Tabell’s Market Letter – September 22, 1961

FILE COpy Walston &Co. Inc Members New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CHlCAGO OFFICES COAST TO COAST AND OVERSEAS TABEll'S MARKET lETTER September 22, 1961 Continued weakness in a number of over-exploited growth issues caused enough uncertainty in the general market to push the various industrial market averages below their August lows. The Dow-Jones Industrials, which had held in a 30/0 trading range between 733.53 and 709.54 for five weeks, broke out on the downside of that area to reac a low of 698. 70. Volume on the decline was small, as has been the case since the current irre- gularity started. Despite the fact that the averages reached their high earlier this month the majority of stocks made their highs in April and May when our breadth index reached – its-high.- This inteI'est'rather-than increasing selling pressure. Our technical indicators show that buying power has been , steadily decreasing since April and is now lower than at any time since January when the Industrial Average was in the 620-657 range. This loss of buying momentum has been the main technical reason for the current irregularity. It would appear that a strong resurgence of the buying urge is needed to cause mo than technical rallies in the general market over the nearer term. This renewal of buyin ,momentum could be brought about by some new and unexpected bullish development, but that does not appear to be in the cards at the moment. A decline in the buying urge after , a strong advance like that witnessed from October, 1960 to May is usually corrected by a decline to a price level where the market again appears attractive. It is difficult to renew the buying momentum while the market remains high. From a technical viewpoint, there is a strong support area in the 700-675 zone. , The small top formed since August at 730-720 has a e Petial of 690-680. The broader top formed across the May and September highs a 0 7lCO indicates a possibl 645. A normal one-third to one-half correction of – oi v since October 1960 would bring the Industrial average back to 677 0 consider the 680- 650 area a favorable buying zone for a new' in 25-835 area in 1962. , — h-er' -alWaysIJe-manysituations- that will show better or worse relat' a mpared to the general market. As an example, Ford Motor at 107 1/8 while Texas Instru- ments reached a low f ii;n Texas Instruments reached its high of 256 1/4 in May, 1 6 se' in the 67-70 range and the Dow-Jones Industrial Average was arou the average is ll li' h r 0 s prices, Texas Instruments is down about 600/0 while ord is up over 500/0. V/hile the ave s may work somewhat lower first, we believe that after the correction of speculative excesses earlier in the year is completed, the market will probably reach new high territory early in 1962. There are several situations in our recommended list that merit buying attention, including the following. Goodrich (73) expects earnings in the third and fourth quarter to top those a year earlier by a substantial margin and also expects that 1962 will also show improved earnings. The stock appears attractive. International Minerals & Chemical (493/4) has arranged a loan for 40 million with Prudential for development of its extensive potash properties in Canada. This is one of our favorite issues for long term appreciation. U. S. Plywood (48) forecasts a gain in 1962 fiscal earnings. This issue has a very strong technical pattern. We are parficlilarlyimpressed bylliEi a-ction offhe moved above its downtrend line from the 1959 high of 174.41 over a month ago and has held up very well ever since despite the decline in the Industrials. At Friday's intraday high of 145.13, the Rail Average was close to the August high of 145.88. If, as expected, the business pattern continues to improve, some rails have defensive qualities with the better-grade issues showing yields of over 50/0. The better-grade rails on our Recommended List are Atchison, Topeka & Santa Fe (26 1/4), Canadian Pacific (24 1/2), Northern Pacific (42 1/8), Seaboard Airline (28 5/6,and Southern Railway (56 1/2). The more speculative issues are Chicago,MHwaukee, St. Paul & Pacific (16 7/8) and Chicago & Northwestern (223/8). Neither of these issues are on a dividend basis at the moment.