Tabell’s Market Letter – March 26, 1971

TABELLS MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE MEMBER AMERICAN STOCK EXCHANGE March 26, 1971 Two weeks ago in this space w scuss, at some length, theheavy oved supplywhich- – . 'exTstea-arotind'the gel area- of'890930intlffiboWJOn'es Indli'rtriai'S.- -SInCe that t!m'e, the- oe' – — havior of the market, as it traded in the supply area, has been absolutely typical of an overwhelming demand for stock running head-on Into an equally powerful level of offerings. In this l1gh—r;–last week's performance was absolutely normal. On March 18, the Dow reached its high to date at an intra-day figure of 922.30. Three successive days of mild decline finally led to a lO-point rout in Wednesday's trading, and this continued early Thursday as the 900 level was repenetrated on the way down and an intra-day bottom of 889.03 was reached. Then demand reasserted Itself and the market recovered almost all of its earlier losses in Thursday afternoon's activity, continuing the advance back up through 900 on Friday morning. The most logical market expectation, at least for the near term, is more of the same, It is our belief that, at present levels, the market is undergoing what is, by all odds, Its most important test since the rise began last May. In a sense, what has happened over the past 10 months is that the market has removed the element of irrational fear that became a part of the stock price structure during the terminal phase of the 1969-1970 bear market. The bulk of stocks have now returned to what could be called a normal price level — one which does not include fear of what lies ahead but which, conversely, does not reflect undue optimism about the future. In other words, for the first time the advance has reached a stage from which It could be turned back. We emphasize could, because we do not think it will be — this optimism being based on the view that the economy is improving to a greater degree than the cynics would have us believe, It is this improvement, we think, that is not yet reflected In the price structure, and, if, as, and whe!1 ,.nimprovin9sn.9my.mat.!'rializes, !t ,can ,weJ.btl!.I,..ReJ-Lect,-i,j)1 btjI..sg\lltY.llrjes . …, In such-an environment, -attractlv-e inestment opportunities Can- be found in those areas where a good deal of fundamental optimism is, in fact, justified. Such is the case, for example, among a broad spectrum of Issues which are In a position to benefit from the drastically-changed monetary climate of the past year. Many investors, especially those who have been concentrating on the amazing performance of the stock market, failed to note the equally dynamic drop of interest rates, especially short-term rates. Three-month treasury bill yields have dropped from over 8 in January, 1970 to under 3.5 recently, and federal funds from 9 to 3. All of this has, of course, been a reflection of the huge infusion of money into the economy, and a sluggish demand for loans, which has produced a meteoric rise in bank reserves and in the monetary base. Paradoxically enough, the most Important beneficiaries of this trend will be money lenders. Despite the fact that the interest rates which they charge for loans are declining, banks will benefit from widening profit margins due to even greater reductions in borrowing costs and the availability of additional funds which will enable them to handle the credit needs of secondary as well as prime clients. Also in a position to benefit from the greater availability of credit will be savings and loan issues. A high rate of savings gives the S & L's more money to lend, and lower interest rates, which have the effect of reducing monthly mortgage payments, make more families eligible for mortgage credit — all this taking place during a period of huge pent-up demand for housing, Insurance com- panies also, enjoying capital gains from their stock and bond portfolios, should do well under anti- cipated conditions of continued monetary ease. A number of financially-oriented stocks have attractive technical patterns. In the banking area, Chase ,Manhattan Corporationv(57) .has ,a -nearterm -objective of.77.followed .-by higherlevels with —-I strong support in the low 50's. Chemical New York CorpOration (66), with support at 60, has a 90- 104 price target. Among savings and loans, the quality issue in the industry, First Charter Financial (48) has an Intermediate-term price target of 70 with support at the 45 level. Great Western Flnancial (27) also appears technically attractive with a preliminary 40-50 price target. In the insurance field, Aetna Life &.Casualty (58) has an 80-92 objective and Travelers Corporation (37) has a 50-80 poten- tial. We think that financial stocks should form an important part of conservative investment port- folios in 1971. Dow-Jones Ind. (1100 a.m.) 905.19 ANTHONY W. TABELL S&P (1100 a.m.) 100.04 DELAFIELD, HARVEY, TABELL AWTmn No stalement or expression of opinion or any other motter herein contomed IS, or ., to be deemed to be, directly or indirectly, on offer or the sollCltahon of an offer to buy or sell any security referred to or mentloncd The mailer IS presented merely for the conVCllcn. of Ihe subSCriber Whde -Ne believe the sources of our tnformatlon 10 be rellcble, we In no way represent Of guarantee Ihe accuracy thereof nor of the statemenls mlde herein Any odlOn 10 be token by the subscriber should be bosed on hiS own Investlgahon and Information Janney Montgomery Seoll, Inc, as a corporation, and ItS officers or employees, moy now have, or may later toke, poslltons or trades In fesped to any securilles mentioned In Ihl5 or ony future .ssue, and such pOSition may be different from any views now or hereofter eypressed In thu or any other Issue Jonney Montgomery Scoll, tnc , whICh IS reglltered With the SEC as on Inveslment adVisor, may give adVice 10 lIs InvestmCnt adVISOry and othel customers Independ!!nt!y of any statements mode In thiS or In any other Issue Further Information on any security mentioned herein IS available on request