Tabell’s Market Letter – December 03, 1971

. – ————-,– TABELL'S MARKET LETTER I I I J 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK eXCHANE INC MEMBER AMERICAN STOCK eXCHANGE – December 3, 1971 'Ife. g.'.v9Jed.J!ltL!P1!CJ'Lljst.Y!T,ee, t9 discussingtQdackoL convJctjoll,in .alloLJPe .rally. attempts.- prior to last Friday and suggested that, in the light of that unimpressiveness, stock prices could well, over the near term, head lower. Almost as the ink was drying on the page, the market started on a four-day advance of sufficiently overwhelming proportions as to convince even the most skepti- cal that some sort of reversal had occurred. Thus another short-term forecast bites the dust, although, as will be detailed below, we are not yet totally sure whether the forecast has been proven wrong or merely interrupted on its way to fulfillment. In light of last week's action, there are three possible interpretations of the present stock market position. They are as follows I) The present rally cor.stitutes nothing more than an interruption in the context of a larger overall downtrend. If this is the case, we should expect the rally to abort fairly shortly not too far from current levels and in due course to be followed by continued distribution and new lows. 2) The bear market which began in April is not over, but the present rally will be of intermediate term proportions. If this is the case, higher levels are in prospect, with the plausible target for such an advance being somewhere around 880 on the DJIA. Such a rally, since the time has come for the market's normal year-end advance, could well carry until after the first of the year. The 880 level, moreover, is plausible for a number of reasons. First of all it constitutes the first major area of supply which the Dow should encounter on the upside. Secondly, it is the top of the downtrend channel which characterized the market since the April highs and, thirdly, most longer-term moving averages will, by the end of the year, be around this level. . – J ) The bear market endedon.November23and aLnewupsurgeof.rna!orc-clepropOItions..hasbegun., If this scenario is correct, an appropriate period of rebasing, which could last for the next 2-6 months, should be fOllowed by a typical bull market takeoff. Now, obviously, sufficient evidence is not yet in to allow us to choose between the three above interpretations with a high degree of certainty. The strength of last week's rally appears to make the first the least likely. Most intermediate-term oscillators rebounded nicely from their four-week- long deep oversold position. Moreover, breadth actually led the Dow on the upside, a condition typical of the initial rally of intermediate and major bottoms. It, therefore, becomes relatively un- likely that the momentum generated by last week's action will be disapated over the very short term. Th, forecaster's task over the coming weeks, therefore, will, it seems to us, be centered on trying to distinguish between an intermediate-term advance and the preliminary stages 0 f a m a j 0 r rally. ffirein lies a paradox, for we have now reached a point where further short-term strength would probably be less indicative of a healthy technical condition than consolidation or weakness. The market, at the moment, has an insufficient base to suggest much more than a move to the 880 supply area mentioned above. The most meaningful action, therefore, would be a broadening of the base at current levels so that a worthwhile rise could ultimately be projected. There is an unfortunate tendency in looking at stock market history to think in terms of the most recent cycle, and not to look two or three cycles back. The last major market bottom, 1. e., that of May-July, 1970, was, in many ways, dissimilar to previous such reversals. The market staged its initial climactic rally in May. After an advance from.631 to 720, ..it.staged a .small retracemenLin .. early July getting no lower tha;; an intra-day bottom of 665 and, only two months after the lows, started its advance. This is not, we should be reminded, the way most major bottoms have, in the past, formed. In 1966 the initial climax rally from 760 to 822 in August was followed by a move to new lows at 736 in October. Likewise, in 1962, the initial reversal took place in May and was followed in due course by a lower Iowa month later and another equivalent low, six months later, in October. 1957 did not see a new low after the first climax rally, but the low was tested on four sub- sequent occasions over a six-month period before the next advance finally started. What we are suggesting is that there is very little point in concluding that, if last week's strength follows through, the opportunity to buy stocks at attractive levels will be lost forever. Indeed, history suggests that the normal basing process should provide an opportunity to buy them at levels at least as attractive as the present ones, and with a good deal more confidence. Dow-Jones Industrial (Noon) 854.41 S&P (Noon) 96.27 AWTmn ANTHONY W. TAB ELL DELAFIELD , HARVEY , TABELL No statement or expression of optnlon or any olher matter herein contained IS, or IS 10 be deemed to be, dlrectlv or indirectly, on offer or the soliCitatIon of on offer to buy or sell ony secunty referred to or menlione-i The motter IS presented merely for the conV'erience of the subtlber While oNe believe the sources of our Informo 'Ion to be rehoble, we In no way repren' or guarantee tfle accuracy thereof nor of Ihe slatements mode herein Any action to be taken by the subnber should be based on hiS own inVestigation and Information Janney Montgomery Scali. Inc, as a corporation, Clnd lIS offIcers or employees, may now have, or may latcr tak. posilions or trades In respect 10 any s.eQlflties menhoned In thiS or any future Issue, and such poSItion may be different from any VleW5 now or hereofter expressed In thIS or ony other Issue Jonney Montgomery Scalf, Inc. which IS regIstered WIth the SEC as on Investment adVisor, may gIVe adVice 10 Its Investment adVISOry and olhel customers ,dependently of any stalements mode In thiS or 1M any other Issue. Further information on ony CUflty mentioned herern IS avmlable on request