Tabell’s Market Letter – May 22, 1956

Walston &Co. -l – – – – I n c . MEMBERS NEW YORK STOCK EXCHANGE AND OTHER. LEAOING STOCK AND COMMODITY EXCHANGES NEW YORK PHILADELPHIA' LOS ANGELES SAN FRANCISCO LUGANO (Sw;t,ee,d) OFFICES COAST TO COAST CONNECTECo BY DIRECT PRIVATE WIRE SYSTEM EDMUND W. TABELL INSTITUTIONAL LETTER May 22, 1956 Selectivity is probably the most &tusEdword in the lexicon of market letter writers. Nevertheless, it remains the key to today's market. In recent weeks, the Dow-Jones industrial average has declined from an April 9th high of 524.37 to today's low of 481,86. To go back to the last time when the averages were at this level we must go back to Friday, February 24th when averages closed at 485.66. It is interesting to compare the close of that day in selective issues with today's close stock Close May 22nd Close Feb. 24th Joy Manufacturing 50 1/2 39 3/,8' Dresser Industries 68 1/2 5e 3/4 General Railway Signal 80 5/8 69 1/4 Merck, -rnc. , 31 1/4, 26 3/4, Black;.. & Decker 41 1./2 '3l1.. American Viscose u. S. Steel International Harvester Westinghouse Electric 37 54 5/8 34 3/4 53 1/2 50 57 1/4 37 7/8 58 7/8 ThUS, the key to investment timing remains the same. Instead of trying to gauge the action of the market, the energies of the analyst are better devoted to selecting stocks Which will outperform the market. It is still necessary, however, to gauge investment climate. Many factors have been cited to explain the decline in stocks such as dropping auto production, the possibility of a steel strike, a falling bond market, and a host of others. Without going into these fundamental conditions we will attempt to point out a few technical factors which may effect the mar- ket trend. At today's low, the Dow-Jones industrials were dangerously close to a trend line connecting the September 1955 and February 1956 lows.They were also close to the 200-day moving average. Fenetration of these two lines could be said to have considerable significance insofar as the averages are concerned, and a decisive downside breakout would probably end the bull market cycle which began in 1953. As we have tried to point out in the paragraph on selectivity above,this does not necessarily indicate the end of the world — or even a 1946 type market break. Economists such as Sumner Slichter have pointed out that we may have reached the stage in a managed economy where different industries undergo recessions at different times, considerably smoothing the traditional business cycle. It is just possible that this type of action may be reflected in the stock market as indeed it has been reflected in the examples outlined above. The result would be a 1951-53 type market with opportunities continuing for the purchase of carefully selected securities. It is certainly not the intention of this letter to subscribe to any sort of new era thinking. We must point out, however, that in the post-war years prcponents of the rolling readjustment theory have been proved righter than the boom or bust theories. History will ultimately indicate whether or not the market signals have finally been concurred. Meanwhile, it is the function cf this letter to attempt to choose securities and groups which have out-performed thegeneral market regardless of trend. hccording to relative strength studies, the following groups should behave as indicated below FAVORABLE Air-conditioning, Building,Business Machines, Cement, Drug1, Electrical Equip., Gas,Machinery,Oil,Paper, Rails. GOOD ACTION BUT HIGH Aluminum, Glass Containers, Rail EqUipment, NEUTRJ,L Aircrafts, Brass, Chemicals, Communication,Finance, Food Chains,Food Products, Meat Packing,Mining & Smelting, Rubber, Steel,Sugar, Tobacco, Utilities. POOR ACTION BUT H1PROVING Airlines, Coal, Electronics, Movies, Soft Drink, Tin Cans. UNFAVOR''.BLE Autos, Auto Equipment, Farm Machinery, Fertilizer, Liquor, Retail Chains, Textiles. EDMUND W. TJJ3ELL WALSTON & CO.INC. TIII memorandum II not to be construed liS ,111\ offer or ol,cllallon of offers to buy or uell any seCUrities From time to hme W,,'iI()n & Co, or any pdrtner thereof may 1I,,e II,! Interest ,n some or of thll! Itc.untles mentioned IIereln The foregOing mterl,lI has been prepared b.,. us .n a mltter 01 Information only It IS based upon mform!lt,on believed rell!lble but not neceut!lf,ly complete, '5 not gUII!Inleec;t u t!lccu!!Ite or fin!al, !and i5 not 'ntended to foreclou 'ndependent ,nqulrV u , i. t,