Tabell’s Market Letter – January 10, 1975

Tabell’s Market Letter – January 10, 1975

Tabell's Market Letter - January 10, 1975
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.- . ,! I ,j I L — – TABELL'S MARKET LETTER — – —- – I , ; I I . – I , 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER AMERICAN STOCK EXCHANGE January 10, 1975 – , ' 'It1,,always-prea-santtCneturn7from'va'calibnilndlfndflfat- tlie-maI'KeCna's-actea'S'atTsIattotllyin -, one's absence, and satisfactory is certainly an adequate description of the market's behavior over the past three weeks. The year-end rally materialized on schedule and with heartening vigor. As was noted in last week's letter, a year-end advance In excess of 10 percent has often been a harbinger of a good market year ,and this has now occurred, the advance from the December 6 low of 577.60 to the high as of this writing being about 14 percent. Before waxing too euphoric, however, it should be noted that, from a technical point of view, the severest test for stock prices lies ahead, and the mar- ket's ability to pass this test will go a long way toward determining price probabilities for 1975. – It is thus worth examining recent price action In some detail. The base or platform from which the year-end rally started began its formation around mid-November. During the latter two weeks of Novem- ber, the Dow, having broken from 675-650 level, held, on an intraday basis, between 600 and 625. In the first week of December trading, it broke to around the 575 level, exceeding Its October low in the process by a small margin. Until the year-end rally finally erupted in the last week of 1974, most of December's trading took place in roughly the 590-605 area. Since the base constitutes two separate trading ranges, that of late November and the one in December, there are two possible upside projec- tions. The first of these is arrived at by counting only December trading as part of the base. Under this Interpretation,the upside objective was around 640-645. If the November portion of the base is included, however, the objective becomes broader and centers around the 670 area. These two alternate interpretations, it seems to us, are of more than just passing interest, because the area between current levels and the 670 level on the Dow is one of tremendous technical signifi- 1 .,..cance. Wen the.,arket brokepy fr, S9 levlin te bloodb,-th,oUas smmer, the ,decllnce was arrested during the latter part of August at roughly the 650 level. With the exception of a short ' two-day break in early September, most of the trading during the latter part of August until the end of September centered around the 650-675 level. The break to the October lows and the subsequent re- bound back to the 650-675 level took only two weeks in early October, and the market then spent an- other six weeks where most of the trading again centered around 650-675. We have, in other words, ten weeks of trading — trading, incidentally, in which volume was running at its highest level of the year — in which the Dow was approximately at its current price level. It is an elementary fact of technical analysis that this area constitutes effective overhead supply, and, therefore, the market's behavior at the present juncture will be interesting. Friday morning's rally, which pushed the index into this supply on heavy trading, exceeding by a considerable margin the narrow 640-645 objective, is constructive. Continued ability to press into the supply with vigor and attain its second rally objective of 670 would also augur well for the technical health of the Dow. Even were this to occur, however, the most severe test would lie ahead. We think it illogical to expect the Dow to penetrate the entire overhead supply of August-November (supply which extends all the way up to 690) on the first attempt, and we expect that, even if the market continues higher from here, that some consolidation or correction will be necessary as the supply of last fall exerts its effect. Could the supply ultimately be penetrated, however, the outlook would be rosy indeed. Last summer's decline was sharp and on low volume, so that if the Dow were able to move above its fall high, no meaningful resistance would be encountered until around the 850 level and, indeed, 850 is the logical upside objective if one views the double bottom of October-December as — a potential'base. ICshould be noted that'lfan-advanc-e-to 850 were to materiallze,-lt-wQuld-constitute- roughly a 47 percent move off the December lows, normal for the Initial phase of the bull market. The above, it should be noted, is in no sense a prediction but rather a statement of the sort of potential which exists, As of this writing, of course, the market has just begun to push into the overhead supply at 650-675, It remains a long way from breaking above that supply at 690. It may very well not do so, and the shape of the base for the next advance would then be quite different from that described above. The potential, nonetheless, is there, and we think it should be factored into the in- vestment equation as we move into 1975, Dow-Jones Industrials (1200 p.m.) S & P Compo (1200 p.m.) Cumulative Index (1/9/75) 389.19 AWT/jb 657.78 72.57 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL No statement or expression of opInion or any olher matter herein conhllned Is, or to be deemed 10 be, directly or ondnec1Ir,' on offer or the sohcltatlon of on offer 10 buy or sell onr, seclomly referred 10 Of mentioned The motter ,s presented merely for the converdence of the subscriber Wh, e we beheve the sources of our Informa\'On to be rel'ab e, we In no way represent or guarantee the accuracy thereof nor of the statements m..,de herein Any actIOn to be toen by the subscnblJr should be based on h,s own Invest'got,on and information Jenney Montgomery Scott, Inc, aS a corporation, and Its officers ar employees, may now have, or may loler toke, posltlon! or trades In respect to any seCUrities mentioned In thiS or any future sue, cnd such pOSition may be different from any views now or hereafter expressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC 0 on Irwestment adVisor, may give adVice to Its Investment adVisory and other customers Independently of any statements mode ,n thiS or In any other Issue Further Informahon on any security mentioned herein 1 available on request

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