Tabell’s Market Letter – October 27, 1972

——- TABELL'S MARKET LETTER I I J 909 STATE ROAD. PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCk EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE October 27, 1972 Just four weeks ago, we used the following language in this letter. To begin with, the popular averages have remained, essentially, locked in trading ranges since the early part of ,1972. 'ktllcase ofotheDow, the,top ofthis.trading JangEl isataroundthe9aOleyel on an-, intra-day basis, this figure having been approached in Apnl, May- and again -inAgut. The lower part of the range is at around 917, intra-day, which level was touched in early May, June, and again in July, with a couple of days of July trading actually moving somewhat below that figure. Since that time a great deal has happened in one sense and very little in another. In coltrast to the Wars and Rumours of War referred to by St. Matthew, we have had rumours of peace and now, perhaps, thankfully, peace itself. As negotiatIons with the North Vietnamese pro- gressed, we were incessantly reminded by any number of commentators that the course of the stock market would depend upon the outcome of these negotiations. The market itself continued to behave in almost Pavlovian fashion–duly rising whenever the peace outlook appeared to improve and declining when it dimmed. And yet let us examine what happened in light of the above paragraph. The last peace rally began from an intra-day low of 917.07 reached by the Dow-Jones Industrials on Octmer 17. It continued right through Mr. Kissinger's announcement of the probable success of peace negotiations on Thursday reaching an intra-day high of 962.45 in the rally directly following the announcement of the Kissinger press conference. Precisely at that pomt, the advance duly subsided and the market moved lower in late Thursday's and early Friday's trading. It is once more time, we suppose, for us wearily to deliver our familiar lecture On the utter irrelevance of news events to the course of stock prices. We say wearily, because, despite all the evidence to the contrary, there are still those who persist in believing that the 1962 bear '–nrarket-was-caused -by'anlltercation-jyetwe-en'the'Pres1uents-of'theUn1ted43tates-and'the-United States Steel Company, and that the subsequent bottom had something to do with the resolution of the Cuban Missile Crisis. LikewIse, if equity markets do tum up from here, these same historians will inevitably brand the advance as a peace rally. The fact is that the intermediate- term course of the stock market is determined by factors largely related to supply and demand and that news events seldom do anything more than to make latent supply/demand forces manifest, perhaps speeding up a course of action which might otherwise have been delayed. In the present instance, all that the peace negotiations have accomplished, msofar as the stock market is concerned, is to reinforce the conclusion that there is a demand area around the low 900's in the Dow which has managed to contain every decline since early this year, and there IS, likewise, a supply area at 950-970 which has managed to stem every advance that has occurred since that time. It is almost futile to try to predict with any degree of certamty the intermediate- term course of eqUIty prices until such time as one of these two areas is decisively breached. The argument that the ultimate penetration is likely to be on the downside rests largely on historical factors. Since March ,the popular stock averages have been holding steady or making new highs at a time when the bulk of issues were actually declining. In the past, periods of this sort of action have tended to lead to ultimate general weakness, spreading through the entire stock list. The counter argument, if one IS to be made, must be based on the apparent leadership shift as individual stock patterns develop. In recent months, as pointed out in th,S letter, we have witnessed strong accumulation In a number of quality, defensive, cyclical and semi- , – cyclical-;-ssue-s– the Oils ,- Finance Copanies; Ban-ks and, more rece;rtly, Utilities being ca ses in pomt. Moreover, most recently, we have seen downside objectives reached or approached in a number of other groups selling at substantial discounts from their 1972 highs, where the fundamentals appear to have changed relatively little. Cases in point would include the Airlines, Leisure Time, Mobile Home, and Tobacco groups. It is conceivable that these two catagones of issues, taken together, could, eventually, provide the leadership for a new upward leg on the advance. The conclusion of all this is that we are not yg ready to suggest that there should be a dramatic shift in our recommended investment policy. We have for the past six months favored the mamtenance of oaffi reserves, and we feel those reserves should be maintained or, perhaps partially scheduled to accumulate stocks in the second category mentioned above on weakness. We have suggested that invested funds be concentrated in the first group above, and wewould suggest that this continue to be the case. Any change in this policy will be dictated by the market's technical action and not b DoV\lla JG9Q& cLnd,au;stJi.ia'lq Jn2-;-QQ,. PheJ'Tlr.. 19- 9-501r2 ntomed IS, or IS to be deE! t , Iy r .nd H e r or the sollcltotlon of on offer torPuf'JOf)!linv-..se';flt'h rrfJ.rn-d 01or mentioned The moiler IS presenled merely for the conc Tscrl!tgf1\ '6'lIIt' brb,veth 10urces of our inlorma- S &..uon toJ.Ml-6b,'M t r6J..j,bt resent or guorantee the accuracy thereof nor of the stateLr'eW-de.Ifl!oU.l A''aIIt&be tlIiH-'erLfoH!! subSCrIber should be AW-bt.rJt on hu own Investigation and Information Janney Montgomery Scott, Inc, as a corporation, and Its officers or employees, may now have, or may later toke, positions or trades In respect to any seCurities mentioned In thiS or any future ISSue, and such position may be d,l/eren) from any views now or hereafter e'l(pressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC 05 on Investment odvlsor, moy give adVICe to Its investment adVisory and othel customers Independently 01 any slotements mode In thiS or In any other Issue Further ,formatIOn on any seeurrty mentioned herein IS ovoiloble on request