Tabell’s Market Letter – September 06, 1974

Tabell’s Market Letter – September 06, 1974

Tabell's Market Letter - September 06, 1974
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p– TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORk STOCk eXCHANGe, INC MEMBER AMERICAN STOCK EXCHANGE – September 6, 1974 '— . -, Herewith a'warning7'-This -l-etter 'isgotng'to'bealmose'exclu-si velyconc-erned' witlffigures ; Tiles e – .., who are turned off by numbers, therefore, need read no further. The warning also applies to those whose attitude is, Don't confuse me with facts; my mind is made up, and there are, unfortunately, a few investors in this category, investors who prefer the construction of elaborate economic scenarios of gloom and doom to painstaking study of the realities of the marketplace. With this caveat out of the way, we continue. In precipitously plunging markets, such as those in the last few weeks, the first task of the technician is to determine whether the preconditions for reversal In fact exist. We have, fortunately, numberous benchmarks to guide us. Painful as they are, down markets are nothing new. There are plentiful examples from the past, and they can be studied and measured. One Simple and obViOUS measurement of the severity of a decline is the rate at which various moving averages are dropping. For example, as of last Wednesday, a ISO-day moving average of the Dow was declining at a rate of .17 per day. This rate of decline, Interestingly enough, has been equaled or exceeded only on three occasions in 28 years of market history, June, 1962, August, 1966 and May, 1970. All three, in- vestors will recall, constituted major bottoms. On a shorter term basis, a 25-day moving average, as of Wednesday, was moving down at the rate of .64 daily. This is the approximate figure reached a few days prior to the bottom in 1970 and also on one occaSion In June of 1962. In 1966 the down- swing never attained the short-term rate of decline that the present one has shown. Still another measurement of whether a decline is reaching historical maximum severity is the ratio of the Dow to its own moving averages of various lengths. The ratio of the D1A to its own 25-day moving average, for. example, has been below 0.9 on four,occasions ,over the ,past few-,-eks. Her,, — – – ——'— . – – – – , – – – ————- .–.-,– —–'. again, we have a level attained on only three occasions in 28 years — September, 1946, May, 1962 and May, 1970, all recognized by hindsight to have constituted major bottoms. A third measurement of whether a market is sufficiently oversold so that a major bottom may be considered in prospect is market breadth. The ten-day advance-decline oscillator, consisting Simply of a cumulative total of advances minus declines for the past ten days, is a widely-used tool and appears in many stock market publications. The raw figure IS useless for comparison over long periods of time, but such comparisons may be made by running a ten-day total of the ratio of the net differ- ence to totallssues traded. That figure moved down to a level of -3.18 last week. This level has been attained on 14 separate occasions in the past, each one fairly close to a bottom of either Inter- mediate term or major proportions. There are a few cautions to be derived from a study of this figure, however. There is ample past precedent for its moving lower than its current level and, therefore, based on this indicator, another short-term down leg cannot be ruled out. Such a down leg, however, would move the ratio to a level which has characterized major bottoms in the past. We could bore the reader with more numbers. We maintain and study at least a dozen other simi- lar series, the purpose of which is to measure the severity of a decline against historical bench- marks. They all pOint, however, to the inevitable conclusion that the recent decline has been sharp enough to set up the preconditions for a major reversal. We emphasize our use of the word preconditions. At the moment the stage is only set, and the actors have yet to make their appearance. Once the preconditions are met, first-stage upside rever- sal evidence must present itself. Such evidence is often provided at an early stage by breadth and volume. Here, again;-we return-to numbers .One general characteristic-of,true market reversals in the past has been the occurrence of days on which 80 or more of all issues traded advanced or when volume expanded to 150 of its own 25-day moving average. In these terms, Thursday's 22-point rally in the Dow must be termed disappointing. A bare 55 of all traded issues moved upwards, and volume was just barely above its average for the pnor 25 days. No series that we maintaIn, it must be admitted, has shown convincing evidence of true reversal momentum. Now the above, like most statistical presentations, has been dry as dust, but we make no apolo- gies therefor. Obviously in times like the present it is easy to become prey to emotion and be haunted by the spectres of unreality. It is at just such times that It is helpful to return to the harsh, cold reality of numbers. Dow-Jones Industrials (1200 p.m.) 675.77 S & P Compo (1200 p.m.) 71.46 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (9/5/74) 391.52 AWT/jb No statement or expression of opinIon or ony other moiler herem contolned IS, or IS to be deemed to be, directly or indirectly, on oHer or the OIICllollon of on offer to buy or sell any security referred 10 or mentioned The moiler 15 presented merely for the conver'lence of the subCrlber While we believe the sources of our Informo hon to be relioble, we In no way represent or guarantee the accuracy thereof nor of the sto;ements m)de herein Any OelIOn- to be token by the subSCriber should be bosed on hiS own investigation and Information Janney Montgomery Scott, Inc, as a corporation, and ,ts officers or employee may now hove, or may laler toke, positions or trades In respect to any securities mentioned In thiS or any future Issue, and such position may be different from ony views now or hereafter eypressed In thiS or any other Issue Janney Montgomery Scali, Inc, which IS registered With the SEC as on Investment adVisor, moy give adVICe to ItS Investment adVisory and othel cvstomers Independently of any stotemenll mode In thiS or In any other ISsue Further information on any security mentioned herein IS oVOllable on request

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