed looks at past buying and selling patterns to make forecasts. Among other things, they scour charts of advance-and-decline figures and compare the public's actions with those of the ``experts.''

One signal basic to the technician's trade is the sentiment (or mood) indicator. And that signal is turning from green to yellow.

Investors Intelligence of Larchmont, N.Y., posts one widely watched barometer of investors' moods. This past week, the 10-week moving average showed that 76 percent of those surveyed were bullish.

``With it as high as it is now, the market will have a hard time going much higher,'' says Philip B. Erlanger, chief technical analyst at Advest Inc., in Hartford, Conn.

He adds, ``We're getting into a mature timetable. A complete market cycle, from bull to bear, is usually 4 to 41/2 years. This bull has been going on since August 1982, that's 21/2 years. I would not be surprised to see a top soon.''

The peak will be above 1,300 on the Dow, Mr. Erlanger is sure, and will probably occur within a month and a half. But he warns, ``My posture is that of a trader now, rather than an investor.''

Erlanger's near-term scenario is remarkably similar to that of a technician who hails from Kansas City, Joseph Granville.

``Any remaining upside in '85 has no long-term investment potential,'' Mr. Granville says. ``This is strictly a trading market. We went short at the end of January. In the next few days, we could follow with a buy. But I'll tell you this, the next rally is `the last hurrah.' ''

In past years, Granville had won a wide and faithful following. But he made a few well-publicized and well-followed mistakes that pared the herd. In fairness, it should be noted that in 1984 The Granville Market Letter ranked among the five best performers, according to Hulbert's Financial Digest.

Granville, make no mistake, is a bear. And rather grisly at that. ``We are on the verge of a new bear market in stocks, with a bottom by late 1986. You'll see 500 or 600 on the Dow,'' he predicts. And a soon-to-be-released book by Granville will ``show'' the parallels between now and 1929.

But Granville's short-term analysis resembles that of other technicians. His comment -- ``I wouldn't trust any upside after May 1'' -- concurs with Erlanger's expectations of a peak a month and a half from now.

And a telephone call to Richard Yashewski, a technical analyst at Butcher & Singer, elicits a similar outlook: a burst to 1,330 or 1,350 ending in mid to late April.

What happened to those analysts carrying banners touting 1,500 or 1,600 on the Dow? Oh, they're still out there. But these technicians say the lack of strength in both the Dow and secondary stocks during recent rallies is troubling.

The large-capitalization stocks making up the Dow ``are not acting well'' for issues carrying the ``market leader'' mantle, says Erlanger at Advest. For instance, ``The auto and semiconductor stocks are supposed to lead markets. When they're doing poorly, I gotta wonder.''

And Granville was unimpressed by the Dow rally March 1: ``If this rise was genuine, you should have a constantly expanding number of new highs among individual stocks.'' But the tops for General Motors, IBM, and Teledyne were reached in January. The overall peak in new highs was hit Jan. 30, Granville says. And he points out that despite the dramatic gains in the secondary markets in January and early February, most of the secondary stocks are only about halfway to their 1983 highs.

While Granville predicts impending doom after May, Mr. Yashewski at Butcher & Singer believes a strong correction is a necessity if the market is ever to scale the heights of 1,400 to 1,600 on the Dow.

``The bulk of the third quarter will be spent in an accelerating decline, possibly to the 1,200 mark,'' Yashewski says.

How should one play such a market?

Yashewski recommends that if you're a longer-term investor holding stocks now, you should consider ``selling into strength over the next three or four weeks.'' If a trader looking to profit on the next short-term rally, ``aggressively buy now.'' An obvious pick, he says, is brokerage stocks.

Granville counsels investors, as opposed to speculators, to remain in money market funds, 90-day Treasury bills, and certificates of deposit -- in safe banks. Chart: Interest rates. Source: Bank of Boston.

Percent Prime rate 10.50 Discount rate 8.00 Federal funds 8.38 3-Mo. Treasury bills 8.86 6-Mo. Treasury bills 9.38 7-Yr. Treasury notes 11.67 30-Yr. Treasury bonds 11.69