Tabell’s Market Letter – August 05, 1949

TABELL'S MARKET LEnER 35 WALL STREET. NEW YORK 5. N. Y. Digby 4-4141 From May 5th to August 1st, a matter of sixty-six trading dars, the Dow-Jones industrial average moved in a Wide trading range of 16 pOints. From the May 5th high of 177.18, the market declined to a low of 160.62 on June 14th. This was a decline of 16.56 pOints in thirty-three days. From the low of 160.62 on June 14th the market advanced to a high of 177.17 on August 1st. This was an advance of 16.55 points in thirty-three trading days. Thus, the entire thirty-three day decline of 16t pOints was recovered in the same number of trading days. This is unusual as'the rate of decline is usually more rapid than the rate of advance. As we look at the long term picture, rather than the day to day, or even month to month fluctuations, this quick rebound from the 160 support level has considerable significance. The 160-164 support level has now been tested on four widely separated occasions, namely, in October 1946, May 1947, February 1948, and June 1949. The 160-170 areawhich I have consistently considered a long term buying area, has been' entered in eleven of the last thirty-six months. ' From September 1946 to November 1948 business and indusry were booming with the F.R.B. index of production moving in a range between roughly 180 and 195. (100 1935-1939 average). The stock market declines into the 160-170 range of the Dow-Jones industrials during this period were the result of fears that a decline in business was imminent. This de- cline in business has now occurred with the F.R.B. index dropping in seven months from a November 1948 high of 195 to an estimated level of 165 for July, 1949. In spite of this decline in business, the market has again met support at the 160 level of the Dow-Jones industrials, the low of a narrow trading range (15) of three years. This action takes on an added significance when we read the busi- ness forecast of Dr.C.F.Roos of the Econometric Institute in the August 1st issue of Newsweek. The record of Dr. Roos and his staff in forecasting the business trend over the past few years has been considerably above that of the average economist. He believes that the F.R.B. index will reach its low for the next ten years in either July or August of this year. After a rise into the later part of 1949, he expects another dip in the first six months of 1950. His opinion is that this decline will hold slightly above the August lows. He then antiCipates a rising trend until 1953-1954, hen ano- ther dip in business is expected. The decline at that time,he believes, will hold above both the lows of 1949 and 1950. From there on; his proJect- ion indicates a riSing trend to 1960. All of this is subJct to an'allow- ance of 5 to 10 for error. The opinions of Dr. Roos coincide with my long term technical pat- tern of the stock market. I believe that the narrow trading range of the past three years is a long accumulation period with stocks passing from weaker into stronger hands. The accumulation may not yet be completed and the averages may remain within the area of the last three years for a longer time. However, I made the prediction almost a year ago that the pat- tern now being built up will eventually result in a price level ,in the stock market above the 1929 high of 386 during the period betweeh 1955 and 1960. I confidently repeat this prediction again. .' . For the near term,the market has advanced approximately eighteen pOints in thirty-seven trading days to a high of 179.38 on August 5th. It would appear quite obvious thatin the near future, some technical correct- ion should occur. However, the advances in the market, since'the narrow trading started almost three years ago, have been of the more or.iless straight line variety with sharp upswings in a short periOd of' time and with comparatively no teohnical oorrections. Witness the twentyfour point upswing from November 1946 to February 1947, the twenty two point riSe from May 1947 to July 1947 and the thirty point advance from Fecruary 1948 to June 1948. . It is possible that the current intermediate uptrend will top out in the 178185 area and will be followed by a correction to the ,lower 170s. Following that, a trading range might be built up in an area bounded rough- ly by 170 and 185. Such aotion would result in a long head and shoulders bottom pattern with the November-May range of 170182 being the'I'eft shoul- der,the sharp deoline to 160 in June being the head,and the oontemplated 170-185 range the right shoulder. Suoh a pattern would be the preliminary for a strong market in 1950. August 5, 1949 . Edmund W. Tabell Thl, memorandum I, not have an Inte'lt In 10m. to or b. all conltrued a. an of the IKllfUlu off.r or lollcltatlon of mentioned herein. The oHe,. to buy or 11 any lecurltleL From ,o…;oln; mahlrllli hal been prepered by time to 111 al a timmaetteWr aolsftoInnoHrmoaftfmloann a Goodwin may only. It It bliled upon Information bellev.d reliable but not neeesullrily complet., II not filuarllnt.ed e. accurate or fInal, and Is not Intended to foreclose Independent nqulry, – ——–..– — –