Tabell’s Market Letter – January 04, 1963

Walston &– Co,Inc Jll,/hl' .Y( /1' '(JI II Stuc/; E rclianq(' NEW YORK SAN FRANCISCO LOS ANGELES PHILADElPHIA OFFICES COAST TO COAST AND OVERSEAS CHICAGO TABEU'S MARKET LETTER January 4, 1U63 We see no reason to alter the advice given in our letter of December 21st WhlCh sald – Our technical objective for the price advance from the October low of 549. 65 was the 650-685 level. The lower part of this range has been reached, but we belleve the Indus- tnal average will move above the early December hlgh during January. A sizable number of techlllcal patterns on individual stocks suggest moderately higher price levels, and no dlS- trrbutional top pattern of lmportance has as yet been bUllt up. Market strength in January should be used to lighten commltments in issues wlth below-average prospects. The Dow-Jones Industnals have penetrated the December rntra-day high of 658.76 to reach a high of 665. 66 on Friday. Breadth-of-the-market action remains good and LS 'shll-no' 'Die marke't'stll1 appears ati1Fto' advanCe —..'– closer to the heavy overhead supply rn the 685-740 area rn which the market held for over a year between May 1961 and 1962. We would use periods of strength to eliminate issues wlth unfavorable long-term prospects. . As we have mentioned III prevlous letters, we expect 1963 to be an lllslde year wlth the market, as measured by the averages, reaching neither a new high nor a new low as compared to 1962. This suggests a broad tradlllg area III which the actlOn of indivldual stocks wlll be much more important than the achon of the various averages. The market has now recovered over 60 of the 2J5-pornt drop in the Industnal aver.- age from 740 to 525. This is about the expected normal techmcal recovery after a decline of the proportions Wl tnessed in May and June. For the mal'ket to advance further wlll requlre a powerful stimulant. On the business front, there mdlcahon of an increas in earlings in 1963 of sufficient proportions to generate a w wra9 et. The one factor that could change the plcture is tax reductlOn. In i , tel rtance of tIns factor cannot be overemphasized. The only questlOn lS timl grrhe ch es appear to be no better than even that lmportant tax reduchons will . 19 . The chances for 1964 will be much better. If no lmportant tax leglslatlOn e ted 63, the market wlll undoubtedly a – wlde tradrng area wlll ult,mat e\th) ,sWTor a broad advance in 1964 and 1965. ThlS fits mto the techlllcal pat e during the past six months is not sub- stantial enough to Ii he pa ttern is substantially enlarged. TIns wlll probably R r' 0 cking and filling. While thlS is true of the general market, many rndiv ssue ve already formed base patterns that require no further work. ThlS is partrcul rly e of the cyclical-type lssues that reached their highs rn 1956 to 1959, and have bee dually basrng out for a number of years. Purchases should be concentrated in th,S group. Why is tax reductlOn so lmportant A quote from the December 29th lssue of Buslness Week explains this l1lcely. After notrng the excess capacity tha t eXlsts rn most industries since 1955, the artrcle says – What has caused demand to grow so slowly tha t the nation's industrial capaclty has been underemployed for half a decade The chlef culpnt, vlrtually all economists now agree, has been a tax system con- structed to fight inflatlOn durrng World War II and rernforced during Korea. But by 1957 U. S, economy had moved out of the so-called 'postwar period' when private demand for all sorts of goods – especially autos, housing, appliances – seemed lIlsatrable, into a period when prlvate demand flagged. The tax system constructed for earlier needs lmposes excess,; lve restrant ordhis'later'-e'corlOmy-'n — The U, S. tax system has been hailed as our most important 'automatic stabilizer', a powerful check On recessions. Increasingly, economists have come to see tha t the tax system is also a powerful damper on expansions. For rnstance, from the spring of 1958, the trough of tha t recession, to the sprlllg of 1960, the peak of the expanslOn, GNP climbed 15. But tax revenues climbed 29'70 – tWlce as much as the rise in incomes. Thus taxes cut heavlly into final demand for goods and ser- Vlces, causlllg the expansion to lose momentum and flllally fade out. Again, in the Kennedy years, GNP rose 11'70 from first-quarter 1961 to third-quarter 1962 – but the tax bite in- ..creased 18/0 — again nearly twice as fast. EDMUND W.1TABELL Dow-Jones Ind. 662.23 WALSTON & CO. INC. Dow-Jones Rails 147.51 …. , T ' \ m.\\ 1,,\ I(!lh \ ,,I ,\I\d 1,,11 1, \le'd ,h ,\1\ I' ld II ,,,It, it .tlu tu \'U\ UI ,('c' Il,c \, I,, lui \ hC ' '\ II( ll'f,,' II Il, ,III.II!I(',1 111'lelrl 11t ('lIdl,lllt,f'd to ,U( HI \ '11 ,,\ll\plt'tI\( –.. ,llId tilL' fUlllhh'lI\.. 11'1.r I\t ,,,,llIlId,, 1\, \1( lill! h to I'L' dI I- t n 1 .. 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