THE BLOG
05/21/2010 05:12 am ET Updated May 25, 2011

Market Debacle, Market Bonanza Or Market Madness?

Wild stock market forecasts -- most of which are for the birds -- remind me of the Wild West. Here are two that recently crossed my path--a shootout between a couple of investment gunslingers who have sharply conflicting outlooks.

One calls for another giant market decline, possibly starting this week. The other is a forecast of a buying panic in stocks, which, it's said, could already be in its early stages and trigger appreciably higher equity prices..

Does either have any merit? Your guess is as good as mine, but you can't simply write them off as sheer nonsense because such wild forecasts -- as outrageous as they seem -- do occasionally come to pass.

The prospects of another market debacle come from an Australian reader, Cornel Campeanu, a chartist who runs a market website, techpro.com.au, out of Brisbane. Last January, he e-mailed me to say his charts suggested a stock market crash was imminent and that the Dow could drop 1,000 points in a single day. He followed with a series of similar warnings in February and March, which, of course, will not win him any forecasting plaudits. Still, he's sticking to his guns that his time is at hand. Of Thursday, he e-mailed me again, this time to say he sees a "possible severe market reversal" and that the Dow's 1,000-point fall could occur this coming week.

Noting in a brief earlier chat that the stock markets in the U.S. and Australia often run along a similar course, he now finds that the money flow in Australia, coupled with its mining and bank stocks, is drifting toward the negative. In the case of Australian-based BHP Billiton Ltd., one of the world's largest mining companies and a well tracked stock in the U.S. he notes the money flow is diving.

In his latest note to me, Campeanu took note of what he refers to as "a classic reversal signal" and writes that "a reckoning appears to be in the wind."

The overwhelming evidence, however, suggests Campeanu is waging a losing battle against a fast developing tidal wave of optimism and a U.S. stock market on a tear. The figures tell the story, The S&P 500 recently scooted to a 17-month high and the Dow and Nasdaq turned in impressive winning streaks by recently rising in 14 out of 16 trading sessions. That's what bull markets are all about.

What's more, the public, whose 2009 approach to the market was "just get me out," is suddenly beginning to warm up to stocks again, hoping to cash in on even bigger gains ahead from those racked up from last March's low. For example, this month through March 17, investors, ignoring a bevy of risks and uncertainties, went on a mini buying spree, snapping up about $4 billion worth of U.S. stock mutual funds, according to West Coast liquidity tracker TrimTabs Research. Before the month is over, it's estimated these mutual fund outflows will top $5 billion.

In addition, a number of outspoken bears have recently thrown in the towel, while some have lessened their bearish stance. For example, Richard Russell, the venerable editor of the Dow Theory Letters, though expressing some trepidations, notes that the market has gotten three important buy signals: In brief, the Dow (now a hair under 10,742) has closed above its critical 10,725 level; the Dow transports have posted a new high, and a surging number of new highs are cropping up on the New York Stock Exchange.

Still, given the lack of light at the end of the tunnel for many Americans -- notably those nearly 16 million unemployed who can no longer find work, the ballooning number of homeowners who can no longer meet their mortgage payments and the bevy of financially-strapped small businessmen who are treated by bankers as though they're lepers when they try to borrow money -- there's clearly a major disconnect between Wall Street and Main Street.

In the face of this disconnect, we get our second market scenario--the possibility of a buying panic in stocks, which is what I hear from San Franciso money manager Gary Wollin, who characterizes his panic as a strong up market on extremely heavy volume. In fact, he thinks we could be in the early stages of the panic.

Wollin,'though a relative unknown as money managers go, is not a fella to be taken lightly. I've frequently quoted him because of his uncanny record in calling market ups and downs in recent years. Probably most impressive was his switch from a bear to a bull in March of 2009 with the Dow at around 6,500. Wollin, who runs about $100 million of assets under the banner Gary Wollin & Co., has essentially remained bullish ever since.

How does he come up with a buying panic? Here is his reasoning:

--The economic news is becoming more positive day by day and that trend should continue.

--Unemployment is becoming less worse and pretty soon we'll see more positive numbers in this area.

--Expense cutbacks the past 12 to 18 months and shoddy year-over-year comparisons should provide companies with good earnings numbers and prompt analysts to raise their profit estimates over the next quarter or two.

--Investors who have been waiting for clear signs that the economy is on the upswing -- and have now gotten them -- will become increasingly less reluctant to invest in the stock market. Likewise, their renewed confidence should help them overcome their fear.

Wollin, who is up 3.2% this year, just a shade below the Dow, figures that most investors who missed the explosive up move over the past year and are late to the race, will likely seek to mount the fastest horses. In this context, he sees lively demand for such 2010 winners as Boeing, Ford, BB&T Corp. and Sony, which were recently up this year anywhere from roughly 27.5% to 44%. As new investments, Wollin favors Bemis, CSX Corp., Automatic Data Processing and Sealed Air Corp., each of which he views as a market out-performer over the next 12 months.

So there you have it -- two stock scenarios, one chilling, one thrilling. Only time will tell whether either is reasonable or more probably, unlikely.

What do you think? E-mail me at Dandordan@aol.com