Where Does Volatile Market Go From Here?

The stock market’s rally has been impressive for both its speed and its breadth, but then, bear market rallies always are. The Dow’s recovery . . . has given new heart to the bulls, but it should not be forgotten that at current levels the blue chips are just as overvalued relative to their slower earnings growth as they appeared to be at the mid-summer highs, when hopes [since vanished] persisted for another year of double-digit earnings growth.

Given the increased risk associated with recent record levels of volatility, we believe cyclical market timers should be only 40% committed to recommended equities, while remaining 60% liquid [in cash].

--Norman G. Fosback, editor, Market Logic newsletter,

Deerfield Beach, Fla.

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Count me among the optimists. Though most investment professionals lack all conviction, corporate insiders are buying more aggressively now than at any time since January 1988.

My own feeling is that if ever markets were due to break, it would have happened Oct. 8. That day, Asian markets registered horrendous drops. Russia stood virtually bankrupt, on the verge of large-scale government defaults. Rumors swirled that many hedge funds, akin to Long-Term Capital Management, would fold overnight without the benefit of official bailouts.

Heavy selling drove both the Dow Jones industrials and the Nasdaq composite down over 3% [early that day]. Yet by day’s end the Dow rebounded to finish off a mere 10 points on 1.1 billion Big Board shares traded.

Major declines do not begin, but end, with panic sell-offs.

--Richard Eakle, principal, Eakle Associates,

Fair Haven, N.J.

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In all my years of monitoring the market I’ve never seen it fluctuate so violently in so short a period of time as we’ve seen since the highs of July. I’m sure that in no small measure this is due to the proliferation of instant communication and instant trading available via the Internet. Inasmuch as this is the medium of the future, there is no getting away from the continued increasing volatility. We must simply decide that we’ll deal with it the best we can.

The “eighth-year” bear market I’ve been warning about certainly came on schedule [Wall Street has suffered bear markets every eight years since 1966]. The bullish factor going forward is the fact that the year following the eighth-year bear market has always led to a strong up move.

We could very well see further weakness during the rest of [this year]. But no matter, the next year should be an up year.

--David H. Menashe, editor, Fundline newsletter,

Woodland Hills

Compiled by Times staff writer Tom Petruno.