Tabell’s Market Letter – May 24, 1974

TABELL'S I, MARKET I LETTER I JI 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK eXCHANGE, INC MEMBER AMERICAN STOCI( eXCHANGe May 24, 1974 – Readers of this letter over the past couple of months will be aware that we had been trying to worLourselves into ,a .more optimisticframe .ofmindabout- the, stock .mal'ket.thanAthad ,beeF1 pos s -….. Ible to assume for some time. The basic reasoning behind this was that, having for some time ad- vocated the maintenance of some amount of cash reserves, we were becoming worried about whether the weakness which would allow those reserves to be committed would ultimately occur. Many of the factors we cited as prospects for possible optimism were so-called background factors, stemming from the fact that all available evidence suggested that there were large amounts of potential equity money sitting on the sidelines and that any favorable development, the most obvious one being a drop in short-term interest rates, could return this money to the stock market with explosive force. The prices which existed when the market held relatively firm throughout April and early May, however, were evidently not attractive enough to entice this sideline money. Starting two weeks ago, a sharp plunge to a new lower price level took place,with the Dow, which dropped for seven straight trading days through Wednesday of this week, having gotten within an ace of Its December low of 788.31. A sharp rally on Friday morning improved the picture somewhat and, once more, for the time being at least, the previous low has held. The Dow, however, is the only average still remaining tenuously above its prior bottom, almost every other major index hav- lng, on the recent decline, moved into new low territory. Along with this drop, a number of disappointing technical developments can be cited. For a while, at least, the market was showing a fairly healthy ability to resist bad news. The prime rate, ostensibly the market's major worry, was actually above where it had been last December when the Dow last bottomed, and yet stocks had been holding considerably above that low. This I –re5lstante to'l5ad news -eviderrtlyfetmIMtedwffntheConEaTIOn debacle; fo'rlnce 't!ITin-;-t/je' — market has resumed its familiar bear-market tendency to seize upon even modestly bad news Items as an excuse for havoc. The well-advertised problems of Franklin National Bank have created a run, not on banks, but on the stocks of practically every major financial institution, not only banks, but insurance and loan companies. The phenomenon of rotational collapse, where, one after the other, new stocks get clobbered by unfavorable comments or earnings news, has returned with a vehemence equal to that of the spring of 1973, as holders of such issues as Combustion Engineer- Ing and Research-Cottrell must now be painfully aware. Perhaps more disturbing is the advent of potential price vulnerability in issues which had, throughout 1973, been leaders on the upside. Notable examples of this sort of thing are the oil and electrical equipment industries. Weakness has also manifested itself in such industries as copper and aluminum, although here we suspect It is going to turn out to be relatively minor in nature without destroying the favorable long-term patterns which most of these issues still possess. It will, nonetheless, as is almost the case with short-term downtrends, be disquieting while it is taking place. Likewise disappointing has been the failure of many technical indicators which had reached moderately bullish positions in March and April to move into maximum bullish territory. Typical of this class of indicators is the short-interest ratio, which had reached a moderately bullish 1.82 in April (1.95 or better las m the pastbeen a signal for major bottoms), but declined in May to 1.41, a positive but not wildly optimistic reading. Obviously ,then, there are disturbing factors inthe present day.picture. Certainly.ifthe ban- ing system is about to collapse, for example, the equity market is not the place to be while the collapse is taking place. As we have pointed out in the past, however, profitable buying oppor- tunities have historically occurred when the market 'was discounting developments which ultimate- ly failed to take place. In most times and in most places, it has been profitable to bet against the apocalypse. On this theory, we would be willing to commit reserves if the decline were to move through the December lows on the Dow and continue on Into the 700's. Were this to happen, it would, of course, create a typical confusing and disquieting market atmosphere. We believe, however, that purchases made in such an atmosphere would ultimately turn out to be well-bought indeed. Dow-Jones Industrials (1200 p.m.) 811.40 ANTHONYW. TABELL S & P Compo (1200 p.m.) 87.91 DELAFIELD, HARVEY, TABELL Cumulative Index (5/23/74) AWT/jb No statement or expre!on of op,nion or any other motter herein contOlned Is, or IS to be deemed to be, directly Of ind,rectly, on offer or the sol,cltot,on of on offer 10 buy han to or sell cny security be reliable, we In referred no way 1re0porersmenetntoior ngeudaraTnhteemothileerac1cuprraecsyenttheedremoferneolyr for the convel'lenc of the subscrIber While oNe believe the sources of our tnformaof the statements mode heretn Any action to be ta!.;en by the subscriber should be based on hiS own investigation and Informollon Janney Montgomery Scott, Inc, as a corporation, and lIS officers or employees, may now have, or may later lake, pOSitions or trodes In respect to any secuntles mentioned In thl5 or any future Issue, and such POSitIOn may be different from any views now or hereafter epressedhi thiS or any other Issve Janney Montgomery SCOll, Inc, which IS registered With Ihe SEC as an Investment adVisor, may give adVice to Its Investment advISory and aT el customers Independently of any statemenTS mode In thiS or In any other Issue Further Information on any security mentioned herein IS avoiloble 01'1 request