Tabell’s Market Letter – November 05, 1947

Technical Market Action Today's letter is navoted to the technical action of the averages from early 1946 to date. Our discussion – for the sake of brevity – will be confined to the Dow-Jones industrial aver!.,e since it is the most universally known. The industrial average, during the first half-of 1946, was in a distributione phase and was building up a heavy top pattrn. The hit',h of 213 Vias reached in late May. The warning that the heavy volume in a relatively narrow range was distribution, was given in early July 1946 when the industrial average penetrated the important 200 resistanCe level 011 the downside. At this stage, this letter turned bearish. This \laming sienal was later confirmed in September, 1946, when market gave its famous bear market Dow Theor.y signal at 185. By combinin,i the various downside count indications of the three point, one point and half point fluctuations of the industrial average during the January to July distributional phase, the 170-160 area was arrived at as the indicated downside objective for the decline. 'This is the area which, for the past year or more we have conSistently ad- vi SEd as a longer term buying range. Since Septembr 1946, the market has dipped down into the 170-160 area on several occasions. Thus, the downside implications of the broad 1946 distribution he.vc, been reached. The actual 10Vis Vlere reached at 160.49 in October 1946 and 161.38 in May 1947. On three occasions thc, market has rallied back to the approximate Dow Th80ry bear market signal at 185. The February high was 184.96, the July high VIUS 187., and the October hif!h was 186.2.3. )'The industrial averag, as a result of the swings of the past year, has built up a twenty-five point trading range between, roughly, 185 and 160. The same pattern is present in the other market averages. Is this trading rtmge a period of accumulation or distribution The pattern is a broad one and a Sizeable move is indicated whe.'1 the range is decisivc,ly penetrated. An upside penetration would indica 210-215. A downside penetration would indicate somewhere around 145. The answer will not be given until the runge is penetrated in one direction or the other, eithor at 185-187 or at 160. This letter, has taken the stand, d continues to do so, that the eventual penetration will be on the upside. It believes that waiting for the averages to give a Dow Theory signal will result in losin, if present count indications are correct, at least half the nove. That is why stocks have been recommended for purchase in the 170-160 area rather than waiting for a bull market signal. If such a Signal is awai ted, it could result in such a buyinG Vls.ve that purchases could take place in the 190-195 one rather than the 185-187 zone, just as the DoVi Theory bear market signal r8sulted in such a selling wave that sales were closer to the 180-175 level thrul , Our' main reason for anticipating an upside penetration .is based on the alLlOi of indivicual stocks. Just as the averages built up distributional areas in the half of 1946, so did individual stocks. Just as the averaGes reached their downside objectives, so have the vast majority of indiVidual common stock issues. I would, vnture the opinion that 90 of individual common stocks have reached the objectives outlined by their 1946 distributional areas. The remaininc few are, at their lows, very close to the objectives outlined. The third feature of the technical action of the averages, and this is the Lportant point, does not hold true in individu21 stocks. The third fes.ture is that the averages have built up a long trading range that has not yet been penetrated either upside or dovmside. This is not true of individual issues. Here the patterns' are exceudingly diverse. Some stocks reached their 10Vis in October 1946, while others broke sharply below October lows and reached their,lows in May. A much smaller number hav. made their lows in the past few weeks. tso, some issues have built up substantial base areas, in 11 great mnny cases indicating relatively higher levels than a comparable 210-215 in averages. Others have built up only relatively small range and are in need of considerably lnore backing and filling before an important move is indicated. Still others have formed little or no range areas and require conSiderably more time before a move is indicated. Also, a great many individunl issues have reached their dovmside objectives, formed substantial base areas and heve penetrated them on the upside thus indicating individual bull markets of their own. These issues, on the base count indications, still have considerably hiGher price objectives. Individual issues with this pattern include such important stocks as American Sneltin, Chrysler, Deere & Company, Gulf Oil, Standard Oil of New Jersey, Union Earbide, Union PaCific and Youngstown Sheet & Tube, to mention only a few. On the other hand, I cannot recall, offhand, one single issue that has reached its.dovmside objective as outlined by the 1946 tops, then formed a wide trading range and then penetrated the range on the downside to indicate that the range was distribution rather than accumulation. This type of action on individual issues hardly indicates, at this stage, an e.rea of distribution and lOVier prices. It rather indicates (1) higher prices and (2) extreme selectivity. EDMUND W. TABELL November 5, 1947 T. Mr. op;.;o ..p…..d ;n Edmund W. label! end tM. arlit lett a the not presented as'l'ltlJ1.en\o.p.ii;nlti;orn'ws .Oetfl'Slfja1YJJu1q/s,o1fJ'eooamrpt.&nbyy. 'z-