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Wall Street analysts warn of market complacency

Watching the stock market start off a new year with a surge to record highs, you may have the feeling that you've seen this movie before.

The pattern is very similar to the way stocks began 1997 - and 1996 and 1995. The bull market money machine is starting to look as reliable as a clock.Of course, the very idea of any sort of predictable, taken-for-granted gains sets off alarm bells all over Wall Street. Wherever stock prices are headed, veterans of the game attest, the only safe thing ever to expect from the market is the unexpected.

As a cautionary exercise, some analysts compare the story being played out in stocks just now with the big hit film of the day, "Titanic."

Barton Biggs of Morgan Stanley Dean Witter wrote recently, "Titanic was the ship to be on. All the rich and powerful were aboard for the happy voyage. Everyone believed that a new era in travel had begun and that the ship was unsinkable."

Biggs says he doesn't mean to proclaim that the stock market is about to strike an iceberg, sending all aboard to a watery grave.

Still, his point about the dangers of complacency is clear, even as investors marvel at how strong the financial picture looks.

In the first 30 trading sessions of 1998, from New Year's through Feb. 12, Standard & Poor's 500-stock composite index rose 5.5 per-cent.

That gain was remarkably similar to the 6.6 percent advances over the same span in the past two years, and the 4.8 percent rise in the first 30 business days of 1995, S&P noted in its weekly advisory The Outlook.

In each of the past three years, the S&P index went on to post a gain for the full year of better than 20 percent. "We are, however, look-ing for a much more modest full-year advance in 1998," S&P an-a-lysts caution.

"Enjoy the ride for now. But be aware that the market is becoming increasingly overvalued on a fundamental basis. Stocks are liberally valued even after low inflation and interest rates are fac-tor-ed in."

With all the wariness surrounding it, the Dow Jones industrial average's climb to new highs in recent days reassured followers of an old indicator known as the Dow theory, which holds in essence that simultaneous new highs in Dow Jones' industrial and transportation averages signal a continuing bull market.

"The new high in the industrials ended a long period of divergence between the industrials and the transports," notes the newsletter Dow Theory Forecasts in Hammond, Ind. "The transports reached all-time highs in August, September, October and early February. For the industrials, the high marked the first time in record territory since Aug. 6."