Tabell’s Market Letter – February 02, 1973

,———————— – . ..——– —-. TABELL'S MARKET LETTER ,— — 909 STATE ROAD, PRINCETON. NEW JERSEY 08640 DIYISION OF MEMBER NEW YORI( STOCK EXCHANoe, INC MEMBER AMERICAN STOCK EXCHA.NGE February 2, 1973 The market, it seems to us, has been suffering from a sort of schizophrenia over the past few -weeks. We commented on one-aspect-of this -two weeks ago, -when-we- pointed out that-, although the averages had made a new high only a week before, the mood of the finanCial community seemed to be one typical of the more advanced stages of a decline. As the downswing continued through this week, reaching a low of 981 on the Dow-Jones Industrial Average on Friday morn- ing the despair deepened, heightening the contrast with the euphoria of less than a month ago which accompanied the averages' attainment of newall-time highs. In one sense, this schizophrenia may be attributed to the vlOlent contrast existing at the moment between technical and fundamental factors bearing on security prices. The move to new highs in November, December and January was accompanied by growing fanfare about the rosy outlook for the economy in general and for corporate earnings in particular. During the ensuing decline, we and our brothers in the technical-analysis fraternity have been pointing out the abundant' symptoms of a market in less-than-perfect technical health. Now our own career in the securities industry has paralleled the growth in respectability of technical analysis, and we are naturally gratified that we and our confreres are being listened to. We may now, however, have to guard against the difficulty that has plagued ourfundamentalist brethren for years—the possibility that, at any given time, our projections may be at least partially discounted. The signs of technical malaise which have been so widely pointed out are, most certainly, real and they include, but are by no means limited to, the following factors. 1. Market Breadth – For almost a year and a half now, breadth has been, in a word, abysmal. –Ourbreadth index reached-itspeak -lnMarch; 1972 at if Tower level -Uran its April,197rhTgn-'It remained in a steady downtrend as the averages inched ahead to new highs in mid-1972, and, although it staged a modest recovery on the October-November rally, it failed even to approach levels it had attained as long ago as May. The recent high in the averages was not confirmed by breadth on a short-term baSis, and the index is now flirting with its October lows, attained when the Dow was at 930. 2. Maturity – The upswing from May 1970 was, at its mid-January peak, 665 trading days old. This plaes us In a time frame where, a bok at market history ells us, we should be seeking signs ci a Ililrla peek. 3.Illiquidity – The sudden collapses in market values of many issues caused by only modest changes in fundamental outlook have been as well documented as they have been painful to inves- tors in the stocks affected. 4. Penetration of December Low – This took place last week and, as we have suggested in the past, such a penetration, historically, has often foreshadowed a down market. Now as we stated above, all of these symptoms are real and, in light of them, we have abso- lutely no quarrel with an investment policy which would involve non-participation in any rally that might occur over the next few months. Investment policy, however, must be distinguished from a market forecast and we are somewhat suspicious of forecasts which suggest that a market already down 70 points in three weeks is going to continue to sink like a stone with no interrup- tion whatever. Among the mitigating factors are the fact that the averages have reacted to what should, for the time being at least, be a fairly strong support level andthat most short-term indicators have reached the sort of overso-Id condition from which- an advance historically has ensued. We do not discount, in other words, the short-term possibility of a rally from somewhere around current levels. As a general rule, at this stage of the market, it is not the magnitude of decline s which gives us a clue as to longer-term market directionbut the strength and character, or lack of it, on market rallies. We think, therefore, that close scrutiny of any future short-term advance will be important. If better breadth and new leadership develop, the market outlook for 1973 could vastly improve. If the advance consists, as recent ones have, of nothing more than a markup in the pie ratios of a narrow list of growth favorites, it will be more incumbent on us than ever to pay att- ention to the distressing technical symptoms noted above. Dow-Jones Industrials (1200 p.m.)983.97 ANTHONYW. TABELL S&P(l200 p.m.) 114.54 DELAFIELD, HARVEY, TABELL AWTrk No statement or expreslon of opinion or CJny other matter herein contolned IS, or 1 to be deemed to be, directly or mdlrectly, on offer or the soll(IIOllon of on offer to buy or sell any security referred 10 or mentioned The motter IS presented merely for the conVel11cnC5 of the subSCriber While we believe the sources of our In/orma lion to be reliable, we In no way represent or guarantee Ihe accuracy Iheref nor of the stotements mude herein. Any action to be token by the subSCriber should be hosed on hlS own Investigation and Informollon Janney Mcntgomery SCali, Inc, 05 a corporation, and Its officers or employees, moy now have, or may later toke, posilions or trades In respect to ony securities mentioned In thiS or ony future luue, and such position mey be different from any Views now or hereafter expressed In thiS or any other Issue Jonney Montgomery Scolt, Inc, whICh IS registered With the SEC as on Inveslment adVisor, may give adVICe to Its Investment odvlsory and other customers Independently of any stotemems mode In tflls ar In ony other Issue Further Informal Ion on any security mentioned herein IS ovolfoble on request