Tabell’s Market Letter – June 10, 1966

Walston &Co. —–Inc —– INVESTMENT BANKERS MUTUAL fUNDS MUNICIPAL BONDS Members New York Siock Exchange and Other Principal Stock and Commodity Exchanges OFFICES COAST TO COAST AND OVERSEAS TABll1.!5…MARKELLEU.ER June 10, 1966 The stock market staged a smart rally on Friday with the Dow-Jones Industrial Aver age advancing 9.13 points to reach an intra-day high of 896.77, the best level attained since the post- Memorial Day slide two weeks ago. In doing so it followed through with a tendency of some interest, although of problematical significance, which has obtained for the past three months. For some reason, although the general trend of the market has been down- ward during the last quarter, the Dow has advanced on ten of the past thirteen Fridays. Of greater significance was the sharp rise in volume to 8,240,000 shares. On ten of the eleven trading days up until Thursday, volume had been under 6 million shares and, in- had reached.a.low-o.f.,.4,.2 60, 000 shares August, 1965. Of even more interest is the division of volume into upside and downside activity as compiled by Scantlin Electronics. At the end of last week, a ten-day total of downside volume had reached a low of just over 20 million shares, a figure not equalled since the Fall of last year. The difficulty was that upside volume, measured on the same basis, had also dropped – – – from a high of almost 60 million shares in April to a low of around 21 million shares at the middle of this week. In other words, the sharp dro.p to the mid-May lows, which produced the drastically oversold co.nditio.n previously noted by this letter, was halted, not by any concerted buying, but by a sharp decline in the heavy and per- sistent liquidating pressure which drove the market downward in late April-early May. This is all to the good. Panicky liquidation is a persistent phenomenon and tends to run its co.urse p.ther quickly. As we have already noted for the past two weeks, the drying up of this liquidation argues against substantially lower fer some time. What is needed, however, to bring the market off dead cen i 'gn of increasing up- side volume. Although Friday's actio.n could be the su pheno.menon, it is a bit early to. say that this is definitely the case. 1\ One interesting note in regard to the ume, is its relatlOnshlp to. the short interest. the short interest ratio, which consis only is or terest released by the New-York – Steck Exchange at the middle preceding 30 -day period. Thi the suppo.rt provided t gs by the average daily fer the a\, in the past, been a fairly. accurate guge of interest. In the past, a short mterest ratlO above 1. 5 ( 1 1/2 times a olume) has had moderately bullish implications, and a short interest ratio 's' g t rd the level of 2.00, or twice average daily vo.lume, is often a factor indicativ 0 major bottom. As of last May 15th, the ratio was 1. 1, a figure having neutral egative implicatio.ns. For the mid-April – mid-May perio.d, ho.w- ever, average daily volume had been much higher. With the low volume of the past few weeks, average daily vo.lume fro.m mid-May to date has been around 6.4 million shares and could decline further depending on next week's actio.n. Last reported short interest, just before the market low, was 10.3 million shares, and, if this figure remains unchanged, it will produce a short interest ratio of 1. 6. A rise in the short interest, which will be reported this week, would push the ratio even higher. Actually, the most bullish possible eventuality for the internal health of the market would be for the Averages to remain at around current levels for some time while a base is completed for a reaso.nably substantial advance. Since early May the Dow has held in an 'area bounded by, rouglUy, 904 on tlie–Upside and 866on tne dcnvnside on anflOurly basis. The present upside implications of this base are, at the most optimistic, a rally to around the 940 area which is the level at which the next heavy amount of overhead supply exists. Were the market presently to break above 904 and reach that level, a good deal of work would be required before the advance could be resumed. More optimistic, from a long term point of view, would be continued backing and filling around current levels, perhaps coupled with a move to new lows, before a major advance commences. Such action would produce a base which COUld indicate an upside move of substantial proportions. Dow-Jones Ind. 891. 75 Dow-Jones Rails 231. 24 ANTHONY W. TABELL WALSTON & CO. INC. ThiS market letter IS published for convemence I nd L!lformatlOn Rnd 1, not an offer to sell or II rollcltatlon to buy Any fle(!Unties diSCUssed The in- formation was obtmned from sources \\e bdlt'v(' to Ie rehable. but we do not Its nreuraC'v \\'Rlston 8. Co. Inc find Its officers. dLred.l'lrs or employees may have an Interest III or purchn.qe and Sf I the qeeUntLes I eferretl to hero'in WN301