Tabell’s Market Letter – October 17, 1975

TABELL'S MARKET LETTER .' 909 STATE ROAD, PRINCETON NEW JERSEY 08540 DIVISION OF MEMBER NEW YORI( STOCK EXCHANGe, INC MEMBER AMERICAN STOCK EXCHANGe – October 17, 1975 In the past 2 1/2 weeks, the Dow-Jones Industrial Average has essentially crossed fam i Ila.J.tQJ;Y–!mo-'Q!lg,.JI;.P!1ljl,!Q1c10!!l.to. th etopof.J;hetradi ng,ra nge-a hough ly,,–8 0 0,..,8 5O-i n .–.-.,,–II which it has remained since last August, after moving down from its mid-July high around the 880 level. BeginnIng from a closing low of 784.16 on October 1, the index has moved sharply higher to reach a closing high of 837.22 on Wednesday, with an intraday high of 851.46 beIng posted on Thursday. The present, however, happens to be one of those cases where it is necessary to look beyond the Dow in order to get a true story of what is taking place in the market. In terms of breadth, for example, the advance has not been a II that Impress ive. In the entire period during which the Dow moved ahead some 55 pOints, there was only one day on which more than 1000 Issues advanced, that day being FrIday, October 3, two weeks ago, when a 20-point rise for the average produced 1131 advancing issues. Even on that day, advances constituted only 64 of the total issues traded, a rather anemic figure by major reversal standards. If the Dow has been outperforming breadth, however, it has been underperforming the broader-based indices. While the Dow has s imply moved up toward the top of its recent trading range, the Standard & Poor's 500, S & P 425, New York Stock Exchange Compos ite and NYSE Indust- nal indices had all moved decisively out of their August-October trading ranges, and all had clear- cut bases suggesting moderately higher levels. To get a real feeling for what has been taking place over the past two weeks, it is necessary to understand why this lead of the broader-based indices over the Dow has occurred. The reason, of course, lies m the presence—with a heavily weight— in the broad-based indices of the high – total – market – value, technology-based compantes which are largely absent in the Dow. The broad-based indices are computed. essentially, by weighting – each-s tocbi-n'ir-0porti-ont)-'the-tota1-va'Iu-e-oHhe–Share-s-outstarrdlntrs–alolifPa1l191KllIBM-,-..,,..' for example, with a total market value of 31 billion, is a major factor in the action of these capital- weighted indices, while totally absent in the construction of the Dow. What we are saying, of course, is that the first-tier growth favorites of a couple of years ago have, over the short-term, begun to outperform the general market. What we have seen so far, then, is not necessarily as much a sign of a major reversal, as one of a shift in leadership. The question is how long can such leadership be sustained and what does it portend for the market as a whole. If we are to regard the capital-weighted indices mentioned above as a fair barometer of this leadership shift, the answer is that it can probably continue at bit farther. If the pattern on the Dow is a bit obscure, the patterns on these indices are rather clear-cut, all of them, as noted above, having broken out of fairly-well-defined base formations. These base formations almost uniformly suggest a return to an area around, but not decisively above, the highs of last July. The S & P 425, for example, whose high las t Ju ly was 107, has an upSide objective of 104-105, and the 500, with a July peak of 96, has an upside target around 94. The New York Stock Exchange Composite has an upside objective of 50 versus a July peak at 51, and the Industrial index has an upside target of 56 vis-a-vis a mid-summer top at 57. Individual patterns on the heavily-weighted stocks in these indices would appear to suggest that these targets are, indeed, plausible. Whether the growth stocks can provide sustained long-term market leadership at thiS juncture is, in our view, at best questionable. Their premiums over the rest of the market are, aat this pOint. fairly high andwould become even higher were they to cO..tinue.to cutperf..rm the – market o'Ver' short-term. It- ;-e';;s-to-us 'uollJeVth-at Tongterm market advance cantle'sus- tained by returning the growth issues to the position of preeminence vis-a-VIs the rest of the market that they enjoyed two years ago, a position we now know, in the light of hindsight, to be unsustainable. It is, therefore, in our opinion, unrealistl c at this stage to look beyond the near-term prospects of a return to around the July peaks. If, along the way, the market could develop more breadth and vigor than it has shown on the rally so far, the prospects for a broad and sustained move ould become enhanced. At the moment, however, the phenomenon of a sharp Improvement in relative strength on the part of the growth issues has done little more than becloud the general market prospects. Dow-Jones Industrials (1200 p.m.) 834.38 ANTHONYW. TABELL S & P Composite (1200 p.m.) 89.08 DELAFIELD, HARVEY, TABELL Cumulative Index (10/16/75) 487.60 AWTlJt No statement or expressIOn of opinion or ony other motter herein contolned IS, or IS 0 be deemed to be, directly or indirectly, on offer or the 50111;llollon of on offer to buy or sell ony security referred to or mentIOned The maller IS presented merely for the convellencc of the subscnber While we believe the sources of our informatIon to be relloble, we In no way represent or guorontee the occurocy thereof nor of the stotemen's mude herem Any ccTlon to be token by the subscriber should be bosed on 1'\lS own investIgatIon ond Informatlo'l Jenney Montgomery Scott, Inc, os a corporotlon, and Its offlC!HS ar employees, moy now have, or moy later loke, pOSItIOns or trades In respecT to any seCUTltles mentioned In thIS or any future Issue, o'ld such posItIon moy be dIfferent from any vIews now or hereofter e)l'pressed In thIS or any other Issue Janney Montgomery Scott, Inc, whIch IS regIstered WIth the SEC as on Investment odvlsor, may gIve adVIce to Its Investment adVIsory ond olhel customers Independently of ony statements mode m thiS or In any other Issue Further InformatIon on any security mentIoned hereIn IS available on request