Tabell’s Market Letter – September 01, 1972

Tabell’s Market Letter – September 01, 1972

Tabell's Market Letter - September 01, 1972
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TABELL'S MARKET LETTER L- . – – . – 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORk. STOCK EXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE September 1, 1972 Having turned down from the 970 level two weeks ago, the Dow-Jones Industrial Average moved up last in a new assault on thatlevel.The index.has now spent ….. wek ' ., '–' — -' . ———– mosLoLJ 92 'M—;' . in, rouglily,-the 900-970' range. 'Comparable ranges, with a slight upward bias, exist for the broader-based indices. Having gone on as long as they have, these ranges assume some significance. The bearish argument would have it that they are part of broadening top forma- tions,while the bullish contention would hold that they are bases preparatory to a new upward leg. As we have pOinted out, most indicies of market vitality support the former contention, but a decisive upside breakout at this stage pould, at least temporarily, lend support to the optimistic view. Last February in this space, we took the opportunity to examine in some detail the behavior of the margin speculator, focusing on the extraordinary rise in margin account debit balances that had taken place in December 1971 and January 1972. We suggested at that time that this rise, were it to continue, could have important implications for the character of the stock market. In the intervening six months, some of these implications have become manifest,and others have been notable by their absence. In any case, it is worthwhile at this stage to revisit our friend, the margin buyer, and examine some of the implications of his activity so far this year, To begin with, the heavy buying, initiated last December, has continued unabated. Debit balances have moved to a newall-time high, and at their July level of 7,66 billion, had increa s ed 2.75 billion from the November figure. This is an annual rate well in excess of 4 billion which, for comparative purposes, is approximately one-third greater than the ers.1'I1unS.''lrc inyes tedbythElLmutua1.fund.indus try ..i.Il,;.anyZ,..,monthperiod. Put another way, the months December through April 1972 saw monthly percentage increases in debit balances ranging from 5.55 to 10. Since 1954 there had been only four months in which the percentage increa se in margin debt exceeded the lowest of these figures. Yet in the present instance we were able to put five such months back to back. We think it no coincidence that the market bottomed on November 23, 1971, and the rise in debit balances began in the month of December. During the period, mutual funds were net sellers of stock,and buying from other identifiable sources was not significantly above normal levels. It is highly probable that margin buying constitued the single most important factor in the market rise durinq the first half of 1972. Yet there remain a number of curiosities. We said in February, If the margin speculator does return . it will have important implications for the character of market leadership. His- torically, he has tended to prefer low-priced stocks to high-priced stocks, secondary issues to blue chips, and has shown a greater-than-average interest in the American Stock Exchange, .. ,The margin speculator has,in fact, returned with a vengeance, but these historic preferences have, so far, totally failed to maniiEst themselves. American Stock Exchange volume has continued to lag, and secondary stocks generally have shown inferior action in comparison to the blue-chip dominated averages, which have been making new highs. Our present margin buyer is apparently a totally new breed. In a market coming more and more to be dominated -abcytiionns'tiitsutainodnhsa, sh-sehhapaesd'anpipsarpetneftleyrerreialciezse-dactchoartdfinngsltyitu-tional -qua . -. lity – stocks are where the -.– . '';—- Another interesting sidelight to recent margin statistics is the number of open margin accounts. As of July, there were 725,000 such accounts, up only 75,000 from the November figure. This compares with 940,000 accounts open in February 1969, a figure which dropped off steadily through last fall. Quite obviously the margin buyers of 1972 are the survivors of the 1969-70 debacle who have simply regained the confidence to increase their borrowing under the stimulis of lowered minimum requirements, rather than new entrants to the market place. Whether these new entrants will arrive in the future, is, in itself, questionable Debit balances in July were approaching 1 of total New York Stock Exchange market value, a level in the past associated with peaks. It is thus quite possible that we may have to wait some time before seeing the classical signs of speculative activity which we might otherwise expect at this stage of the market cycle. Dow-Jones Industrials .(1200 p.m.) 969.07 SSP (1200 p.m.) 111.47 ANTHONY W. TAB ELL DELAFIELD. HARVEY , TABELL AW1!Q1pKenl or expre5510n of opinion or any olher matter helem ton'tomed IS, 01 IS 'to be deemed to be, duedly 01 mdlretlly, an oifeT Of 1ne s.olltl1allo\ of O\ oller to buy or sell any setlmfy referred 10 or menlloned The matler IS presenled merely for the conve'lenc of the subscTlber While Ie believe the sources of our information to be relloble, we In no way represent or guarontee the accuracy thereof nor of the tatements mude herem Any action to be taken by the subscllber should be based on hu own Investigation and Informotlon Janney Montgomery 5011, Inc, as a corporation, ond Its offICers or employees, may now hove, Of may loter toke, posItions or trades m respect to any secUTllieS mentioned In thrs or any future Issue, and such positron may be different from any Views now or hereafter eJpressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered wllh the SEC os on Investment adVisor, may give adVice to Its Investment adVisory and othel C'iJslomers Independently of any statements made In thiS or In any other Issue Further information on any secullty mentiOned herein IS available on request

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