02/27/04: "Market Monitor"-John Murphy, Chief Technical Analyst at Stockcharts.com
PAUL KANGAS: My guest market monitor this week is John Murphy, Chief Technical Analyst at Stockcharts.com and the author of a new book entitled "Intermarket Analysis." And welcome back to NIGHTLY BUSINESS REPORT, John.
JOHN MURPHY, CHIEF TECHNICAL ANALYST, STOCKCHARTS.COM: Thanks, Paul.
KANGAS: On your last visit with us nearly a year ago, when the Dow was at 7,700, you said the market was oversold and due for a rebound, especially if the economy strengthened. Well, it did. And so did stocks, in a big way. But in your opinion, have they gone too far too fast?
MURPHY: I think that`s parts of the problem now, Paul. The market has reached some very significant resistance barriers. It does look somewhat overbought. And, also, we`re starting to see some signs of rotation within the market, which is normally a sign that the market is turning a little defensive here.
KANGAS: And the volume has not been at all impressive, has it?
MURPHY: No, it hasn`t. Well, part of that is that February traditionally is a month of consolidation, and that`s exactly what we`ve seen. The averages have been moving sideways. And in that environment, there`s really no conviction. So the light volume is not surprising here.
KANGAS: The last time you were with us nearly a year ago you said you were expecting a good bull market move, but it would be a cyclical market within a really long-term secular bear market. Has that changed?
MURPHY: No, it really hasn`t. In fact, interestingly, a cyclical bull market usually lasts about a year. So from last March we`re pretty close to that. And normally the S&P 500 gains about 50 percent. We`re also there. So I think we`re probably in the latter stages of this cyclical bull.
KANGAS: All right. Technical indicators that are most negative at the moment?
MURPHY: Just primarily the fact that most of our long-term indicators suggest that the market is in a very, very overbought condition. And, also, we`re up against the high that was set a couple years ago. So, I think that`s why the market is stalling here a bit.
KANGAS: OK. A year ago you also said the energy sector was one you liked and gold stocks, which had already done well and had a good move. But you said hold onto Anglo Gold, and it really has done well since then. I think we have an indicator here on their chart where Anglo Gold was, when you were last with us, at $30.40. It`s up 41.3 percent. That was a very good recommendation.
MURPHY: Well, interestingly, the gold stocks have been correcting recently. That has to do with the bounce in the dollar. Gold has slipped a little bit under $400 an ounce. I still like the gold group on a longer-term basis, but I think we`re in a short-term correction right now.
KANGAS: All right. Do you have some new recommendations of individual issues?
MURPHY: Actually, not in the gold area. But I like energy -- let`s go backwards. I like consumer staples quite a bit. That`s where a lot of money has been flowing. And just as a sample of one, Gillette (G), for example.
KANGAS: Right.
MURPHY: That`s a stock that hit a new 52 week high. In fact, it was trading at the highest level in about four years. And that move has just begun recently. In the energy area, Noble Corp. (NE) or Noble Drilling. The oil service group has been especially strong. Here`s another stock that just hit a new 42 high, also a multi-year high. And retailing stocks. Over the last few weeks we`re seeing a lot of money flowing into retail.
KANGAS: Oh, there`s a familiar one right there, big odd Wal-Mart (WMT).
MURPHY: Well, if you look at -- if have you the chart up there, Paul, you`ll see right around that --
KANGAS: Yes, we`ve got it up.
MURPHY: Well, if you see right around that $60 level, we`re testing the high that was set last September, I believe. We`ve been moving sideways for about four years. If Wal-Mart can get through $60, and I suspect it will, that will be a very impressive move.
KANGAS: OK, we`ll look closely at that. Incidentally, do you personally own any of these three recommendations?
MURPHY: No, I don`t.
KANGAS: Why is that, John? Why don`t you own them?
MURPHY: A good question, Paul. Actually, in our money management area, we only invest in exchange traded funds, which are traded like stocks, but they`re actually baskets of stocks. So we don`t buy and sell individual stocks.
KANGAS: And this probably makes you a little bit more objective on these individual issues, as well?
MURPHY: Yes, very much so.
KANGAS: The emotion goes out of it, is that true?
MURPHY: The emotion goes out of it. But many of -- on our Web site, in particular, many of our clients do trade stocks. So we do recommend stocks, as well.
KANGAS: OK. To sum it up in the last 15 seconds, where is this market going over the next six months?
MURPHY: My best guess is that we`re going to just trade sideways, Paul. I think the real key will be sector rotation, moving out of technology, moving into some of these sectors that we`re talking about.
KANGAS: All right, most interesting.
And thanks very much for sharing your thoughts with us.
MURPHY: Thank you, Paul.
KANGAS: My guest market monitor, John Murphy, Chief Technical Analyst at Stockcharts.com
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