Where's Bottom?

Ever since Wall Street's Blue Monday crash, economic sages ranging from mutual fund managers to Treasury Secretary C. Douglas Dillon have been recalling the late John J. Raskob's half-forgotten rule of thumb (TIME. June 1) that even the stock of a promising company should be priced at no more than 15 times the company's per share earnings. If that ratio held, the warning ran, the Dow-Jones industrial average would have to sink to 540. Last week it fell even farther than that; in five days of almost unbroken decline's, it dropped to 539.19, the lowest closing since Oct. 28, 1958.

On Monday, for a brief moment, the average climbed to 583.08, a little better than three points above its closing the previous Friday. Then it began a nosedive that did not stop even after it broke through its previous 1962 bottom of 553.75, set during the black hours of early morning trading on May 29. All told, 410 stocks, running the gamut from glamour to blue chip, hit new 1962 lows last week. Among them were the shares of such preeminently solid companies as Shell Oil (29 1/2), Ford (74 1/4), General Electric (55 1/2), U.S. Steel (42 1/2), General Foods (61), Du Pont (170 5/8) and Dow Chemical (42 1/8). A.T. & T., which last year joined the growth stock club with a high of 239 7/8, ended last week at 100 3/8. Quipped one analyst: "If it goes to 90, it will be paying 4% and will be right back where it started--in the widows and orphans class."

The Stock Exchange itself published convincing evidence that a lot of U.S. investors believe the slide is not yet over.' In the month ended June 15, the Exchange reported last week, short sales on the Big Board rose by a record 1,344,000 shares to a total of 4,611,000. Short sellers bet that the market will go lower by borrowing stock and selling it at the current price; their hope is to repay the borrowed stock with shares bought later at a lower price. Short selling is a tricky business usually left to professionals, and the SEC last week released figures showing that New York Stock Exchange member firms have, in fact, been heavy short sellers ever since Blue Monday. But lately the pros have been joined in their short selling by hordes of small investors who, disregarding their brokers' warnings, think this is the only way to make money in today's market.

Since the short sellers sooner or later must buy stock to replace that which they have borrowed, their dealings theoretically should provide a built-in rally for the market shortly. Many Wall Streeters were counting on the inexperienced short sellers to lose their nerve and start buying last week as soon as prices sank low enough to let them get out with a profit. But the amateurs, obviously convinced that the bottom is yet to come, calmly watched the market go through low after low without making a move. And the longer they wait, the less likely it is that their eventual buying will give the Dow-Jones average any significant lift.

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