Tabell’s Market Letter – January 05, 1973
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—. — -.. – — . –. —- TABELL'S MARKET LETTER L – —-.– ! I I ! I 1 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMaER NEW YORI( STOCI( EXCHANGE, INC MEMaER AMERICAN STOCK EXCHANGE – – – – . – – – – – '- ——– -. -. … – –'W'–' — ..–'—–'-. …g ……..-., January-5T197-3 It is pleasant to return to one's desk after two refreshing weeks on a Vermont mountainside and find that the action of the market in the interim ha s been perfectly normal, with a minimum of unusual developments. just prior to Christmas, the Dow-jones Industnal Average, as lt had to do eventually, underwent the first recognizable correction in its sharp advance from an mtra-day low of 917.07 last October. When it reached a closing low of, interestmgly enough, exactly 1000, all downside objectives of the small top formed in early December had been reached, and the market, for the first time in over two months, had reached a measur- ably oversold condition on a short-term basis. Thus the rally of the past two weeks was the logical expecta- tion, and the process carrled the Dow on to a new hlgh for the move at midday Friday. The rally, unfortunately, was pretty much confined to the Dow-type blue chips. Week's end found both the transportation and utility indices signIflcantly below their peaks of November-December, and breadth on the advance was not as impressive as might have been expected considering that the Dow- jones Industrial Average rose thirty-six points in the three days around the New Year holiday. A perhaps relevant item is the fact that on Wednesday, when the Dow first posted a new high, eighty-five stocks on the New York Stock Exchange posted 1972-73 h1ghs. Now it is not this factor that 1S important. It is the fact that 1827 issues traded that day, and thus 1742 stocks dld not post 1972-73 highs. Moreover, even while the market was moving ahead sharply, a great many of the air pockets which began manifesting themselves last Summer again developed in Issues reporting disappointing developments of one sort or another. Moreover, as the market sails ahead to new peaks, breadth action stubbornly refuses to confirm the admittedly powerful strength shown by the Dow. Now none of the aloove constitutes an attempt to questlOn the validity of the current rally or to suggest that we do not believe in Its near-term continuance. We continue to feel that the Dow has an upside objective somewhere in the 0 1OSOIlOO-range-and that-that figurewill-be-attainedin-thereasonablynear-future ;the- advance bemg interrupted by only occasional minor corrections such as that of mid-December. We feel it is incumbent upon us, however, to be aware of what is actually happening in the market place and to try to draw conclusions from market action as the pieces in the puzzle slowly fall into place. It is quite obvious, for example, that the advance from the 1970 lows through the Summer of 1972 featured, by and large, the institutional quality growth stocks, and the great bulk of market gains achieved in that period were due to the normal bull-market process of marking up the pnce which investors were wllling to pay for a dollar of earnings in these issues. By mid-1972 that process had pretty well run its course, most of these stocks having achieved, by that time, record peak multiples. After the indecisive action of Summer and Fall a new phase developed COincidentally with the October- December rally. At thlS pOint, the market begain to pay attention the the hltherto-neglected slow-growth and cyclical blue-chip issues, and it is no accident that it was during this phase that the Dow, heavily weighted with these is sues, finally penetrated the 1000 level, attaining a new h1gh for the first hme in over six years. While all this was going on the growth leaders of the earller phase essentially moved sideways. As we said in our year-end forecast, the unanswered question for 1973 is whether leadership w111 broaden still further and eventually shift into secondary and tertiary issues. The growth stocks were, in general, fully exploited ruring the initlal phase of the advance. While there is probably a good deal more upslde potential remaining m some of the Dow blue chips and thus in the Dow average, it is probable that a good portion of this mark-up phase, perhaps the bulk of it, has already been seen. It is the speculatlve areas of the market place which as yet remain unexploited. Paradoxically, a source of strength may lle in the very fact that we have had, m the course of this 2 1/2 year bull market, two reasonably sharp correctlOns–during the Summer and Fall of 1971 and the ldentical period of 1972. In the course of these downswmgs many stocks underwent private bear markets of their own. Many mobile home issues, for example, are selling from one-third to one-half thelf 1972 peaks. It IS quite possible that a number of these stocks,after a necessary penod of rebasing,could be in a positlOn to resume upside leadership. As we have stated before, the answers are not yet ln, and we do not think it lS necessary at this pOlnt to guess the future in so far as investment strategy is concerned. The best technlcal action at the moment con- tinues to be shown by the h,gh-grade, moderate-growth and cycllcal stocks, and 1t is in these stocks that portfollo managers should concentrate their efforts. Future moves, mto secondary issues, lf they begm to show strength, or into a defensive posture, if such strength is lacking, can be taken when technical conditwns warrant. Dow-jones Industrials (1200 p.m.) 1047.26 S&P(1200p.m.) 119.94 ANTHONY W. TABELL DELAFIELD. HARVEY. TABELL AWTrk No stolement or expression of opinion or ony other moller herein contOlned IS, or IS to be deemed to be, dlreClly or Indirectly, on offer or tne soliCitation of an offer to buy or sell any security referred to or mentioned The molter IS presented merely for the converlence of the subscriber While we believe the sources of our Informa lion to be reliable, we In no way represent or guoranlee the accuracy thereof nor of the slatements mude herein Any action to be token by the subscriber should be based on hiS own InvestlgO/Jon and Informa/Jon Janney Montgomery Scolt, Jne, as a corporation, ond lIs offJcers or empJoyees, moy now have, Or may Jafer lo,,e, positions or trades In respect to cny securities mentioned, thiS or any future Issue, ond such position may be different From ony views now or hereafter expressed In Ihl or any o'her Issue Jonney Montgomery Scott, Inc, which IS registered with the SEC os on IOvestment adVisor, may give adVice to Its Investment adVisory ond othel customers Independently of cny statements mode, thIS or In ony other Issue Further InformotlOn on any security mentIOned herein IS avolloble On request