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Wall Street optimists say stocks may be near bottom

They note that the major indexes have mostly moved sideways since

February 13, 2009|Walter Hamilton

NEW YORK — As bad as the stock market has felt for most of the new year, optimists on Wall Street say the evidence suggests that share prices are near their bottom, not setting up for another steep drop.

After tumbling in early trading Thursday, the market rebounded late in the session on hopes for a federal mortgage-subsidy program to stem home foreclosures.

The Dow Jones industrial average, which was down as much as 245 points at its low, rebounded to finish off just 6.77 points at 7,932.76.

The broader Standard & Poor's 500 index recouped all of its intraday loss, ending with a 1.45-point gain to 835.19. Most other major indexes also were marginally higher.

Many Wall Street professionals note that the S&P and other broad indexes have largely moved sideways since hitting their 2008 lows in late November, despite a continuing barrage of ugly economic data and horrid earnings reports.

That has raised hopes that, barring a dramatic worsening of the economy, investors won't feel compelled to push share prices sharply lower.

It could be a long process of scraping along at or near current levels. But going sideways could be the first step toward eventually going up.

"The longer [the S&P] stays in a trading range like this, the more bullish it becomes," said Gail Dudack, head of Dudack Research Group in New York. "Sideways works in the long run. It's a base-building period for something better down the road."

Dudack and others are particularly encouraged that the S&P has held above the 800 mark this year, despite falling close to that level several times in intraday trading -- including Thursday, when the index dipped to 808.06 before rebounding.

Under the surface, there are other positive signs for the market, said Anthony Dwyer, market strategist at FTN Midwest Securities Corp.

"Most stocks have not broken their lows, the new-low list is not expanding like it had been, the advance-decline line is holding up well and volatility is well below where it was," Dwyer said.

Even so, it's too early to say the market has bottomed for good and won't fall apart again, given the still-deteriorating economy and profit picture, many analysts say.

Bruce Bittles, chief investment strategist for Robert W. Baird & Co. in Milwaukee, had been upbeat before a wave of dismal earnings reports for the fourth quarter.

"We're pretty much at a critical spot here," Bittles said. "I have been feeling we're in a bottoming process, and that still may be true. What's disturbing is the fact that corporate earnings are falling faster than the stocks."

Although the market has withstood bad news this year, that doesn't mean it can't be shocked into another dive by more disappointments -- especially negative surprises that aren't now on investors' radar screens.

"After going down 40%, sideways doesn't feel so bad," said Steve Wood, senior portfolio strategist at Russell Investments in New York. But with so many unknowns, "right now it's premature to say the market has hit bottom."

In other market highlights Thursday:

* Falling issues outnumbered advancers by 8 to 7 on the New York Stock Exchange.

* The tech-dominated Nasdaq composite index rose 11.21 points, or 0.7%, to 1,541.71.

* Financial stocks in the S&P 500, which were down 7.3% with less than an hour of trading remaining, surged before the bell to finish with a decline of only 1.3%.

* Shares of Coca-Cola jumped 7.6% after the soft-drink giant reported an increase in the number of beverage cases shipped and posted better-than-expected earnings excluding certain items.

Rival PepsiCo, which is expected to report earnings before the market opens today, climbed 2.8%. The cola makers led an index of food and beverage stocks in the S&P 500 to a 2.2% gain.

* Chipotle Mexican Grill shot up 12% after the burrito chain spun off from McDonald's reported fourth-quarter profit that topped analysts' estimates. Restaurant operator Buffalo Wild Wings jumped 34% after it also reported higher-than-expected profit.

* NYSE Euronext fell 3.8% after the stock-exchange operator's shares were downgraded by Citigroup analysts.

* Oil prices slumped for a fifth consecutive trading day. Crude futures slid $1.96 to $33.98 a barrel in New York.

* Yields on most Treasury bonds fell. The benchmark 10-year T-note fell to 2.72% from 2.76% late Wednesday. The three-month T-bill fell to 0.29% from 0.30%.

* Overseas, key stock indexes sank 3% in Japan, 0.8% in Britain, 2.7% in Germany and 2.1% in France.

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walter.hamilton@latimes.com

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