Rally on the Street

As the stock market drifted lower over five of the past seven weeks, traders waited for the "selling climax" that would clear out the timid at one swoop, lay the groundwork for an advance. Last week the climax came. Sliding to its lowest point in ten months, the market suddenly plunged lower; selling was heavy, the tape ran minutes late on the downside, and the Dow-Jones industrial average gave up six points in less than two hours. Then, just as suddenly, the market turned about and headed upward in a broad and spirited rally. It continued to rally for the rest of the week, ended at 628.45 on the industrial average, up 6.22 points for the week. Said Sidney B. Lurie, partner of Josephthal & Co.: "The scare is over."

Not everyone agreed with that estimate, but the feeling was widespread that the week's events had left the market stronger. Even the Dow theorists, a small but vocal group of analysts who were beginning to look for a bear market, saw signs of encouragement. According to the Dow theory, if the industrials break through their recent low, followed by the rails going through their last low, a bear market has started. Last week the industrials plunged through their low of Sept. 22, and the theorists suspensefully watched the rails slide down. The rails got right down to their fall low of 146.65, then scooted up again without breaking through. To the Dow theorists, this was an encouraging sign.

Another sign of encouragement was the continued buying of the small investor. A Merrill Lynch, Pierce, Fenner & Smith survey taken in October showed that more than 62,000 of its customers intended to buy securities into mid-1960, and only 9,800 planned to sell; 53,400 planned both to buy and sell, and 17,600 planned to make no investment changes. Last week Merrill Lynch reported that its customers had meant what they said: they bought 871,000 shares more than they sold in January, and 396,000 more through Feb. 11.

What had cleared the air was the fact that the stock market appeared to be taking a new look at such key business developments as the tapering of steel production and the slow buildup in inventories. Investors were reassessing these developments for what they are: not signs of a recession but signs of a spreadout in industrial activity that should lengthen the overall uptrend of the economy. Most Wall Streeters now do not believe that there will be a recession in 1961. As for the market, it may well take a breather until first-quarter reports. They are expected to be good, give stocks a new upward push.

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