Tabell’s Market Letter – December 18, 1970

,———————————————————————————————— ., I TABELL'S MARKET LETTER —J 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE MEMBER AMERICAN STOCK EXCHANGE December 18, 1970 Like any other profession, that of market-letter writing has its traditions and one of them – . isth.e..monttuo consult.the orac;les il.Jld put together a forecast…….,.,.. . . . .- .-.- — .-r.——' -…-0– …. – -.. for the upcoming year. This letter has traditionally divided this exercise into two parts — the first of which discusses the market action of the previous year, while the second attempts to look forward. The initial segment, a glance back at 1970, is offered herewith. A forecaster, it seems to us, must be ready, as his readers certainly are, to poke a bit of fun at his own forecasts, and we are, therefore, wryly amused at our own efforts of a year ago. Our thoughts centered around the fact that, as of that time, S&P 500 Stock Index was down 19 from its November 1968 high. We noted the fact that declines of this size had occurred on four previous occasions in the post-war period, and indicated that, subsequent to these declines, the market was, at worst, about the same a year later and, in most cases, considerably higher. We suggested, therefore, that the aftermath for 1970 might be, in fact, similar, and that, by the end of 1970, the Dow could well be at the same level or a bit higher than it was in December, 1969. Lo and behold, the forecast proved correct and, the Dow, then at 780, is now at 820. We would prefer, obviously, to forget the circuitous detour via 631 over which the Dow traveled in order to arrive at our forecast figure. We raise the point here for two reasons. The first is, that it constitutes, we think, an object lesson of the value of keeping one's cool even through the most trying of market times. Investors who refused to succumb to panic in the Spring of this year have, in all probability, fared better than those who quaked at the imminent end of the world last May. The second -reason-is- that–i-t-is- market .action since.,….. this pattern will, largely, determine the outlook for 1971. Let us, therefore, review the year once more. The year began with the Dow having declined sharply from a late 1969 level in the mid- 800's. As 1970 commenced, the market stabilized and the first three months constituted a series of swings back and forth between 790-800 and 740-750. There was some eVidence at that time that the monetary stringency, characteristic of the previous year, had been relaxed, and the possibility that the Dow might begin a long, slow base formation in the 750-800 range had, at least, to be considered. Then, however, panic took over, with the Penn Central bank- ruptcy and concomitant fears of a liquidity crisis being the operative events connected there- with. The l70-point slide of April-May constituted the typical final liquidation phase of a bear market — the denouement of yet another era in which investors had to learn — the hard way — that the stock market was not a royal road to riches. The recovery was also typical, and, with the August rally, the Dow was back again at the general level where it had started the year. Repeated attempts to drive below 750-740 in September-October were all turned back by evident demand at that level just as they had been in January-March. The final triumphant capstone to the year, of course, was the November- December rally in which the major indices sailed ahead to new highs for the period. Now, even the novice technician will recognize the textbook definition for the sort of action ,of'course,-the familiar bottom And ;-it – is a common formation simply because the psychological factors which caused its formation in 1970 repeat themselves with regularity. A demand level exerts itself, is temporarily over- come under the impetus of irrational fear and, on the inevitable rebound, the same demand is again manifest at the previous level. It is, in summary, our opinion that the 1970 action of the equity markets constitutes an instance of just this sort of reversal and, in order to formulate a forecast for 1971, it is necessary to understand the implications of this pattern. We intend to discuss them in next week's issue. Dow-Jones Ind. (1100 a.m.) 822.36 S&P (1100 a.m.) 90.10 ANTHONY W. 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