Tabell’s Market Letter – June 02, 1972

Tabell’s Market Letter – June 02, 1972

Tabell's Market Letter - June 02, 1972
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 June 2, 1972 As the advance from the 1970 lows reached its second anniversary a week ago, the major market average; celebrated the event by attaining new closing highs for the move, with the Dow-Jones Industrials attain- ., ing a Monday intra.day peak of. 979o.,41iz.'c9.mlortablyaJoyepreyio.us—.QeaksregstredJ!1ea.r!yv1aclL r- and early April. It would be nice to be able to say that the technical condition of the market in June was- as healthy as it had been in March but this is, unfortunately, not the case, and there is no use burying our head in the sand and refusing to recognize the fact. The following table shows the action of three major stock market indices over the past three months. As can clearly be seen, the pattern for the three averages is similar, a high in March followed by a minor decline, a higher peak in April followed by a drop to a new low and, finally, new high ground in late May. It is almost a textbook example of a type of action known as a broadening formation — one of the earliest patterns recognized in technical literature. Indeed, references to this sort of pattern can be found in the literature dating back to the early part of the Century. March High March Low, April High May Low May High Dow-Jones Industrials 957.03 925.87 977.52 917.37 979.46 S&P 500 109.75 105.86 111.11 103.83 111.48 S&P425 122.08 117.57 123.94 115.64 124.74 Let us quote from one of the definitive works on technical analysis, Technical Analysis of Stock Trends by Robert D. Edwards and John Magee, Jr., on the s1,lbject of broadening price formations. Broadening price patterns (are) definitely bearish in purport. They appear most oftEm at or near an important topping out of the trend. Hence, it is reasonably safe to assume that prices, when they finally break away from the formation, Nill go down or, if they do go up, will very soon turn around and come back down again … One particular manifestation .. is known to market technicians under the specific name of Broadening Top . (It) has three peaks at successively higher levels and, between them, two bottoms with the second b.ottom..l9tha !Lt!)efics t.,!,hea s s.umpUon .ha sbe.enLtha Lit J..s,completed.a ndLln. effecLa sa n.lmp.orta nt,, reversal'lI;'ciicatio;; j''st as soon as the rection from its third peak c;;rrle -below the lev';-l'';f its secod– bottom . ., It is only necessary to look at the chart of the Dow-Jones Industrial Average on the back page of the Wall Street Journal to see that recent action constitutes a perfect example of what Edwards and Magee are talking about. Compounding the situation at the present time, we have the fact that breadth indices were lower at the April peak than at the March peak and were lower still at last week's high. Moreover, all three highs in the breadth index were below its peak of April, 1971 despite the fact that all of the major averages have long since surpassed that high. Add to this such factors as a near-record low in mutual fund cash pOSition and a low level of short interest related to volume. Consider the failure of the Transportation index to come even close to confirming the highs in the other averages. The picture does not constitute a bright one. Now we are doing nothing in the above but reporting on what has happened to date. Market action could Imporve, and a new upsurge of buying power could develop from these levels but, as we enter June, 1972, any such improvement remains in the realm of hope rather than fact. To set against the unfavorable developments to date there are still some favorable factors. First is the lack of significant deterioration in large numbers of individual stock patterns. Indeed, it must be noted that a significant number of stocks have absolutely no deterioration whatsoever. And yet, as many learned to their sorrow in 1968 and 1969, top formations often do not become complete until well after the market ha s reached its high. A further case can be made for higher prices by the presence of large potential buying power in margin accounts,it.being the utilization,of this.buyingpower,which essentially was able.to drive the market up from its November lows. Furthermore, the original upside objective of 1065 for the Dow-Jones Industrial Average which we have been citing since October, 1970 still constitutes a valid reading. It is further true that the broademng formation referred to above will not be confirmed as a top until a downside break out below the May lows takes place. And finally, as we have been suggesting for some time, the n9rmal election-year pattern calls for higher prices in the second half. None of this, however, can erase what has been happening in the marketplace during March, April and May. One possible resolution to the dilemma, of course, would be the development of a decline of inter- mediate rather than major proportions which would be followed later this year by a surge into new high territory. Here agam, however, we would be willing to let the market tell its own story. From here on out we think it is incumbent upon the market to show improved technical action sufficient to erase the deterioration which has characterized the past three months. Dow-Jones Industrial (1200 p.m.) 962.22 S&P (1200 p. m. ) 109.75 AWTmn ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No stotement or expresSion of opinion or any other molter herein contolned IS, or 15 to be deemed to be, directly or Indirectly, on oHer or the sollcllollon of on offer to bvy or sell any security referred to or mentioned The matter IS presented merely for the conVef'lenCE of the subscriber While -Ne believe the sources of our Informa- tion to be reliable, we m no way represent or guorantee the accuracy thereof nor of the statements mude herem Any action to be token by the subSCriber should be bClsed on hiS own mvestlgatlon Clnd Information Janney Montgomery Scali, Inc, as a corporallol'\, and Its officers or employees, may now have, or may later toke, posiTions or trades In respect to any 'Ccurltles menTioned 11'\ thiS or any future luue, and such pOSition may be different from any views now or hereafter expreued In thiS or any other Issue Janney Montgomery SCali. Inc, which IS registered wllh the SEC as an Investment adVisor, may give adVice 10 lIs Investment adVisory and othel cuslamers Independently of any statements mode In Ihls or In any other Issue Further mformatlon on any security mel'\llOned herein IS available on request

Download PDF