Tabell’s Market Letter – March 13, 1970

Walston &- Co. —–Inc —– Members New York Stock Exchange . and Other Principal Stock and Commodity Exchange. OVER 100 OFFICES COAST TO COAST AND OVERSEAS TABEll'S MARKET lETTER March 13, 1970 The best way 'of getting the right answers is to ask the right questions, and this is as true of the stock market as anything 'else. Ofttimes one stock market question will be un- answerable while, at the same time, the answer to another question is quite clear. The pre sent is a case in point. One way of viewing the stock market is to ask whether the popular market averages are about to go up or down. This question, unfortunately, is not one which can be answered with any degree of certainty at the moment. As we have pointed out in recent issues of this letter, some constructive developments have taken place in tlie past few weeks. The intermediate- termdow-ntrend-f-rom-the-November high of 8'71. swing from the January 30th lows remains in effect, and the correction of this short-tenn advance has so far been orderly and characterized by relatively light volume. On the other hand, short-term objectives have been reached and most market averages are now in an are of heavy overhead supply. As we have pOinted out repeatedly in the past, it is going to be the market's reaction to this supply which will determine the direction of the next move. If we persist, therefore, in simply trying to guess the market's direction, we are un- likely — immediately at any rate/– to get a clearcut answer. If, however, we ask another question, i. e. '. where is market/leadership going to come from and what sbcks are likely to be the best ones to own for mid-1970 — recent market action has been providing us with a rather decisive answer. Fornalysis of individual chart patterns points clearly to the con- clusion that we are entering one of those phases of changing leadership which periodically characterizes the !parket. Lrt us see if we can 'blittle bit further. 1969 was, as.no one needs to be told, a rather poor r et, for a great many stocks, the 1969 bear was non-existent. e a Ie, at 290 in early 1969 and above 380 in January 1970. Other computer stoc d eve re dramatic advances,and similar performances werl not uncommon s supply, franchising and other industries. The applicabll investment cliche e ain performance became visible -.-. -earnings-growth-. . ,),e -of-uncertainty-for -the-economy,and th companies to own, were going to grow almost under any conceivable se't oVec rtomi 1 The concept has e fine thing, but at ! e 'n overvalued in relati/o 0 the 't a ed of late. First of all, earnings growth is a very .n e issues with the fastest-growing earnings can become cks. Secondly, as a number of fourth-quarter reports have shown, some of ear i growth which was so obviously visible in 1969 has become, all of a sudden, inviible ,indeed, non-existent. The end of the infatuation with growth-at- any-price is be,bming manifest in the technical patterns of a great many issues and, as was pOinted out last/week, many stocks which advanced sharply in 1969 have not only declined dramatically ffom their 1970 highs, but also appear vulnerable to further price erosion. MeanwhIile, clues as to new market leadership begin to assert themselves. The shape of the 'economY for, 1970 is beginning to emerge ever more clearly. We are, qUlte obviously, in the midstl6f the fifth post-war recession, and it will, at some point in time, be character ized by easiIer ' conditions, lower interest ratell, and, ultimately, a business recovery. In prospeci' of the' recession, a great many stocks have been battered down to levels which re flect not otuy pos(lible lower earnings, but disaster which is highly unlikely to occur. Thtis, we 4ave phenomena such as the following; the Dow-Jones Utility Average, bat- tered by/high interest rates in 1969, advances on the recent recovery, roughly twice as mue as the Dow-Jones.Industrials. U. S. Steel, down 33 in 1969 to a 10-year low, suddenly stage a 25 advance. Savings & Loan issues, obviously beset by savings outflows and other well- advertised troubleis, become the leaders on the upside in the recent rally. 'The thrust has quite clearly shifted in recent months from those issues wit sustained growth patterns to issues which could do well in conditions of economic recession, or which have battered down to ridiculous levels in anticipation of that recession. It is from these areas that 1970 stock market leadership is likely to emerge. 7tp.Dow-Jones Ind. 11 ANTHONY W. TABELL WALSTON & CO. INC. Dow-Jones Trans.J 173.21 AWTamb f ThiS market letter IS )OUt convemence and mformlltlOn Ilnd If not an offer to !'lell or !\ I0h(,lwtlon to bu) .my ..'('unt.le! ,hqCUM,cd The In- (ormntlOn was obtained fran \\,c beheve to Le rehabl!', hut we do not guarantee Its i\('curnrv Wnlslon & Co., Inc, nn,1 119 Omr!!19, dIrectors or L.f!.1/11employees may have an mtet'St 11'1 or purchase and sell the nfcrred to hereIn . . WN.SOI t