Technical Market Action After epproxinute1y equalling the July closing high of 51.63, the rails net sone profit-taking on Monday and c10sec fractionally lower on the day. At Snturdays closing of 51.70, the ruil averq;e v,as at a lev,l thQt has een approsched on nunberous occasions, Ilince the Septetlber, 191,6 '-ecllne . The rc.ll average rellched a closing rally high of 51.22 in Novenber 1946, 52.67 l.n Decnber 1946, 53.42 in February 1947, 51.63 in July 1947, and 51.19 in Octoher 1947. Thus, this is the sixth occasion in the past sixteen nonths that thE' ruils hQve attenpte1 to penetrate this level. The action of indivic'.ual stocks indicQte that th;is tiI'le. the attempt may be successful. Such c.n event WOUld, be of extrelle l.!lportance technl.cally, and indicate the stp.rt of a very inportant upsving'lin the general narkct. Starting below is an a1phabeticnl review of our list of recon- nended issues. Believe these issues offer better than Ilverake chnnces of narket appreciation. –c hdans F,xpress (17 5/13) is an investnent trust issue Viith higher than o.verage leverage. The stock llo.de a double bottotl at 13 1/13 in October 1946 and in May of this year. This low was in line with the downSide objective of 13 outlined by the distributional pattern of early 1946. The stock has been bui.l'-ing up a base area in the 14-17 range, and vms recor.Jr.lended for purchase in June at 14 7/S. The base area was recently penetrated upside and the 10n,;er tern objective is 26-30. The 1946 hish Vias 24 3/4. The stock vill tlove in line with the general averages and appears to btl in a strong technical position. Alle.-,hoJw Lud1uD (31 5/8) was recoWDEOnded at 28 on Decetlber 5th as an issue tha seeed overly depressed by ta selling and could rebound quickly after the pressure was lifted. The stock closed at 31 5/13 on Monday. Would expect SODe further rally to the 35-37 resistance area. ' its approxitlate heny Pfd. donsde objective (40 l/S) at 25 1/4 This extretle1y vo1Rti1e issue reached in May. A large potential base area has been built up in the 26,44 area that would indicat an obj ecti ve well above the the 1946 high of 69 1/4, if the area is penetrated upside. Over the nearer tem, the technical pattern indicates the.t e. penetration would indicate a ,-uick rally to the 54-59 reSistance area. ferican CyanaDid (39 3/4) This issue is selling close to the years low of 313 5/8 and appears to be in an excellent position to rally sharply as the pressure of tax selling abutes. At pres.mt levels, the stock is at -ehe very strong support level of 40-313. The stock has sold hieher than the present price in every one of the past fi ve ye.rs. The 1946 high \Cas 63 3/4. Fro'1 a technical vievlpoint, the stock appears to be an attractive purchase. American Water Works & Electric (16 1/8) built up a c1.istri'buttODcU area in errly 1946 the t in ictcC' cc 'lecli!le to 11. 1 10\1 of 12 . Cos re.chc( in licy of this 'ecr. l' larGe yJotcntil br.se arEo.n has bc.cn built UP in the 12-1(, rec thG.t ,oul( inicute a lone ter. objective of 36, i.L 'he 'Ir(.e is' penctrtE;' upsi(e. There is ne,,-rcr terl resist nce in tle 24-27 ..ree. 11th ,,-t 84 1/4 Atchison, Topeb., cn( Sent Fe -long lith four other rd1 issues b(e9c2) u6.e,,-6orf tchoeD lenc;ec' on inrovco Decelber technicd ,ction of tJ1C r ilroC oup. t ,Jon.ys closir.f, of 92, the stoci, he penctrc.ted the July hieh m' the nec.rcr ter. in -icr.tion is th 104,-110 ren. T.! lon'er ter; pattern is c.lso favorble. Decenber 22, 1947 ED.urJD \.. T,.BrLL SHIELDS & COMP1,NY The opinions expressed In lhis leHer are the personal Interpretation of charts by Mr. Edmund W. Tabell and are not presented as the opinions of Shlolds & CompaOy.

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. –