Tabell’s Market Letter – December 31, 1947

Technical Market Action Just as no Christmas number of a magazine or periodical is cOr.lplete without a picture of Santa Claus, a snow scene or a holly wreath, no financial letter or service is complete, at this time of the year, without an Annual So let me add another prediction to the multitude that already have been issued. But before I start, I lIould like to fill in a little background. The market reached a high of 213.36 in the industrial average and 68.77 in the rails in May of 1946. The high of the industrials Vias considerably above the previous February 1946 high of 207.49, but the rail average just about equalled the previous February 1946 high of 68.42. This was the first cautionary signal because on all previolls rallies, since the start of the bull market in 1942, the rails had led the advance. In addition, many individual issues had built large potential distributional areas from Janu,.ry to May of 1946 while the public was scrambling for new at nny price. This letter tUI'l1ed cautious on the market when the 200 level VIaS penetrated and predicted the possibility of a decline t.o 174. The average react.ed to 193 then rallied back to 205 in August to broaden out the distributional area and indicate the possibility of a decline to the 170-160 area. The market started a sharp decline in September and rec.ched a low'of 160.49 on the industrials and 44.00 on the rails in October 1946. That brings us up to our prediction for 1947. In January 1947 \7hen the averages were 176, I was of the opinion that the market Vias in an intermediate uptrend that would carry to the 185-200 level. After that, I predicted a ree.ction and consolidation to be followed by another attempt at new highs later in the year. I also thou;ht that the rise \'1ould be extremely selective and would feature the heavy industry shares, oils, chemicals, etc. I did not like the action of the soft goods stocks puch as department stores, liquors, moving pictures and luxury as these issues had not yet reached their downside technical objectives. The actual course of the mc.rket did not quite follow this pattern. The indivioual issues recommended in most ceses, moved sharply higher, while the issues with unfavorable technical patterns worked lovler. HO\1eVer, the averages were able to reach only the lower part of our anticipated 185-200 range at 184.96 in February. The rail average reached ,3.65. This rully vms followed by a downdrift that carried the industrial average back to 161.38 in May. The rails reached a neVi low at 40.43. The subsequent rally carried the industrials to a new high of 187.66 in July but the rails, at 51.92, failed to better the February high. The industrials, in several attempts since that time, have failed so far to pene- trate the July high.of 187.66. The rails, however, recently penetrated the July high to roach 52.88 even though they were unable to penetrate the Februery high of 53.65. This j.s the first evidence of rail leaderShip in almost tVIO years. /NOV/, finally, the prediction for 1948. I believe the long and narrow trading range of the last sixteen r.1onths, between roughly 161 and 187 in the industrial average, is a base area that Will be Ultimately penetrated on the upside. The rail average also has a favorable technical pattern TIith six tops in the 54-52 area and a head and shoulders bottom pattern at, roughly, 44 in October 1946 for the left shoulder, at 40 in May 1947 for the head and 46 in December 1947 for the right shoulder. My reasons for predicting that both these patterns arc base areas are based on (1) the vast majority of instances that individual issues have reached the dormside objectives outlined by their early 1946 distributional area. They were not all reached at the same tir.1e. ChrJsler reached its downside objective .r.Th. opinion, in this letter .r., the personal interpret-tion of chert, by Mr. Edmund W. T.b811 and not presenhd as the opinions of Shields & Company. Technical Market Action -2- in October, 1946. Pennsylvnnia Railroad reached its downside objectave'during the pa&t month. (2) A great many important issues in both groups have already given individual bull market sienals of their own by penetrating trading ranges and reaching new high terri tory. It is true that other issues have reached new lows but these issues are just reaching the dOl'mside objectives outlined by the early 1946 distributional tops. Only in rare cases have individual issues reached their downside objectives earlier in the year and then famed a trading l'unC to penetrate it on the downsidejl' Thus, going ahead on the premise tho.t the trading ranGe of the last sixteen months is an accunr.lUlation area, what is the possible objectives fol' the averages on an intermediate upswing The present base patterns 210-215 for the industrials and 65-75 for the rails. This checks with objectives of around or slightly above the 1946 high of 137 on the New York Herald-Tribune 100-Stock average (now 122) and around the 1946 hieh of 149 on the New York Times 50-Stock combined average (now 116). This does not mean that all groups, or even indiVidual issues in the same group, will rise equally. In fact, the rise will be extremely selective. Issues that have reached their 101,5 earlier in the year and have already formed Sizeable b,,-se patterns will show bettern market action than issues that have only recently reached their d01'mside obj ectives and require backinG and filline in a trading range to form a base. The groups with the most favorable technical patterns at the moment include the steels, rails, issues, building issues, farm implements, machine oils, chemicals, papers und certain miscellaneous groups. I will endeavor to cover tho most interesting individual – issues in subsequent bulletins. Most of thorn are now in our recommended list of issues. I'AS timing of the upside penetration, that is uncel'tain. It requires a change in the or rather apathetic nttitude of the investor and speculator of today. If the penetrntion occurs pbortly, the out- lined above are a reasonable eXpectation. If these objectives are reached early in 1948, it is pOSSible, c.fter ceveral months of consolidation, that the I'larket may embark on a move into even higher territory bofore the end of the year. If the rise is delayed and the sink back into the 170-160 buying range, it will mean the enlargement of the base area and an even greater internediato t('rID objective then outlined above to be reached luter in the favor the possi- bility of a nearer tern penetr2.tion. In my next letter I will cover the fallacies which are apparent, in my opinion, in the current bearish prognostications. Decenber 31, 1947 EDMUND W. TABELL SHIELDS & COMPANY HAP P Y N E IV YEA R The opinion5 expressed in this letter are the penonal lnterpretation of cherts by Mr. Edmund W. labelJ nd are not presented as the opihions of Shields & Company. –