Ready to Move Up

To decide how the stock market is be having, most investors carefully follow the price of their own stocks and the day-to-day movement of the Dow-Jones industrial average. But Wall Street's market analysts watch closely for a far more telling sign: the whole pattern of the market's trading behavior. Since the Dow-Jones average covers only 30 stocks, more can be learned by watching the overall price and volume movements of the more than 1,500 stocks on the New York Stock Exchange. If technical factors in the entire market form a pattern that is more bullish than bearish, the prices of stocks --and the averages--will eventually reflect that sentiment.

Last week the market's technical position looked stronger to the analysts than it has in more than a year. The market continued a three-week rise, closed for the week with a gain of 6.86 points (at 636.13) on the Dow-Jones industrial average, after retreating slightly at week's end. It also got a psychological boost when many large banks followed the lead of Manhattan's Manufacturers Trust Co. in reducing from 5% to 4 1/2% the interest it charges its best corporate borrowers.

The Shorts Must Cover. But what most encouraged analysts was the fact that favorable signs were not isolated but spread across the board. For 15 straight trading sessions, more stocks advanced than declined, thus indicating bullish sentiment. For more than three weeks, stocks that set new highs for the year continued to substantially outnumber stocks that set new lows. Equally encouraging was the fact that the volume of trading expanded when the market advanced, contracted when the market declined. Volume has been healthy, topped 3,000,000 shares on several days.

Also a significant factor is the rise in the short position on the New York Stock Exchange, which reached 3,251,149 shares on Aug. 15 v. 3,058,303 a month earlier. In a short sale, an investor sells borrowed stock in hope that it will go down in price, enabling him to repurchase it at a lower price than he sold it. Paradoxically, a large short interest is considered bullish because those who have sold short must eventually buy new stock to cover the stock they borrowed.

Ready for a Push. In the judgment of market analysts, all these favorable technical factors set the stage for a market advance, but the market still needs a push from improved economic conditions to pick up momentum. With the big institutional investors (mutual funds, insurance companies) now returning to the market and the market's basic psychology improving, many Wall Streeters believe that the market is ready to respond to favorable news, take off on a sustained advance to new highs. Says Gerald S. Colby, partner of Boston's du Pont, Homsey & Co.: "The market is seeing better business ahead. It does not care what the economists are saying today. It is currently consolidating to go through 650-655 and on through its alltime high [of 685.47] by year's end."

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