Tabell’s Market Letter – May 09, 1975

TABELL'S MARKET LETTER , I 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMeE R NEW YORK STOCk eXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE May 9, 1975 We first suggested in this space on January 10 that the most plausible upside objective for the Dow, – , assuming theOctober.-December-,-1975 double bottomto-be'abase format-ion,was850-.This'week;–less- I– than four months later after a move which astonished most observers, including ourselves, by its rapidity, the Dow reached a closing high of 855.60, thus attaining the objective of the base completed in the latter three months of last year. As we have been noting in recent issues of this letter, the momentum of the advance should from this point on be more severely tested, since the overhead supply of stock existing at current levels remains heavy. We have, since January, been using the Dow as a benchmark for talking about the general market and, indeed, if one looks at the performance of that index versus the other major indices since the lows of last October, there is reaJly not much overall difference. The Dow, as of Monday, was 46.3 above its October low, the S & P 500, 44.6 and our CumulatlVe Index was lagging slightly behind, having posted a 35.5 advance from its October bottom. However, if one breaks the performance of the three indices into shorter time intervals, an interesting phenomenon emerges. The following table shows the level of the three averages at various turning paints between October 4, 1974, and May 5, 1975. Cum Cum Cum DIIA Chg. Chg. S&P Chq. Chq. CUM. Chq. 10/4/74 584.56 62.28(10/3) 355.91 11/5/74 674.75 15.4 15.4 75.21(11/7) 20.8 20.8 410.31(11;11) 15.2 15.2 12/6/74 577.60 -14.4 – 1.2 65.01 -13.5 4.3 359.99 -12.3 1.1 1/10/75 658.79 14.1 12.6 72.61 11.6 16.6 399.50 11.0 12.2 1/21/75 641.90 3/17/75 786.53 – 2.6 22.5 9.8 34.6 70.70 86.01 – 2.6 21.6 13.5 403.56 38.1 491.52 1.0 13.3 21.8 38.1 3/24/75 743.43 – 5.5 27.1 81.42 I .4/17/7-5819.40..,..,.A–JO ..240 .1–87.-25 – 5.3 30.7 466.98 – 5.0 31.2 ,'7—2—4-o1-4-83–20- —5—3-;8—1-'. 4/29/75 803.04 5/5/75 855.60 – 2.0 6.5 37.3 46.3 85.64 90.08 . 1.8 37.5 478.64 5.2 44.6 489.55 – 1.0 34.4 2.3 37.5 What is quite clearly shown is that the Dow was underperforming the other averages during the base- building stage of the advance from October to December and about equaling their performance on the ini- tial phase of the raJly from January to March. Since that time, the Dow has been outperforming the other averages and in effect has caught up with them and passed the'll. As the table shows, the first obvious instance of underperformance by the Dow was its move to a new low in December which both of the other averages refused to confirm. Its October-November rally was considerably less than that of the S & P and its November-December decline was steeper. In mid-January, of course, all three averages broke out of their base formations and staged the most dynamic phase of the advance, terminating on St. Patrick's Day, 1975. For this period aJl three of the advances were Similar, but the Dow, having underperformed previously, was stiJllagging the other two. As can be seen, however, the recent history is just the reverse. The Dow has clearly outperformed both the S & P and Our Cumulative Index on both the March-April and April-May rallies, and the S & P 5'00 has, equally noticeably, outperformed the Cumulative Index. Quite obviously, the most recent month and a half of the upmove has been concentrated to a large degree in Dow- Jones components. What are we to make of aJl this It is, first of aJl, not that unusual a phenomenon, very possibly caused by the fact that buyers ,after a long bear market, tend to prefer the relative security of familiar, blue-chip names. The Dow's strength has, of course, produced the potential divergence between the Dow and breadth, to which we have referred in past issues of this letter. The Dow has scored two suc- f cessive raJlies!onew hi9hos (long wih the P 50.Q.t a lesser eox!ent) ,hilebreadt.!'.5nd ;,urCuula;. -,- t!ve Index)-have failed to conhrm'these highs. However, the action of breadth has been good enough so that a future confirmation could come at any time,so that we are not as yet deeply disturbed by the phenomenon. A large part of the discrepancy, we think, can be explained away simply enough by the fact that many Dow components were deeply undervalued in relation to the market at last faJl's depressed levels and have simply been correcting that undervaluation over the past few months. Indeed, a great many of those same components indicate even higher levels from a technical point of view. Thus, while the above-average Dow performance may constitute evidence of some narrowing of the advance, we do not think that narrow- ing is yet pronounced enough to become unduly disturbed about the general market outlook. Dow-Jones Industrials (1200 p.m.) 845.67 S & P Camp. (1200 p.m.) 90.12 ANTHONYW. TAB ELL DELAFIELD, HARVEY, TAB ELL Cumulative Index (5/8/75) 492.99 AWT/jb No statement or e.presslon of opmlon or any other matter herein contamed IS. or 1510 be deemed to be. directly or Indirectly. On offer or the sollcltallon of on offer to buy or sell any security referred to or menlloned The molter IS presented merely for the convef'iencc of the subscriber Whde -Ne believe the sources of our mforma tlon to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mude herem Any acon to be token by the subscrrber should be based on hi' own Investlgatron and Informallon Janney Montgomery Scolt, Inc. as a corporation, ond lIS officers or employees, may now have, or moy later toke. positrons or trodes In respect to ony securrtles mentioned m th,s or ony future Issue, and such position may be different from any views now or hereafter e.prened In thiS or ony other Issue Janney Montgomery Scalf, Inc, wfucn IS registered With the SEC os on mvestment adVisor, may give adVice to lIs Irwestment adVISOry ono olhel CIIstomers mdependently of atry Slotements mode In thiS or 111 ony other Issue Further Information on any seO-lnty mentioned h(!feln IS available on request