Tabell’s Market Letter – December 03, 1947

Technical Market Action 'The issues in the oil group were among the first to penetrate the upside of their trading ranges and indicate favorable technical patterns. Like the steels, they are selling at price to earnings ratios' that seem quite out of line when compared with 1937 prices d earnings. There are nine oil issues in our recoended list. They are tabulated below together with 1937 highs and earnings and the esti- mated earnings for 1947 based on earnings for the first nine months. Barnsdall Cities Service Gulf Oil Houston Oil Ohio Oil Pure Oil Seaboard Oil Standard Oil of B.S. Texas Pac. Coal & Oil 19'27 High Earnings 35 1/4 1.26 62 1/2 17 5/s 227/8 24 3/8 i 1/8 165/S 3.51 1.01 1.31 2.15 1.97 5.64 loll 19.!I1 AEErox.Price Estimated Earns. 32 3.80 36 8.00 70 9.35 26 3.25 27 4.40 24 4.S0 34 4.75 76 10.50 42. 4.50 As we noted in our recent letter on the steels, if the optomistic appraisal of earninEs that prevailed in 1937 were translated into present earnings it would mean fantastically higher prices. For example, on the basis of the price to earnings ratio at the 1937 highs, the highs for 1947 would have been as follows Barnsdall Gulf Oil Houston Oil Ohio Oil Pure Oil Seaboard Oil Standard Oil of N.J. Texas Pacific Coal & Oil Actual 1947 High 34 1/4 74 3/B 26 1/2 27 3/4 28 3/4 35 3/8 SO 44 3/4 High on Basis 19.37 PiE 64 166 55 77 53 106 141 67 Obviously, these prices appear ridiculous and are not to be interpreted as a forecast. The purpose of the projection i6 simply to contrast the extreme optimism of the market ps,ychology in 1937 as compared with the pessimism of today. The optimism of 1937 proved to be unfounded. It is possible, is it not, that maybe the gloom of today is also just a bit unwarranted and that earnings in 1948, even if moderately lower, may be valued somewhat more realistically than they are at the moment. If market psychology changes to that extent, it should result in sharply higher stock prices. From a technical viewpoint, all of the nine issues listed above appear headed for higher price levels. Would uso periods of market weakness'to add to holdingst Wednesday's intra-day lows of 179.18 and 47.31, the market was testing ! last Friday's lows of 178.87 and 46.99. The industrial average, last Friday, pene- trated the previous November 17th low of 179.57 but the rails held above their November 14th low of 46.32. This ability of the rail average to hold above a previous low after a downside penetration the industrials is rather interesting action. Since early 1946, the rails have been the leaders on the downside. ThiS, I believe, is the first time in a long while that the rails have shown better market action than the industrials. A continuation of this action might prove SignificantAbility of both averages to hold above last week's lows would be distinctly encouraging for the near term. A joint penetration on the downSide Vlould indicate a continuance of the 'slow down drift under the influence of tax' selling and switching. However, the leaders have built up only minor distribution areas and there is good support in the 177-175 area – just bal.ow our previously indi cated 178-180 'Support area. . December 3, 1947 EDMUNDW. TABELL SHIELDS & COMPANY Closings DOVi-Jones Industrials Dow-Jones Rails DOW-Jones 65-stock 179.63 47.49 63.15 The opinhnts expressed in thi, letter BAlI the personal interpretation of charts by Mr. E4mund W. TRen and are not presented as the opinions of Shields Company,