Tabell’s Market Letter – November 27, 1959

Tabell’s Market Letter – November 27, 1959

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Reprinted From 17z(l COMMERCIAL and FINANCIAL CHRONICLE Thursday, November 19, 1959 What Time Is It on the Stock Market Clock By Edmund W. Tobell, Dlrector of Institutional Research, & Co,Inc, New York Clty Expert market analyst sees D..J Industrial Average topping out in 1960 to 1961 at .round 180 to 800, compared fo ra,f Augu,f', .Igh of 883, before declining to 150525 range in next five years. In revealing Investor confidence is currantly extremely high and makes tor a more vulnerable market. Mr. rabell doubts. however. that we are in a major downtrend. The arialyst explains the factors Influencing price diversity of one stock to another; examines market wave theories; observes neil emerging pattern of a narrower range for stocks and a wider Dne fDr bonds, and envisages an edvancjng market waVe over the next ten years. Investors are advised to be selective and not solve t'lair investment problems by remaining static and owning the FaVOrite Fifty,.. I Many investors arc confused by the seemingly irrational behavior of the stock market They find it dlffh'llt to understand why one stock will sell at400r50 Urnes earnings and another at 10 tim e s They become confused when the price of one stock advances while its earnings are declining and another aeclines while 1t s earnings atrreendin. Paanrtupo-f EdmUDd w. T.belJ fact that the stock market should act as a barometer rather than a thermometer, attempting to discount trends in advance rather than reflect the Immediate situation. To a larger extent, however, the seemingly irrational behavior of stock pI Ices is explained by the fact that the prIce of a stock depends, not On one slOgle yardstick but on many elements. These many elements can probably be narrowed down to four main influences on stock prices Three of these factors are tangIble (1) earnings, (2) dIvidends, and (3) money rates or bond YIelds. But there is a fourth factor that is not tangible, that cannot be expressed in terms of numbers and that is this seeming irrationality is explamed by the not easy factor is tion vme setaosru rceo.n fTi dheISn cfeo. uIrnt h- Highs and Lows of Investors Confidence – Present Market Vulnerability to Change I 1850 IT m 010.1'57 On.I1S1 4 IU, fourth wave. The fifth wave average and some d i v i d en d started from the October 1957 low. increases and extras are to be Doubts We Are in Major Downtrend expected. Tills is hardly the back ground for a market decline. Furthermore, the fifth and final phase Was' the long-term advance from 1949 completed at the August of a long-term advance is usually the most dynamic with heavy vol- 1959 high of 683 and are we now ume and overspeculation. The in a maJor downtrend It is pos- present advance does not yet fit sible, but I doubt it. There are into this category. several techmcal reasons for this The advance that started in October 1957 while a part of the broad 1949 advance to date, must be considered a bull market of its own. A study of 14 bull markets since 1884 indicates that if the present bull market ended in August 1959, it is well below average in terms of both time and percentage advance. The average time duration of the 14 bull markets has been 30 months. The present bull market lasted only 21 months if August was the top. The average percentage advance of previous bull markets was 105. The present advance to August is only 63. In addition, volume indications on the decline If we use EllIot's wave principal on the advance from the October 1957 lows, we have a number of alternative interpretations. On shorter term moves, the variOUS waves are difficult to recognize while they are taking place. One possibility is shown in FIGURE III. This would indicate that we are nOw in the fifth or final wave. An equally valid possibility, in my opinion, is the one shown in FIGURE IV. This would indicate we are only in the third wave, and the CUlmination of the advance from October 1957 will be in 1961 or possibly as late as 1962. since August have not been of the type usually associated with im- My conclusion August, 1959 high Is of that 683 Is the not portant phases. The heaviest volume of trading occurred in the first week of the decline from 683 to 640. While the decline continued to a low of 613 in September, volume failed to increase. In an important downtrend, volume increases as each new low is attained. From the viewpoint of the business cycle, the odds favor a continued upturn in business well into the top of the bull market. I believe it probable that the stock market will have a typical fifth wave climax with sharply higher volume and speculation in secondary issues. The high to be reached In 1960 or 1961 will be scoemnteawgehweriese,arothuinsd is750a-n80a0d. vPanecreonly about 20 from present levels-as compared with a rise of 300 from the 1949 lows. 1960 and maybe beyond. The Might Reach 550-525 at Most average time duration of a business cycle is 27 months to three years. The present upward business cycle started in April 1958 and is only 19 months old, The steel strike shortages will probably extend the cycle through 1960 and mto 1961. Earnings in What will follow after the market reaches a high in 1960 Or 1961 I believe the market will probably have a decline somewhat greater than we have witnessed in quite some time. This is not as omInous as it sounds. The market has not had a really the first half of 1960 could well surpass the rate of 11 earned in the second quarter of 1959. Divi- severe decline in recent years. The 1957 decline was 20. The 1946 decline was 25 . If the dend payouts have been below averages reach 750-800 on the 5 Foresees Consolidating Market – Conclusion

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