When long-time bull Ralph Acampora, head of technical research at Prudential Securities, joined the bears on Tuesday, many felt he dragged the Dow Jones Industrial Average along with him.
To be sure, plenty of factors were at play in Tuesday's 300-point drop in the Dow, but Acampora's about-face is another sign that Asia's turmoil and U.S. corporate earnings woes are damaging U.S. stocks more than it seemed just one month ago.
Earlier this week, Acampora was calling for U.S. stock indexes to keep rising. In an interview Tuesday with CBS MarketWatch's Stacey Tisdale, he said he is now turning bearish after 3 1/2 years as an optimist.
CBS MarketWatch: Just what exactly did you say to your clients today?
Acampora: Well, I don't want to shock anybody but for 3 1/2 years I've been very optimistic and optimistic, mainly about the Dow Jones Industrial Average. What I basically said this morning is that I think for the first time in 3 1/2 years, the Dow could go a little bit lower than 10 percent. If I'm right and the Dow closes below the June low, which is roughly around 8,560, then I think we're doing some damage and the damage could mainly carry the Dow down as much as 15 to 20 percent, which would be somewhere around 7,400-7,500. I suspect this could all take place in the next several months.
CBS MarketWatch: Can you give me, in layman terms, why the different levels are important?
Acampora: As a technical analyst, I look at trends in the market, and for the last 3 1/2 years the trends, especially in the Dow, have been fabulous. I'm questioning that trend right now. The Dow is made up of 30 component stocks and some of those stocks are under pressure. One of the most recent is Procter & Gamble. And I think Disney's a little bit under pressure. And Boeing. And I'm afraid it's going to expand to more of the components of the Dow. If that's the case, then the Dow itself will be under pressure.
CBS MarketWatch: How is this different from what you have been saying?
Acampora: I've been calling for corrections, and in fact in the last 3 1/2 years, we've had 14 corrections. They've averaged 16 trading days and a 7 percent decline for the Dow. So, this morning we were having a normal correction for the Dow. However, under the surface when you look at smaller stocks and an average called the Russell 2000 that's showing a lot of deterioration. I can live with that. I've been living with that more or less for the last 3 1/2 years, but this time around the disease seems to be catching on to some of the bigger names.
CBS MarketWatch: How far do you think we're going to go and over what kind of time frame?
Acampora: If I'm correct, I think Dow could have a rather rocky road. They'll be a lot of rallies, but I don't think they'll be broad-based rallies. I think before it's all over the Dow could maybe drop down to the 7,400-7,900 level and probably terminate and ive us all a major buying opportunity maybe some time in October of this year.
CBS MarketWatch: What's behind this latest sell-off? Is it earnings related?
Acampora: Recently, I think it's concerns about Asia. It's all over the headlines and we all know about it but I don't think it's a one- or two-quarter phenomenon. I think that's what the Street is realizing. It's going to impact earnings over a 6-month maybe even a 12-month period. I think that kind of concern is being felt by some of the large cap stocks.
CBS MarketWatch: How should an investor play this market?
Acampora: The best way to play this market is not so much to worry about the averages, but to concentrate on the stocks that are in your portfolio. If you have some quality names that are holding up well, I think you can live through the decline. But if you have some real weakness manifesting itself, I think you'd better do something about it.
CBS MarketWatch: What stocks do you like right now?
Acampora: Prior to all this commentary about weakness in the Dow I was starting to see some strength in Philip Morris, which I still think is there. I was seeing strength in some of the computer stocks, Dell and Compaq and Sun Microsystems and I think when we get through this period here, I think those are the kind of stocks you want to be in.
CBS MarketWatch: Are there any stocks that people should get rid of?
Acampora: I think you have to be careful with some of the big names, like Gillette, which was a big winner for the past 3 1/2 years. Now it looks a little bit under pressure. Gannett Publishing looks a little bit under pressure. Disney, Boeing is a big big name, but I don't think it's out of the downward bias just yet. So those are some of the big names.
By Stacey Tisdale, CBS MarketWatch