Tabell’s Market Letter – April 16, 1971

Tabell’s Market Letter – April 16, 1971

Tabell's Market Letter - April 16, 1971
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TABELL'S MARKET LETTER -; 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VOAK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE April 16, 1971 The events of he week once more proved the wisdom of the old Wall Street adage, Don't fight !hl''' .2n,e ,!gai,!erstratighe,remE!.n2-011s stg..,gf,!ho.lesencE!ui!J,6S'.!,h,,– Jones Industrials, in five consecutive rising sessions, reached a new bUll market high of 945.69 on an intra-day basis. Less than II months after the lows of last May, the Industrial Index has now tacked on in excess of 300 points. This advance was confirmed by the Transportation Index which reached an intra-day peak of 221. 71. The only cloud on the horizon remains the utilities — still essentially unable to make any progress and lagging well below their peak of last January — a high attained when the Industrials were almost 100 pOints lower. We stress, again, the folly, in this kind of environment, of waiting for corrections. Interruptions in the upswing have, since the end of last year, been conspicuous by their absence, and we think this will continue to be the case until the market is a good deal closer to its ultimate objective. The only sensible course of action in a bull market is Confucius 0 apocryphal recommendation to relax and enjoy it. It is money, of course, that fuels bUll markets and it is an interesting exercise to try to identify where the money fueling this one has come from in the past and where, in fact, it may come from in the future. An examination of the pertinent statistics reveals quite clearly that the impetus for the rise so far has come almost exclusively from the activity of the institutional investor. In fact, to a degree unprecedented in any bUll market since World War II, this one has been almost exclusively a product of institutional buying. The only area of institutional activity for which actual statistics are available is, of course, the mutual fund industry. It is interesting to note that the funds, from August of last year through February, have made net new purchases in excess of 2.2 billion. This is roughly 25 more than …the ,amounttheydnvested–in'thecomparablestageof,theI9-661968 'buUnlarket-Itis;-wethink;a – . – , fair assumption that the action of the fund industry reflects the activity of the other larger segments of the institutional investment fraternity (pension funds, banks, etc.). While all this institutional investment has been going on, all the available eVidence indicates that individual investors have not only failed to contribute to the rise but, indeed, have, in all proba- bility, been net sellers. The odd-lotter, for example, has been dumping some 300,000 shares of stock per day on the market on a net basis ever since December. Odd lot sales have consistently been run- ning at more than twice purchases for four months. The ratio that has r before been attained, or ever approached, in over 40 years of odd-lot trading history. Moreover, there is scanty evidence of any buying activity on the part of the individual round lot investor. New York Stock Exchange margin debt reached a peak of over 6-1/2 billion in May, 1968, six months before the market reached its high. It declined steadily to a level of under 4 billion around the lows of last summer and since that time has done little more than move up to just over the 4 billion leveL The present bUll market is the first one in the post-war era where margin debt had not risen to a new high within a few months after the advance began. In the present instance, far from being at a new high, margin borrowing is hovering around two thirds of its 1968 peak and this in the face of a fairly substantial reduction in margin requirements last summer. ' It is clear, therefore, that it has been institutions and institutions almost exclusively that have provided the spark for the advance to date and it is, at least, an arguable contention that the indivi- dual investor must begin to bear his share of the load if the advance is gOing to continue a good deal further. A large part of institutional activity to date has consisted of losing the huge cash reserves. …. -that h'ad 'been l;uiltup as of fast' su'mmer. M'uh.al Funds, fo-;-;;api, have reduced their cash position from over 12 to 7 as of February. Obviously, this process cannot go on indefinitely. Moreover, there is historical precedent to expect the level of mutual fund cash inflow to flatten out since it is at this stage of a bull market that fund redemptions generally increase. It is interest- ing to note, for example, that in February such redemptions were over 90 of sales and the funds, as a group, had one of the smallest cash inflows in recent years. Lower cash reserves, coupled with a stabilized cash inflow level, it seems to us, should combine to make the funds a less potent market force over the next half-year than they were over the past six months. It is the individual investor, therefore, who will have to take up the slack and it will be interesting to see if he does so. Were the individual buyers simply to increase his margin debt to 1968 levels, this would provide a dollar purchasing volume greater than the 2.2 billion contributed by the funds in the past six months. The present constitutes the longest period of bull market conditions on recent record during which the individual investor has firmly retained a clamp on his purse strings. A loosening of those purse strings could well provide the fuel for further market strength. Dow-Jones Ind. (1100 a.m.) 938.52 ANTHONYW. TABELL S&P (1100 a.m.) 103.36 DELAFIELD, HARVEY, TAB ELL AW'f.I!totemenl or expre.lon of Opinion or any other matter herein contained IS, or IS 10 be deemed to be, directly or indirectly, on offer or Ihe solicitation of on offer 10 buy or Mlil ony security referred to or mentioned The molter IS presented merely for the convellencc of the subscriber While we believe the sources of our Informo- tlon to be relloble we In no woy represent or guarantee the occurocy thereof nor of the statements mude herein Any o(;'lOn to be token by the subscriber should be bosed on hiS own 'lnvestlgotlon and Information Jonney Montgomery Scott, Inc, as a corporation, and lIS officers or employees, moy now have, or moy later toke, positions or trades In respect to any secuntles menlloned In thiS or any future Issue, and such pOSition moy be dlffereot from any views now or hereofter expressed In thiS or ony other usue Jonney Montgomery Scott, Inc. which IS registered With the SEC os an Investment adVisor, may gIVe adVice to I!S Investment odvlsory and athel custamers Independently af ony statements made 10 Ihls or In ony other Issue Further InfarmatlOn an any security meollaned herein IS avollable on request

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