Tabell’s Market Letter – February 26, 1971

.—- '——- TABELL-S MARKET LEIIER J 909 STATE ROAD. PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE MEMBER A.MERICAN STOCK EXCHANGE February 26, 1971 We noted in last week's letter what appeared to us to be a change in character in the stock market, centering our comment on the fact that a more selective phase appeared to be emerging. As would normally be expected, this new phase seems to be ushering in a new market leadership. -One wayofkeififfngtrecICofcliang!lig'mifrJ'Elt lea-dershlp ifhesfudYbnntennectIater;;r;n' group rela- , tive strength action. The following table divides the Standard & Poor Industrial group indices into six categories reflecting their action relative to the general market over the short to intermediate term. Column I includes those groups which had recently been showing intermediate relative weakness but are now evidencing signs of improvement. The second column consists of industries where the recent improvement has been particularly sharp and dynamic, and the third group comprises those industries which have shown continued above-average relative action for a period of time with no Sign of deterioration. The last three columns are the converse of the first three. Column 4 includes those indices which had been strong but are beginning to show preliminary signs of weakness. Column 5 includes those where the weakness is more pronounced, and Column 6 lists industries where relative weakness has persisted over a protracted period. 12 3 4 5 —'6'– Alr Conditioning Aluminum Broadcasters Aerospace Apparel Agricultural Mach. Auto Equip. Air Transport Bread &Cake Appliances Autos Cigarete Mfrs. Drugs Elec. Equip. Food Banks B,scuit Bakers Business Mach. Bldg. Material Chemicals Mach-Industrial Packaging Coal Hotels Const. Mach. Mall Order Nafl Gas OiI-Dom. Canned Foods Cans-Bottles Confectionery Railroads Dept. Stores Mobile Homes OiHnt'l. Copper Com Refiners Discount aores OnProducers Rubber Distillers Life Insurance Home Fum. Oil Well Mach Soaps Grocers Machine Tools Land & Real Est. Retail Soft Drinks Heating &Plumbing – Macn .-Specnm'yC–…,…——LeIsure Time RooC&WaIlBd Investment Cos. Sulphur Meat Packing Sugar Lead & Zinc Synthetic Fibers Metal Fab. Metals Textiles Pollution Conn Paper Publishing Steel Radio-TV Telephones Shoes Steam Gen Mach Truckers The first caveat that should be noted about the table is that it should not be used as a buy and sell guide. It is, first of all, based on action relative to the overall market so that even groups showing below- average action may be in major uptrends. Secondly, a great many groups showing intermediate term de- terioration continue to show attractive long-term action and, therefore, constitute strong holds or buys on weakness, examples of this being, in our opinion, cigarete manufacturers, mobile homes, natural gas pipe- lines, etc. Moreover, groups which have been weak over the recent past may have sizable upside poten- tials which make them attractive at present price levels. Banks, grocers and selected paper issues would be examples of this category. Conversely, for reasons unrelated to relative strength. many stocks in the improving categories may be unattractive as new purchase candidates. What the table does show, however, is those areas which have, in fact, provided recent market leader- ship, and here we think a glance shows that that leadership can be summed up in one phrase, 1. e .. cyclical issues. The most meteoric relative improvement of late has been in such highly cyclical groups as aero- are-. space,' air transport,industrial 'machinery 'and 'railroads.-Meanwhile;-prelimfriary' signs'of improvement being seen in aluminums, building materials, chemicals, machine tools, synthetic fibers and textiles. Such a shift is, of course, perfectly normal at the present stage. As investor confidence slowly returns, coupled with an improved business outlook, the market tends to be more and more willing to look ahead for earnings improvement to the latter part of 1971 or early 1972. It may be argued, of course, that first and second quarter earnings for many cyclical companies will be, in fact, disappointing, but, this is a factor we feel already discounted in the present prices of a great many cyclical stocks which, despite their recent improvement, are still modestly priced by historical standards. We think, in other words, higher grade cyclical companies may well constitute attractive areas for new investment. Dow-Tones Ind. (1100 a.m.) 878.97 S&P (1100 a.m.) 96.73 ANTHONY W. TABELL AWTmn DELAFIELD, HARVEY, TABELL No statement or expression of opinion or any other motler herem contolned IS, or 1 10 be deemed 10 be, directly or Indirectly. an ,offer or the SOllCIIolion of on offer to buy or sell any security referred 10 Of mentroned rhe trlaller rs presented merely for theconvel1lence of the subscriber Whrle we belreve the sources of our Informotlon to be relIable, we In no way represent or guarantee Ihe accuracy thereof nor of the statements mode hereIn Any actIon to be token by the sub scriber should be based on hrs own Investlgatron and InformatIon Montgomery, Scott & Co, as a limIted partnersh,p, and Its parlne or employees, may now have, or may later toke, positIons or trades m respect to any securltles mentIoned In thIS or any future issue, and such posrtron may be dIfferent from any.vlews now or hereafter expressed In thrs or any other issue. Montgomery, Scott & Co, wtllch IS regIStered Wllh the SEC a an Investment adVIsor, may gIve adVICe to lIs Investment advisory and other customers mdependently of any statements made In thIS or In any other Issue