Taking Stock: Here Are Simple Tools For Gauging the Health of the Market

Staff Reporters of THE WALL STREET JOURNAL After Friday's 30-point swoon in the Dow Jones Industrial Average, it's time for a stock market checkup . The market ran hard and high for six weeks. And there isn't any reason to think there aren't more gains ahead this year and maybe next year, many analysts say . But just as you don't keeping tooling down the highway in your car without occasionally checking the gas gauge, some investment experts suggest similar occasional checks of the stock market . If there's gas left, relax and enjoy the ride . Experts can spout enough jargon to make the stock market seem complicated and esoteric to the average investor . Yet if you're not trying to play the daily and weekly shifts in the market-and most individual investors shouldn't be doing thatmuch of the sound and fury isn't neces, sary . For example, Hugh Johnson, chief investment officer at First Albany Corp ., says one reason investors can relax is that as bull markets go, this one is still young and vigorous . 'The average bull market lasts 43 months and results in a 93 .1"'c gain in stock prices," he says . So far, this bull market, which Mr . Johnson says began in October 1990 . is only 15 months old and has provided only a 36`"< rise . In using this history to gauge what the future may hold, Mr . Johnson conservatively eliminates tine raging bull market of 1992-1990, which lifted the Dow industrials 2S6Tc . On that basis, he says . 'If this bull market is just an average bull market, it would end in August of 1993 with the Dow industrials at 400 .' He cautions that long-term investors shouldn't try to time the inevitable temporary declines that occur in bull markets . "It's extraordinarily difficult to call shortterm swings in the market," he says . "What you want to he able to do is to catch most of the rise in a bull market and avoid most of the losses in a bear market ." The tool that works best for that, lie says, is a simple chart comparing where the market ends each week with the average performance of the marl(et during the preceding 53 weeks . Mr. Johnson says technical analysts have determined that as long as the market finishes every Friday at a level above the 53-week moving average owning stocks is fine. When it falls beowthe moving average, it's time to sell . "That way, you enjoy the ride up, avoid most of the declines, and don't get chewed up by sales commissions on frequent trades," he explains . Setting up your own chart takes a little initial investment of time and effort, but once it is constructed, maintaining it requires only a few minutes each week . Add the Friday closes of the index you choose for the past 53 weeks (for the Dow Jones industrials the total as of last Friday was 155,557 ) and divide by 53 to get the average (2992 for the Dow) . Behold : Friday's decline to 3225 .40 didn't come close to pushing the Dow below the 53-week moving average . (To keep a moving average, you must each week drop the oldest Friday close and add the latest, again dividing by 53 . ) But other analysts contend that it's even easier for typical investors to figure out whether the stock market is the place to be . "The statistics suggest one thing this week and another thing next week, creating a lot of noise," says Abby Cohen, a strategist at Goldman Sachs . "You should try to ignore the noise and just identify the key trends ."