Tabell’s Market Letter – July 28, 1972

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE July 28, 1972 oO —Welo6nhet occationl1ls-t weeKt6 aliver ours-eives of-a–n'iimbe-rof'0mtty-op1nions on-the c interrelationship of economic news and stock prices. The basic conclusion of our remarks was that the economic outlook, admittedly favorable, should be taken into very little account in fore- casting the intermediate-term course of stock prices — these prices being determined by more fundamental supply/demand forces. Our carefully reasoned opus went to the printer at noon on Friday whereupon, in Friday afternoon's, Monday's and early Tuesday's trading, the Dow-Jones Industrial Average promptly advanced some 30 pOints — specifically in response to unexpectedly favorable economic news. So much for the hazards of pontification. It is now necessary to make an attempt at assess- ing what it all means. To begin with, there is no doubt about the fact that the six-month eco- nomic figures were good. The rise in G. N . P. was in line with the most optimistic expectations, and the surprise element in the news was, of course, the reduction of the rate of inflation. We doubt, however, that all of this is of sufficient magnitude permanently to override the fundamen- tal forces which we discussed at some length last week. The market now leaves us with a number of unanswered questions, the first of which centers on whether last Friday's reversal constituted a bottom of. at least, intermediate-scale propor- tions. In order to answer this question we must digress for a moment on the general nature of market bottoms. They are, basically, of two types. The first type arises from what is common- ly termed a deep oversold position, there being various ways of measuring objectively whether sucha-pOS1t1on -exists-.-Wnen itaoes exist-(May, 100TO was a typical exam-pIe 6f'ftie- genre)'the n technician is more inclined to trust any significant rebound as marking what may be a turning point. The second variety of market bottom (November, 1971 being an example of this type) takes place without the attainment of such an oversold condition, In such cases, the analyst must be more skeptical and demand of the market more eVidence of a true turn before committing himself to the position that a reversal may have, in fact, occurred The unavoidable risk heFe is of failure to recognize a bottom until significantly after the fact. But it is necessary to assume this risk in order to avoid being ensnared by every minor rally that takes place within an intermediate downtrend. If last week's action proves, in fact, to be a reversal, it will be one of the second type. The market was not in anything approaching a deep oversold position when it turned last Friday, and we are, therefore, inclined to demand more evidence of staying power for the rally before theorizing that the basic investment picture has drastically changed. Such evidence has not, as of this writing, been forthcoming. The advance petered out in late Tuesday's trading and has been unable, so far at least, to get underway again. There is also room for some feelings of skepticism regarding the advance itself. 'For example, on Monday, a day in which the Dow- Jones chalked up its biggest advance of the year, 7 of the 10 most active stocks failed to advance on the day. Some investors quite obviously had been awaiting a firm market into which to sell stock. How much'strength would be required-to-c0l1stltute-reversalevldence -'A'decislve mave— above 950 on the Dow would probably indicate the evldence of, at least, a short-term uptrend and a possible test of the prior highs. In the absence of this confirmation and/or further bas- ing action, we would be inclined to treat last week's advance with some skepticism. The final question, of cours e, is whether, if a short-term reversal does take place, the basic doubts expressed by this letter since May would be allayed. We do not think so. The evidence of distribution that has accumulated since March is formidable, and it will require a great deal more than ability to mount a short-term advance to alter that evidence. Even were we convinced of the imminence of such a rise, we would heSitate in utilizing it as anything but a vehicle for the most nimble of traders. Dow-Jones Industrials (1200 p.m.) 926.25 S&P (1200 p.m.) 107.22 ANTHONY W. TABELL AWTmn DELAFIELD, HARVEY, TAB ELL No stotemenl or expression of opinion or ony other matter herein (onlllned IS, or 1 to be deemed to be, directly or Indirectly, on offer or the SOllCIIoilon of an offer to buy or sell ony security referred to or mentioned The matter IS presented merely for the conver'lenCe of the subscfIber While we believe the sources of our Informa tlan to be reliable, we In no way represent ar guarantee the accuracy thereof nor of the statements mude herein. 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