Tabell’s Market Letter – November 26, 1971

Tabell’s Market Letter – November 26, 1971

Tabell's Market Letter - November 26, 1971
View Text Version (OCR)

TABELL-S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF' MEMBER NEW YORK STOCK eXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE November 26, 1971 There is an old vaudeville routine, now relegated to well-deserved obscurity, where one member of a – comedy d uo'beginsby'asking' the' otherr-Boyou want'the go.od,news f-i!st-'orthebad newsHrst -. –The- question serves well to introduce a discussion of the present state of the stock market. Let us, then, get the bad news out of the way first. It is that the market is, in our opinion, in all probability headed lower. Now we are as optimism-prone as anybody else and as inclined to find bear markets distasteful, but we have lived through enough of them to realize the hard fact that, once they get underway, there is very little point in glossing over the hard realities of the situation. As we have been suggesting since last July, the market is in the grips of a highly unhealthy supply-demand situation and that situation shows little sign of being immediately resolved. Moreover, the downside momentum that has been building in recent weeks is absolutely typical of the all-too familiar scenario typical of past downswings. The most convincing attempt at a rally took place during the first week of this month and, since that one failed to hold up, the more recent attempts have been unconvincing. This is equally true, at least until mOre evidence becomes available, of the strength shown on Friday morning. If the market is, in fact, headed lower, the next logical question is How much lower. The market has aided us over the past few months in formulating a plausible downside target. In contrast to the situation a few months ago, all of the major averages now present similar distributional patterns. The following table presents the downside objectives based on these patterns for four of the most popular market indices. As can be readily seen from the table, the targets on all of them are roughly 4 to 9 below current levels and show fair consistency among the four indicators. Recent 1st Downside 2nd Downside -;r-.1iPrice.Ob!ective,Change Objective,Change Dow-Jones Industrial Average 798.63770 -3.5 730 -8.6 S&P 42s-Industrial Index 99.57 96 -3.6 95 -4.6 S&P sOO-Stock Index 90.33 — — 86 -4.8 N. Y.S. E. Index 49.67 46.80 -5.8 45 -9.4 Now the good news, although it may not be at first apparent, is contained in the above tabulation. A decline to the area suggested above, while it most assuredly will not be pleasant, is hardly gOing to con- stitute a major disaster. USing the 730 target on the Dow, for example, it is worth noting once again that such a decline could be produced by a drop of 3-7/8 pOints in each of the 30 individual components. This would hardly constitute Armageddon. The present situation, furthermore, is dramatically unlike that of say, 1969-1970. At that point, the existing distributional pattern was highly ambiguous, and it was possible to read any number of downside targets, in addition to the 630 on the Dow, which ultimately turned out to be the Iowa year and a half ago. It was only possible to pinpoint the bottom when the obvious selling climax of May, 1970 quite clearly signalled that something important had, in fact, occurred. By contrast, the distributional patterns exist- ing at the moment lend themselves to only one interpretation and that is the interpretation suggested in the table above. We do not, in short, agree with those forecasters of gloom and doom, who generally get a good press at times like the present, that we are in some sort of a super bear market cycle which is going to carry on to disaster levels. The proponents of this theory are fond of suggesting that 1969-1970 constitutes the largest bear market rally in history. This is like a forecast that the sun is not gOing to rise tomorrow morning. It is a dra- matlc'statement;-almost certainto be widely quoted;but it tends to be somewhat at variance with history. The fact is that there has never been a bear market rally which lasted for II months or moved up 50 as the 1969-1970 advance did. This was a separate market cycle, just as the present downswing, when it ultimately runs its course, will be regarded as such a cycle. Bear markets by their very nature tend to be irrational periods, and, during such periods, a rational assessment of probabilities is the only intelligent course. The investor is now being bombarded with talk of uncertainty as to the economic outlook by many of the same people who were assuring him last summer that that outlook could not be better. The controlling factors at present, however, are not econo- mic but emotional, just as they have been in all downswings in all free markets throughout recorded history. And, as always, the coming bottom, when it arrives, will produce prices that will caUSe many investors later to wonder why they lacked the courage to take advantage of them. 1D0w-Jones Industrial (Noon) 809.94 &P (Noon) 91.28 ' iAWTmn ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No statement or e)l;pression .of opinion or any other moHer herem contained IS, or IS to be deemed to be, directly or indirectly. on offer or the sollciiotlOn of on offer to buy or ell any security referred to or mentioned The mOIler IS presented merely for the conveT'lentt of the subscriber. While -lie believe Ihe sources of our Informa tlon to be reliable we In no way represent or guarantee the accuracy thereof nor of Ihe statements mude herem Any action 10 be loken by the subscriber should be bosed on hiS own'mvestlgatlon and Informallon Janney Montgomery Scot!, Inc, as a corporation, and its officers or employees, may now have, or may later lake. poSitions or trades 10 respect to any secuTilles mentioned 10 thiS or any future Issue, and such posihon may be different from any views now or hereafter expressed In thiS or any other Inue. Janney Montgomery Scali, Inc, which IS regIstered with the SEC as on mvestmenl adVisor, may give odlilce to Its If\eslment adliisory and other cvstomers Independently of any slalemenl1 mode In IhlS or 10 any olher issue FUrlher IOformalion on any seCtmty mentioned herein IS available on requesl

Download PDF