In the Grip of a 'Buying Panic'

Despite heavy flurries of profit taking, the stock market last week continued its astonishing January upsurge. Moving upward on three of the five trading days, the Dow Jones industrial average rose a total 24.32 points to close the week at a lofty 953.95, the highest mark since October 1973. In fact, since the market suddenly came alive after the new year, the Dow Jones industrials have gained a striking 101.54 points for one of the steepest rises on record.

Trading volume has soared as dramatically as the prices. During 1975 an average of 18.6 million shares changed hands on the New York Stock Exchange each trading day. So far in January, daily volume has exceeded that level by 59% (see chart) and has set a number of records. Among them: the highest weekly volume (161.7 million shares last week) and the most shares ever traded on a single day (38.5 million on Jan. 15). Volume has exceeded 30 million shares on nine of the 16 trading days in January. By contrast, on the wildest day of the 1929 crash, 16.4 million shares were traded, establishing a record that stood for 39 years.

Most Wall Streeters are convinced that the immense volume is a strongly bullish sign. They note that even when stock prices dipped briefly last week, they did not go down nearly as much as might have been predicted after so large and so rapid a climb. "We are surprised that the market has run so fast and performed so consistently," says Gary Helms, chief investment strategist at L.F. Rothschild & Co.

The startling spurt in volume reflects a fortunate confluence of willing sellers and even more eager buyers. Odd-lot statistics (those on trades of fewer than 100 shares) indicate that the sellers are largely individual investors. Many had ridden their stocks up from the market's 1974 low of 577.6 on the Dow Jones average, and now stood to recover some of their earlier losses or, in some cases, to pocket profits. As 663 of the 2,111 issues on the Big Board touched 1975-76 highs last week, some of their owners began to sell.

So far this month there have been more than enough buyers to snap up the shares. Some were speculators who had sold "naked calls"--that is, speculators had sold to other investors options to buy at prefixed prices stocks that the sellers of the options did not own. As the deadline approached two weeks ago for the options to be exercised, the option sellers had to rush into the market to buy shares to cover their commitments. In turn, the buyers often turned right around and resold the same shares for an immediate profit. Another large group of stock buyers consisted of European investors. Calculating correctly that the U.S. economy is recovering from recession faster than the economies of their home countries, these foreign investors hurried to buy American stocks.

Block Trades. The strongest buying push came from American institutional investors--mutual funds, pension funds, insurance companies and bank trust departments. Many had failed to get in on the first phase of the bull market that began in December 1974; throughout 1975 they kept an unusually high share of their assets in cash or short-term fixed-income securities. As the market began to move sharply upward after New Year's Day, the institutions' managers were determined not to be left behind again. Brokers spoke of a "buying panic" to describe the institutions' stampede into the market. Each day stock tickers carried bulletins about an unparalleled number of trades in blocks of 10,000 shares or more; on one day a record 317 such block trades took place. Significantly, the blocks usually changed hands "on the uptick"--Wall Street slang for a trade that takes place at a price higher than the price on the last previous trade in the same stock.

Although the New York Exchange ticker in recent days had run as much as 30 minutes late, the explosion of volume has caused none of the back-office foul-ups that afflicted brokers during the heavy trading of 1968-69. Then mountains of paper piled up on desks, causing long delays in delivery of stock certificates; now the paper is being moved expeditiously, largely because of automation and computerization of brokerage offices. Indeed, the surge in trading is a boon to brokers. Since last May 1, they have been forced by the Securities and Exchange Commission to negotiate commissions on all trades--and in many cases have trimmed commissions charged to institutional investors by 40% to 50%. The gigantic volume is more than making up for the lower fees on each trade. If volume continues high, prosperity will return in full bloom to Wall Street.

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