07/14/2009 05:12 am ET | Updated May 25, 2011

How Now Schizophrenic Dow?

A not-so-funny thing happened on the way to the stock market Thursday--another wild roller-coaster ride. What many thought would be a big day for stock prices--perhaps about a 200-point gain in the Dow Jones Industrials--turned out to be more of a dud despite early morning revelations of some positive news: a decline in jobless claims from the previous week and growth in May's retail sales. In response to those cheery tidings, the Dow ran up about 139 points during that day, only to falter later in the session and close with a disappointing 32-point gain.

"It was a significant session because it was such a telling session and investors should learn something from it," says Hong Kong trader Selwyn Ortz. Why so? "Because the action bellowed that the bulls lack conviction and are apt to take profits on any additional rallies. In other words, the bulls are really scared bulls and they should be."

During Thursday's session, at a point when the Dow was up about 130 points, San Francisco money manager Gary Wollin rang me up to tell me that the Dow, then trading at 8,869, was within 166 points or less than 2% of its 2009 high of 9,034, which occurred on January 2, the first trading day of the year. He felt the Dow could be on its way to topping that figure, which he thought could trigger a buying panic.

So what does he think now, given the heavy dose of profit taking that put a kibosh on Thursday's rally? The loss of that big gain wasn't really that significant, Wollin insists. "Oil is going up, interest rates are going up and unemployment will go --- all bad things --- and yet they're not killing the market. That says the up trend remains intact."

Ortz disagrees. He thinks that Wollin, who has made a number of fine market calls (both bullish and bearish) over the past couple of years, is all wet. "Oil (now above $70 a barrel) will hurt the economy; rising rates will slow the housing market, and a further rise in unemployment will temper consumer spending. At some point," says Ortz, "reality will set in and stock prices will go lower. Investors," he notes, "also shouldn't lose sight of the fact that the S&P 500 has recently rallied nearly 40%, a pretty phenomenal advance, which probably more than discounts a lot of the expectations of better days ahead."

Contending that the big run-up in the market is not supported by fundamentals, Ortz sees the Dow -- now in the 8,700s--breaking below the 8,000 level before summer's end.

If you like wild roller-coaster rides -- definitely not for me -- get ready for more of them, warns Fred Dickson, the chief investment strategist of D.A. Davidson & Co. of Great Falls, Montana, and a former Goldman Sachs strategist. He sees several sharp up and down moves ahead. Noting that "we're losing momentum after a decent spring rally," he nevertheless sees the roller-coaster market moving higher over the next month, perhaps to Dow 9,000 to 9,200.

His reasoning: Many funds are still underinvested; globally, we're moving from a recession to economic stability, credit markets are showing some improvement, and existing home sales are starting to stabilize.

Come July, though, Dickson expects the market to be buffeted by a slew of modestly disappointing second-quarter earnings reports, which he thinks will knock stock prices back down about 6% to 8% or to around where they are now.

Then, he envisions another big up roller-coaster move by year end, with the Dow wrapping up 2009 at around 9,500 as investors begin to get more enthusiastic about a peppier economy.

His GDP expectations call for a 1.5% rate of decline in the current quarter, a sharp upturn from the 5.7% drop in the second quarter. For the third and fourth quarters, he's projecting respective GDP spurts of 1.5% and 3.5%, and another 3.5% advance in 2010.

His market strategy calls for selective buying on dips, with the focus on industry and global leaders, plus companies with rising earnings estimates and strong balance sheets.

Favored industry groups are technology, energy, selective health care, biotechnology and generic drugs. In this vein, his top stock picks are Oracle, Intel, Gilead Sciences, Teva Pharmaceuticals, Transocean International.

With the government running a $2 trillion deficit and inflation a long term threat, Dickson says gold also merits representation in investment portfolios. His best bet here is a gold exchange-traded fund that sports the symbol GLD.

Email questions or comments to Dan Dorfman at