Tabell’s Market Letter – October 06, 1972

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK eXCHANOE, INC MEMBER AMEFlICAN STOCK EXCHA.NGE October 6, 1972 RadlO soap operas used to conclude each epIsode wlth a pOIgnant question relating to the next day's instaltent '-s-!h. .tockma(kEtP9Sjd ..,juSLqch ,a queshon-last weec .It wa-s, .It Can1.mencan Telephone-.. surVIve Levitz Furniture . Conslder some of the paradoxes of the week just passed. The major averages closed the week moderately lower wIth trading volume contmumg around its recent desultory levels. Meanwhlle, Levitz, whlch had managed to declme almost 14 points In one day on mildly disapPOIntmg news Friday, con- tinued to constItute a major portion of New York Stock Exchange volume, all the whIle headmg in a general southeasterly directIon. On TuesdaY,American Air Filter, WhICh had announced some dlfhultIes In Its CanadIan subsidiary, lost 11 1/2 POInts, or better than 25 percent of its value, In a slngle day's trading. Early In the week Curtiss Wright had managed to loose 11 pOInts In three days, for no reason that was immedlately apparent. While all this was going on American Telephone reached- a new hIgh for the year, In the process postIng an important technical upside breakout, the first real sign of ImprOVIng technIcal actIon In the stock In a number of years. Standard 011 of New Jersey also reached the new high list and also posted a techmcal breakout which suggests higher levels. The message seemed to be that the widows and orphans shall mhent the earth. In a sense, last week's actIon should not be surprisIng since it was a contInuatIon of the sort of thing that had been gOIng on for some time. The relatively good actIOn of the market averages has been maskIng consistent erOSIon of equity prices which has been going on since early summer and which has tended to become obVIOUS only in dramatic cases such as those CIted above. For example, as of Wednesday's close, the Dow Jones Industrial Average was off by a bit more than three percent from its high for the year. Of 1428 common lssues whlch traded on the New York Stock Exchange that day, the average Issue closed down some 21 percent from its year's high, and half of all Issues were off from theIr h,ghs by amounts rangmg from 18 percent to 80 percent. Only 93 stocks were off from – —–th eI-f-,,;-year-! so!..h-lg hby-le 5 5 'than….the-'-Dow whereaS…5-stl csweres ell mg S-oercentr 'lTrore4Yel-owLhelr- ——- 1972 peaks. Clearly the averages have, of late, been outperforming the market. Now on a purely statistical basis, there IS no particular reason why thIS should not be so. Averages are, after all, composed of stocks, and if the stocks contamed In those averages happen to be dOIng better than most, the averages will present a somewhat dIstorted pIcture of what the average stock is dOIng. Such is the case at the moment. The Dow encompasses both Amencan Telephone and Standard Oil of New Jersey, clted above, plus two other mternatIonal OIls and a few other blue ch,ps whIch have been recent upside leaders, The Standard & PoorI s 500 IS largely mfluenced by the Dow-type blue ch,ps plus some of the larger growth favorites which, by and large, have held steady over the past few months. But one salty sage described a bear market by notmg When they back the paddy wagon up to the door, they take out the good girls along with the bad. Clearly for a substan- tial number of issues bear market condItions already eXlst. Thus the questIOn of whether Telephone can survive LevItz, Can we continue with a market where the averages hold steady and the speculative favorites are, one by one, shot from the sky–a phenomenon that mIght be described as rotatlonal collapse It is, of course, a questIOn WhiCh, from an investment policy pOInt of vIew, may not have to be answered. We have reached the pOint where high-grade, dividend-paymg companies, sellmg at historically low levels on an earmngs basis, compnse a liberal portlon of those stocks showmg the most dynamIC technical actIOn. Clearly, if a serious decline IS In the offing, the mvestor will feel more comforhble throughout that decline with stocks of the Telephone- Jersey genre. Technical work strongly suggests that the Investor in these stocks WIll also possess above-average capItal gains opportunities, should the market turn up Yet It must also be noted that, hlstoncally, relatively strong performance by high-grade issues vafollowlnganextended 'ad nce- h-as tendedTo–denoteth-eternunal' phase of iha(a'dvance . Yhls may be surprising to some whose memory of bear markets extends only to the most recent one, 1968-1970, In that decline, the blue-chIp-dominated averages topped out early, while a minonty of Investment and speculative favontes continued to move to new hIghs after the Dow had been headed downward for almost a year. If one goes back to prevIOUS downswIngs, however, the reverse has tended to be true. Most of the speculatlve favontes of the 1958-1961 advance made theIr h,ghs In late 1960 or early 1961, whereas the averages reached their peak In November-December 1961. It IS also worth noting that in the subsequent bull market, begmnIng in 1962, hlgh-grade Issues were leaders on the upside. General Motors, for example, reached ItS peak in December, 1961 along with the averages, and, in the subsequent downswing, declined only 2/3 as much as the average. From Its 196210w ithad, a year later,moved up some 80 percent and stood a healthy 30 percent above its 1961 hlgh. All of th,s makes the case In favor of quality at the present Juncture rather compellmg. Note Comments on Indlvld- uallssues are based on technical factors only. Further informatlOn is avaIlable upon request. Dow-Jones Industnals 200 p.m.) 935.20 S&P 02.00 p.m.)l08.40 AWT'rk ANTHONYW. TABELL DELAFIELD, HARVEY, TABELL No statement or expression of opinion or any other motter herem conto,ned 's, or 1 to be deemed to be, directly or rnd,rectly, on offer or Ihe Sol,c,totlon of on offer to buy or Sell any secunty referred to or mentioned The moiler IS presented merely for the converlenCe of the subscriber While we beheve Ihe sources of our Informo- han to be reliable, we ,n no way represent or guarantee the accuracy thereof nor of the statements mude herem Any action to be tok.en by the subscflber should be ba5ed on hiS own rnvestlgohon and infOrmation Janney Montgomery Scott, Inc, as 0 corporat,on, and Its aff,cers or employees, moy now have, or may later lok.e, positions or trades In respect to any securities mentioned In thiS or any future ,5sue, and such pesltlon may be different from ony views now or hereafter epressed In Ihls or any other Issue Janney Montgomery Scoll, Inc, wh,ch '5 registered wllh the SEC as an mveslmenl adVisor, may give adVice to lIs mveslmenl adVisory and other customers rndependently of any stolements made In IhiS or In any other Issue Further ,nformatlon on allY security mentioned herem IS available on request