Tabell’s Market Letter – December 27, 1974

Tabell’s Market Letter – December 27, 1974

Tabell's Market Letter - December 27, 1974
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– – –.—- – …. ———- TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIYISION OF MEMBER NEW YORI( STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE December 27, 1974 We undertook last week the melancholy task of reviewing the year 1974 In preparation for a forecast for 1975. We were forced to point out that the Dow-Jones Industrial Average had taken a 31 shellacking on -. —top of a-25 decl-Ineln973.andthat-our-Gumulativeindexln-our-vlew-a more-accurate measure-of-the – true performance of 'the average NYSE stock, had lost more than three-quarters of its value since its high of 1968. It Is against this background of almost total carnage that we must survey the outlook for the year ahead. Before venturing a prediction, a cautionary word regarding attitude appears appropriate. Bernard Baruch once remarked that one of the most useful exercises for the investor was to continually repeat to himself that 2 plus 2 equals 4. Baruch, actually, was referring to the irrationality that normally accompanies bull market tops. However, as technicians are well aware, tops and bottoms are often mirror images of each other, and we think the advice is equally appllcable In the sort of slough of despond In which the stock market now finds itself. It Is all too easy for the investor, bruised and battered by the lambasting he has taken over the past couple of years,to forget the fact that stocks have been and w1ll be again vehicles for ca pita 1 appreciation. Those who have studied markets are only top well aware that a substantial rebound from the ultimate low, wherever and whenever that low may occur, is a virtual certainty. The problem, of course, lies In the timing and Identification of that low. In one sense, the Investor with resources and patience can afford to be unworried, even about the timing. We Indicated last week that the current earning power behind the DJIA can today be bought at the lowest price In recorded history. Regardless of what may take place In the interim, we think, a s we have repeatedly stated, that the prices at which high-grade equities are currently avallable wlll prove, in the light of history, to have been amazing bargains. In order to put together a 1975 forecast, 1t is necessary to look at both the technical and fundamental outlook. The consensus economic forecast developing for 1975 calls for a deepening recession with the decline of perhaps 20 In overall corporate profits and a drop of, perhaps, 10 in the earnings of – the–8- &-P500-.-Gu1te–clearlymar-ketvalulngthelat-estJ.2months-eamings aLthe-figufe-itjiscurrently . valuing them, is worried about something a good deal worse. And yet, we know of few reputable voices talking about anything substantially worse than the above scenario. The spectre of worldwide depression is, admittedly, there, but It would hardly seem to be the foregone conclusion the market is saying it is. Without venturing Into the murky waters of economic forecasting, we should only Ii ke to point out that it has been profitable, at most times and In most places, to bet against the apocalypse. It Is also worth pointing out that, In the light of hindsight, the most profitable times to buy stocks have been those when whatever economic hobgoblins were bullt Into the market's price structure have failed ultimately to mater- ialize — I.e., the inev1table postwar depression of 1949. From a technical point of view, there are various factors to be considered In looking into the upcoming year. Not the least is the decennial pattern, unusually reliable at this point in the decade. It will be re- called that this pattern tells us that all years ending In 5 in this century have been up years for the stock market. It Is worth noting, also, that 1976 is a presidential election year, an occurrence which has also tended to favor rising markets. We have also suggested In this letter in the past that many of the precon- ditions for a market bottom have recently been present, such as a record level of institutional cash posi- tion. What has been absent so far, at least, in terms of obvious clarity, are the signs of a sort of selling cllmax which has terminated in so many bear markets In the past. We have also noted, however, that m deeply soldout periods, such as the present one, such a climax Is not a necessary precursor to a market turn. Also relevant to a forecast is the action of Individual stocks, which suggests that, in many cases, despite the move of market averages to new lows, earlier lows, some going as far back as 1971, are, In a number of cases, being held. Individual chart patterns suggest that a number of Issues, perhaps a fairly -substantial number,- are, at least;-runningoutofsteam(;m the downside; –;. ,.. ,' … – -r- Thus, a forecast for early 1975 must, It seems to us, call for continued testing of the recent lows possibly Including some slight penetration of those lows. It seems, however, sensible to expect that the long, two-year bear market, If not already ended, wlll come to an end sometime fa1rly early in 1975. This does not necessarily call for an Immediate advance. It should be noted that the process of rebuilding in- dividual base patterns will be a long and arduous one. It therefore seems illogical even If the market 1S to make a low In early 1975 to expect any sharp rally, at least in the early part of the year. Depending on how qUlckly bases form, however, the outlook for the latter part of 1975 could be conSiderably better. The prophet Isaiah reminds us that to everything there is a season. 1975, in our view, w1ll be the sea- son for planting of the stock market profits of the second half of the 1970's. WE WISH YOU ALL A HAPPY AND PROSPEROUS NEW YEAR. Dow-Jones Industria Is (12 00 p. m.) 603. 18 ANTHONY W. TABELL S & P Compo (1200 p.m.) 67.40 DELAFIELD, HARVEY, TABELL Cumulative Index (12/26/74) 353.39 AWT/jb No slotement or eXpreS510n of opInion or ony olner matter nereln contained IS, or IS to be deemed to be, directly or indirectly, on offer or tne SoliCitation of on offer to buy or sell any security referred 10 or mentioned The motler IS pre.sented merely for tne convellenc of the subSCriber Wnlle we believe tne sources of our information 10 be reliable, we In no way represent or guorontee tne occurocy thereof nor of the .statements mude nereln, Any actIOn to be token by the subSCriber nould be bo.sed on hiS own IIlvestlgatlon ond ,nformotlon Jonney Montgomery ScOll, Inc, os 0 corporotlon, and liS officers or employees, may now hove, or may later toke, posItions or trode.s III respect to ony securities mentioned In tnls or any future Issue, ond sucn position may be dliferenl from any views now or nereafter exprened In thl5 or any otner l,SSve Janney Montgomery Scott, tnc, WnlCn IS registered wltn tne SEC 0 on onvestment adVisor, moy give adVice to Its onve5lmen! odvlsory ond otner customers Independently of ony stotements mode on tnls or In any otner Issue Furtner onformatlon on ony secvrlly mentioned herein 1 ovolloble on reque5t

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