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Walston Co.lnc.(r INVESTMENT BANKERS MUTUAL FUNDS MUNICIPAL BOHDS Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges 90 OFFICES CoASTToCoAST AND OVERSEAS I , /YlARkCT Reprinted from Thursday Issue, April 21, 1966 The COMMERCIAL and FINANCIAL CHRONICLE 25 PARK PLACE. NEW YORK, N. Y. 10007 .Basis for New Market 'II Advance Is Now UnderWay By ANTHONY W. TABELL Senior Vice Preslnent, Walston & Co, Inc. New York City l\lr. Tabell re-examines his father s famous prediction of ..ix yeIl'j a.go and ..ces little need to change it today. Similal'ly relying on the- Elliot \Vavo theory, analyst Tabell disagrees with those who say We have had one hull market Rin(c 1949 which still remains Wlcorrectoo. If so, he a(lds. uwe houid run for the hills. Actually, he claims, once the 19621966 Dow Inde' rnilrance is cor rect('d 1n PIE term.;; the upswing almO'it entirely disappears. Thus, in predicting a not too bullish market over the year ahead, i\'lr. TabelJ advi'!!cs taking advantage of any weakne..se'J. They prm.lde, he says, an excellent buy ing OPllortunity and he ha..es thi., view on the premise that we are now cOlllllleting a base fonnation for n new all\'unce 10 begin III the latter part of thi'!! dcc..'l(le. Some six years ago, my father, the late Edmund W. Tabcl1, delivered a speech m Phoemx, ArIzona (reprinted .n the Commer. cial &; Financial Chronlele of November 19, 1959) en titled What Time is It on The stock Market Clock The purpose of the speech was to make sam e o b s e r v a-A. W. Tabell tions' on long range cycles in the stock markth and to offer some oOserva- lions as to what the 1960's might have in store It was an important queshon at that pomt. The bme was two years prior to )he 1962 break in stock prices, the sharjr est del'1ine in twenty-five years Already a great many stocks had begun declinIng from highs they were not again to achieve for as mu('h as five years and which, Indeed, some stocks have not agam achIeved to this day. The question of what time is It or the stock market clock is equally Important today. We have recEntIy com pIe ted a rorty-two-month fIse in the leading market indices, the longest su('h rise .in post-war history. The,….length of this rise, …. Upswing Started in 1949 – Accurate Prediction I, for one, do not believe it is ended September, 1961, just be- true. Anyone close to the stock fore the market reached its market in 1961 is aware that peak, the Dow-Jones Industrial this period had all of the char- Average earned 29.03. Sin c c acterIstics of a major stock market top to a degree not remotely approached by today's market. I do not think it Is posSible, as so many are doing, conveniently to ignore 1961-62 as a mere techmcal interruption of a long advance. I think, in other words, that the, analysis made six years ago IS essenhally correct and that, in 1961, the bul1.market ended and the stock markct moved mto a new phase. If thIS is the case, the sharp rise in the Dow to new' high territory over the past three and one-half years, coupled with a much sharper rise in individual Issues, needs to be fittcd mto the pattern then outlined I believe that this can be done. First of all, we have been talking to date purely 10 term& of the averages. For the past decade, as most analysts are aware, this has been misleading For example, many stocks in the 1949-1961 rIse made their hIghs as early as 1956, and a great many more made the i r highs in 1959. A great many of thosp slocks which made theIr highs long before the market had already completed bas e formations for a substantIal new advance by June of 1962. As these stocks moved into major bull markets of theIr own, the rise in the Dow-Jones Industrial Average was extended to a point far beyond what would have been expected if all stocks had topped out as the then we have seen more than our years of continuous earnlOgS expansIon to the point where the Dow probably earned Just under 54.00 for the year 1965 and, probably, will earn 60 00 in 1966. At its recent low of 905, therefore, the Dow was selling for 16,9 times earnings, a fIgure not too much dIfferent than the P-E at the 1962 low. Put in terms of P-E ratios, rather than prices, the entire 1962-66 upswing almost entirely disappears. The Index corrected itself from a PE of 24.2 In lhe thll'd quarter of 1961 to one of 16.2 in the second quarter of 1962. Since that time the P-E has never moved m u c h above 19. ThIS sort of pattern IS far more conSIstent with the analysis offered in 1959 than is the conventional pattern of prices. And, thIS is, in a sense, as it should be. When we talk 10 terms of long stock market cycles we arc usually talking in terms of swings in investor confidence, It is at least an arguable premise that investor con- fidence in the overall market has improved very httle in the past four years. Indeed, it is possible that in- vestor confidence as expressed by the PE may ul- timately wind up WIth a classi- cal threewave y pe downSWIng. If this is the case, we might see a decline in the Dow-Jones P-E to around 14, the level which characterized it during 1956-57. ThIS would hardly be a major disaster. averages dId in 1961. Much Again, assuming 60 00 earnings more important, however, IS the fact that the market of the past five years has moved agamst a rdther unusual economIC back- for 1966, this would produce a Dow-Jones Average level of 840, not hoo different from the June ground For the twelve months 1965 low 4 Outlook OVer the Next Year If this is the case, the out- look for the stock market over the next year is not a terribly bullish one, and the immediate signs of market deteriOratIOn we are seemg at this late stage warn us against unreserved optlmism at this point The last high in the Dow-Jones Indus- trlals was, for example, not confirmed by our breadth 1 n d e x, indIcating some deterIoration of leadership It is quite pOSSIble that longer term volume indlces are just now beginning to top out, a phenomenon which has led all maJor stock market peaks in the post-war period. In other words. it is qUite IXlssible that a year from now the popular market averages could be somewhat lower than they are today. Yet, the important thing is how we VIew this antIcipated stock market weakness. If we subscribe to the theory that the entIre 1949-1966 period constitutes one single advance, we should certainly view any impending downturn with a great deal of alarm. If, on the other hand, as I do, we believe that the present market is in the process of completing a bas e formation for a new advance to beglIl 10 the latter part of this decade, then any weakness will provide one of the most im-portant buying opportunitIes for common stocks 10 r e c e n t years In other words, I believe that in later years, by hindsight. we will be able to view the 1965. 1966 or 1967 period as a WIde tradmg range which completed the base for a new upswing In 1959, in the analysis of time on the stock market clock, the conclusIOn was as follows- In conclusion, I belIeve the stock market will top out in 1960 or 1961 at around 750 to 800 During the next five years, we will have to drop the outmoded concept of bull and bear markets and concentrate on the outlook for individual Industries and issues. We will probably have to change our opinions on the outlook for many individual issues. We will not be able to solve the investment problems of the next five years by remaining static and owning the 'Favorite Fifty.' That investment pro g ram worked very well in the past ten years, but will not meet the probable changes of the next five years. If the picture is some-what obscure for the next fIVe years, it Is m u c h clearer for the next ten years. This is a growth country and we are still in the early stages of the advance. After the first wave is ended and the needed consolidating phase of the second wave completed, the econ- omy and the stock market will again embark upon another advancing phase. I do not expect that in the next ten years the market will duplicate the 300 risc of the past ten years. It could, however, be 100 hIgh er by 1969 or somewhere around 1250 and 1500 in the Dow-Jones Industrials. Although the time might have to be pushed forward to the early 1970's, there appears httle reason to change this prediction today. -An !.on 6, 1966 by IUr TabeIJ to the BMClub, BMton, MaS-'! April
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