Transcripts

Forecasting With The Economic Indicators

PAUL KANGAS: The turmoil in the markets recently has caused investor confidence to hit the skids. It's at the lowest level since the bear market of 2002. Erika Miller takes a look at investor sentiment and other indicators experts are using to forecast the market's direction.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It would be nice if a bell went off, alerting investors that the market has bottomed. Since there's no such thing, market technicians watch for other signs that the worst is over. One popular indicator is the investors' intelligence poll of newsletter writers, which measures investor sentiment. According to that survey, bullish sentiment has declined to 31 percent, a low not seen since the bear market of 2002. S&P's Mark Arbiter says this is actually a contrarian indicator.

MARK ARBETER, CHIEF TECHNICAL ANALYST, STANDARD & POOR'S: If you get very bearish readings from the sentiment side, it means, in most cases, that people have already sold. And that's usually -- on a historical standpoint, that's usually a bullish sign that things are probably going to get better.

MILLER: Arbiter also points to the total number of new lows being made at the New York Stock Exchange and NASDAQ. On January 22nd, 1,865 companies hit new 52-week lows. Although the stock market has fallen since then, fewer stocks have been hitting that milestone. For example, when the market swooned on March 17, only 1,236 companies hit new lows. In contrast to other technicians, Oppenheimer's Carter Worth has an unusually simple approach to forecasting the direction of the market.

CARTER WORTH, CHIEF MARKET TECHNICIAN, OPPENHEIMER & CO: The Oppenheimer thesis here is that one can use, at critical junctures, sometimes just one or two stocks as a control mechanism for the whole market and at this moment, General Electric and Wal-Mart are a control mechanism that we are using.

MILLER: He says both stocks have moved higher at critical junctures, suggesting to him that selling pressure is easing overall. Oppenheimer has done investment banking and other business with GE over the past year. UBS's chief investment strategist, Mike Ryan, relies solely on economic fundamentals to predict where stocks are headed. He wants to see three things before calling a market bottom.

MIKE RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: To me, one of the indicators is going to be stabilization in the credit markets. Another will be that we start to see some transparency in terms of the extent of the losses we're suffering in financial services. And then finally, some sense of where the bottom is in the housing sector. Those are the important things we're going to follow.

MILLER: The market may be bottoming, but that doesn't mean a sizable rally will soon follow. Even bullish analysts think it will be several months, at least, before stocks can mount a sustainable advance. Erika Miller, NIGHTLY BUSINESS REPORT, New York.