Tabell’s Market Letter – January 25, 1974

TABELL'S MARKET LETTER '.- 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF' MEMBER NEW YORK STOCK EXCHANGE, INC MEMBEA AMERICAN STOCK EXCHANGE Jal-lUary 25, 1974 – – The -mar,ket as measured by ,the Dow Jones- Industr-ial Average;c continues' to fluctuate-ina tange . , bounded by the support offered by the December base at 840-820 and the year-end rally high of 880. The lateral nature of trading is underscored by the fact that on Thursday, of 1766 issues traded, only 21 made either new highs or new lows for 1973-4. As we have stated in the past, we feel the resolution of this im- passe may be on the upside but continue to have some doubts about the validity of any ensuing advance. As the averages move sideways, individual stocks are beginning to present interesting investment di- lemmas. For over a year now, this letter has made no secret of its general bias against relatively high- priced growth favorites and in favor of supposedly cyclical, commodity-related companies. This bias has been based on both technical and fundamental grounds, the technical ones being that most of the first- tier issues, at some time in 1973, initiated major downtrends by breaking down from distributional areas of some significance. The fundamental grounds centered around the fact that the price being paid for basic earning power of cyclical companies, in our view, was ridiculously low, both on an historical basis and in comparison with the much higher prices being paid for growth issues. As technical patterns develop, it is interesting, however, to note that a great many growth stocks have in the past couple of months ceased to decline and begun to move in lateral trading ranges, If these ranges are penetrated on the upside, fairly substantial short-term moves ight ensue although it must be empha- sized that in no case would the major downtrend be destroyed, and any rally follOWing upside breakouts from these potential bases would, in most cases, provide a selling opportunity, Since the patterns are fairly uniform, we have tabulated below the statistics on eleven growth favorites showing, in the first three columns, the 1973 high, a recent price and the percentage decline from the high of 1973, The next two columns show the level at which the stock would break out of its recent trading range on the upside and what the upside objective would be were such a breakout to be achieved. It will be noted that in no case do-theseobj ectives-exceed-the -19-73 -highs-and-insome-cases,are-cons iderablyebelow-those 'highs.-The— – — final column shows the downside breakout level for the recent trading ranges. Were these new lows to be attained, all of the above, of course, would become nothing more than mere theorizing. 1973 High Recent Decline Uaside Bkout Upside Obi. Downside Bkout Avon Products 140 61 -56 68 80-92 50 Burroughs 252 196 -29 214 235 168 Coca Cola 150 121 -19 130 135-150 112 Disney 122 45 -63 50 72 35 Eastman Kodak 150 III -26 118 140 100 IBM 360 247 -31 260 300 220 Int'l. Flavors 50 41 -18 42 46 32 McDonalds 76 56 -26 60 76 44 Polaroid 142 80 -43 82 108 66 Sears Roebuck 122 89 -27 90 98-104 78 Xerox 170 ll8 -31 130 142 106 The patterns for the commodity-related companies, the bulk of which have been in uptrends extending as far back as two years, are considerably less uniform. Some industries, steel for example, show no sign whatever of technical deterioration. Stocks in others, such as aluminum, have potential short-term dis- tributional patterns with the downside breakout in the case of Alcan (36) being 35, with an objective of 30- 27 and Alcoa (73) 68 with a possible downside target of 58. Even were these downside breakouts to take place, long-term uptrends would not be destroyed. Paper issues in most cases have already reached short- term downside targets and appear to be attempting to rebase around current levels. In some cases such as chemicals, thecpicture within the industry is mixed,-Monsanto'55) which'recently declined from a'1973 high of 75 has reached its downside objective and has already formed a fairly substantial base. Allied Chemical (45) by contrast, has violated a short-term top with a possible downside target in the middle 30' s,but this, again, would constitute nothing more than a return to proven support levels. It should be emphasized again that the possible short-term market change in leadership cited above is at the moment only potential, and there exists no indication that the major downtrends in the growth issues or the major uptrends in the cyclicals are about to be reversed. We do, however, feel that the possibility of short-term strength in growth stocks and some minor weakness in basic industry companies is one that is raised by present technical patterns. Note The above comments are based largely on technical factors. Further information on companies mentioned is available on request. Dow-Jones Industrials (1200 p.m.) 858.78 S&PComp. (l200p.m.) 96.55 ANTHONY W. TABELL Cumulative Index (1/24/74) 609.36 DELAFIELD, HARVEY, TABELL AWT/jb No statement or epreulon of Opinion or ony other motter herein contolned IS, or IS 10 be deemed to be, directly or Indirectly, on oHer or the solicllotlOn of on offer to buy or sell any security referred 10 or mentioned The molter IS presented merely for the corwerlence of the subSCriber Whde ….e believe the sources of our Informa tlon to be reliable, we In no way represent or guarantee the accuracy thereof nor of th(! statements mude herein Any action to be tak(!n by the subSCriber should be based on hiS own Investigation and Information Jonney Montgomery Scott, Inc, as a corporation, and Its offlCl'rs or employees, may now hove, or may later lake, posilions or trades In respect to any scuntles mentioned In tlus or any future Issue, and such pOSition may be different from any views now or hereafter eypressed In thiS or any other Issue Janney Montgomery Scali, tnc , whlen IS registered With the SEC as on Investment adVisor, may give adVice to lIS Investment advls.ory and otnel customers Independently of any uatements made In thts or In any other Issue Further information on any secvroty mentioned herein IS available on request