Tabell’s Market Letter – November 01, 1974

Tabell’s Market Letter – November 01, 1974

Tabell's Market Letter - November 01, 1974
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TABELL'S MARKET LETTER —– – —,I 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIYISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE November 1, 1974 A term familiar to those with even the most superficial knowledge of technical analysis is head-and-.-' -should ersfprmatlon-,,sed .to-lefer to..elther.a .bottom.ortop,reversa 1.,l'art oLthis..!a mlliarity .results, from the simple but graphic name which makes the formatlOn so easy to recognize on- a chat. A;other reason — , – for the familiarity is the fact that the formation has been discussed by some of the earliest writers on technical action, with references having appeared as early a s the 1920' s. As market analys is- ha s become more sophisticated, there has been some latter-day scepticism as to the predictive validity of the formation. One academic is reputed to have had his students reproduce it on a chart by flipping coins, an exercise whlch, if nothing else, should raise the question of just what those who are paying 6,000 a year for a college education are receiving for their money. In any event, the phenomenon of the head-and-shoulders formation is a well-known one in the financial field. As we said above, the formation has been discussed by many early writers, and it is described at some length in what, to many, is the bible of technical work, Technlcal Analysis of Stock Trends, by Robert D. Edwards and John Magee. Reproduced below, in the left-hand column, is Magee and Edwards' description of a head-and-shoulders bottom and, in the right-hand column, is a corresponding discussion of the action of the Dow-Jones Industria I Average in recent months. A. A decline, culminating a more or less extensive On July 24, the Dow reached a high of 805.77 down trend, on which trading volume increases not- and declined to a low of 627.19 on September 13. ably followed by a minor recovery on whICh volume Volume tended to run around 10-11 million shares runs less than it did during the days of final decline through mid-August building up in late August and and at the bottom. This is the 'left shoulder' early September to above 16 million shares on five separate occasions. Volume on the reversal day reached 18 million shares. The market then staged I–''''',—,.,.'.,,-''',…,,—……….-…..,.,……—''..,…-ee-3-dey7recovery-to67,7-.88withwolumeontheHFst two days running 13.7 and 11 million shares, respectively. B. Another decline which carries prices below the bottom of the left shoulder, on which activity shows some increase (as compared with the preceding recovery) but usually does not equal the rate attained on the left shoulder decline, followed by another recovery which carries above the bottom level of the left shoulder and on which activity may pick up, at any rate exceed that on the recovery from the left shoulder. This is the 'head ' From the 677.88 high of early September the Dow declined irregularly to a level of 584.56 on October 4. Volume on the final three days of the decline was 12.2, 13.1 and 15.9 million shares, respectively. This was followed by a sharp 6-day recovery to 673.50 (versus the September low of 627.19) culminated by three days of clos e to 20-million share volume, Including October 10, the highest volume day of the year when 26.4 million shares changed hands. C. A third decline on deCidedly less volume than accompanied the making of either left shoulder or head, which falls to reach the low level of the head before another rally starts. This is the 'right shoulder I From October 15 through October 28 another irregular decline ensued, with the Dow reaching a low of 633.84 just above the 627.19 low of September 13. Volume dropped off sharply on this decline, reaching a low of 10.5 million shares on the final day of the drop. D.- Finally ,-anadvanceOnwhich activity Increas- -,. Th-ere followed' a -2 1/2-day rally on'Tuesday;– —– es notably, which pushes up through the neckline Wednesday and Thursday morning of this week with and closes above it by an amount approximately e- the Dow reaching an hourly high of 678.82 on quivalent to 3 of the stock's market price, with a October 31. Volume picked up markedly on the rise conspicuous burst of activity attending this pene- with 20.1 million shares trading on Wednesday trati,on. This is the 'confirmation' or 'breakout'. and 18.8 million on rhursday. If there is any correlation above, it is, obviously, intended. Indeed, a large part of Magee and Edwards'description, with the exception of the last part of paragraph D, has already been fulfilled. This portion remains to be accomplished and, of course, the Dow pulled back sharply from its high on Thursday afternoon and Friday morning. In the case of the Dow, a level three percent above the neckline, obvious- ly around the 677 level would be 697. Were that level to be attained on continued rising volume, the con- clUSion, for anyone having any degree of faith in historical technical work, would be fairly obvious. Dow-Jones Industrials (1200 p.m.) 667.40 S & P Compo (1200 p.m.) 74.12 ANTHONYW. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (10/31/74) 399.29 A,orT/jb No statement or e)'presslon of optnion or any other maHer here.n contotned is, or IS to be deemed to be, directly Of Indirectly, on offer or the s.ohcltoflon of on offer to buy or sell any secuflty referred fa or mentioned The motler IS presented merely for the convel'lenee of the subertber While oNe believe the s.ources of our tnformahan fo be relloble, we In no way represent or guarantee the oceurocy thereof nor of Ihe statements mude herein Any oellon 10 be toen by the subscriber should be based on hiS own mvestlgotlon and Information Janney Montgomery Scott, Inc, os 0 corporation, and Its officers or employees, may now hove, or moy later toke, positions or trades In respect to any seCurities menTioned In thiS or ony future Issue, and such POSition moy be ddferent from ony views now or hereoher e1pressed In thiS or any other bsue Janney Montgomery Scott, Inc, which IS regIStered With the SEC os on Investment adVisor, may give adVice to lis Investment adVISOry and olher customers Independently of ony statements mode tn thIS or In any other ISsue Further Informotlon on any seOJrlty mentioned herein IS available on request

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