The Lion Tamers on '75

What will happen to stock prices in 1975? Many Wall Street analysts are predicting an upswing on the grounds that nervous investors will eventually decide that the worst is over for the economy and begin buying shares again. At its close at 616 on the old year's final trading day last week, the battered Dow Jones industrial average was up 38 points from its 1974 low (578 in early December), and some forecasters were suggesting that the average could grope its way upward another 200 points or so over the next twelve months.

As it happens, the mildly optimistic conventional forecast is getting some support from an unconventional quarter: the ever inventive and unorthodox breed of Wall Street analysts known collectively as "technicians." Uninterested in such mundane matters as interest rates, profits and price/earnings ratios, the technicians try to divine the future by studying patterns that have seemed to shape trading in the past. The technician, says one of the leading practitioners of the art, Edson Gould of Anametrics, Inc., approaches each new year like "a lion tamer who must anticipate the moves the animal will make." The 1975 moves, as forecast by some of the leading technical theories:

THE THREE-STEP RULE. Around for about 30 years, this well-worn rule holds that any stock market move, large or small, up or down, happens in three stages. The Dow Jones industrial average made three huge strides upward between its low of just 93 in 1942 and its 1966 peak of 995. Since then, the market has experienced three major declines, the most recent one beginning in January 1973 after the Dow hit its alltime high of 1,052. Gould reckons that there is at least an even chance that this third decline in the series ended with the low of 578 reached last month and that the market could start moving up--in three steps, of course.

THE YEAR-ENDING-IN-5 CYCLE. A new notion just beginning to circulate on the Street, this theory is based on a historical observation that years ending in the number 5 have almost always been "upward trending"--that is, years in which the Dow closed in December well up from the low reached earlier in the year. The leading proponent of this cycle, Ralph Acampora, technical analyst at Manhattan's Harris, Upham & Co., believes that the 1975 trading low will be about 500 and the trading high, by year's end, will be around 750.

THE FOUR-YEAR CYCLE. Every four years since 1958, some analysts have observed, the market has hit a major bottom and then rebounded smartly. Stocks rose briskly after the Dow bottomed out at 437 in 1958, at 536 in 1962 and at 631 in 1970. Four-year men thus believe that the 1974 low reached in early December was an important bottom that must be followed by a sharp upturn.

THE 25-DAY-PLURALITY INDEX. This dates from the early 1960s, when a technician named Alan Shaw began tallying, for 25-day periods, the daily difference between the number of stocks that rose and the number that fell. When the total "plurality" of either one reached 13,000, Shaw noted, the market would stop rising or falling and take a sharp turn in the opposite direction. The index accurately pinpointed the upturn of mid-1965 as well as the great slides that began in 1966 and 1969. Also known as the "public sentiment index," it is supposed to work best in a bear market by showing the point at which pessimism is exhausted and investors may be in a mood to buy again. Last week the index stood at about 10,000--a figure that technicians interpret as still "neutral to negative" on the possibility of a turnaround soon.

Even more arcane theories are circulating on the Street. Some forecasters, among them Technician William Scheinman of Wiesenberger & Co., speak seriously of the influence of "magic numbers" on the investing public's behavior. Scheinman believes that the Dow Jones will have to sink to 500 before staging a comeback, noting that it had hit 1,001 during trading before reversing direction in February 1966.

Finally, there is the hardy, if slightly shopworn "hemline indicator." Since 1910, the argument goes, stock prices have gone up when skirt lengths have shortened--and vice versa. Thus, if Designer Halston's "skimp" skirt bares a good number of thighs this spring, as some Seventh Avenue seers predict, it could be a good time to buy stocks.

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