Tabell’s Market Letter – December 19, 1975

Tabell’s Market Letter – December 19, 1975

Tabell's Market Letter - December 19, 1975
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK eXCHANGE, INC. MEMBER AMERICAN STOCK EXCHANGE December 19, 1975 Regular readers will be aware that it is our custom to devote the last two letters of December ato a forecast, insofar as it is possible to envision one, of the year ahead. The first part of this fore- . ca'st gen'ei'ally-consrSts'ofareview'6f fuasl year sa 'oacKgroUi'inor-fTiiii1g the-feirIo-wlng year' 5 'O\;t- , look into historical context. Thus, according to tradition, it is our present task to review market ac- tion during the year 1975. Any such review, it seems to us, must touch on three separate market phases. The first of these is the slough of despond from which 1975 began, the second is the rally which ended at a peak of 881.81 on the Dow on July 15, and the third is the desultory market that has prevailed ever since that July high. As regards the first, we noted in this space a year ago that any review of 1974 had to be an exercise in masochism. By the end of the year, disillusionment with equities as an investment vehicle was approaching an historical zenith, and we said at the time, The multiple under six times earnings now being applied to the Dow has never been exceeded, since earnings figures for the average have been available. That sort of climate was obviously the stuff out of which major market bottoms are made, and such, in the first part of 1975, proved to be the case. The upswing which occupied essentially the first half of the year was, in many ways, a con- ventional phenomenon. It took the Dow from 577.60 on December 6, 1974, to its July peak of 881.81 for 53 total advance. Thus, in this respect, it was similar to the 63 advance which initiated the 1957- 61 bull market, the 51 advance which was the initial phase of the 1970-73 upswing and many similar periods in the recent past. What was astonishing was not the percentage advance, especially consider- ing the deeply oversold position of the market at year-end 1974, but the time span into which it was compressed, both in terms of the rapidity with which the base formation was completed and the speed of the advance once the upside breakout took place in early January. Thus, in our last year's forecast, – – we-suggestedanimproved outlGek40r—securHy-pr-iGesin-1975-but-suggestedthat-the.first-hali-might ,be -.' consumed by the base formation process with a rally beginning in the latter part of the year. As short a time later as January 10, we were forced to revise this thinking and to note that if one viewed the double bottom of October-December as a base, the logical upside target would be around 850, such an advance constituting the normal first phase advance of a bull market. Six short months later, that tar- get had been attained. The end of an initial bull-market phase is generally characterized by the first full-scale intermediate-term decline which occurs, and it is here that the 1975 advance presents its problems for the analyst. The initial phase of 1957-61, for example, occupied 554 trading days, that of 1966-68 242 trading days, and that of 1970-73,234 trading days. It is necessary to go all the way back to the 1930's to find an advance as steep as that of December-July, which took the Dow ahead the aforemen- tioned 53 in the short space of 151 trading days. Despite its compressed time span, however, it is our feeling that most evidence suggests that the early 1975 rally was, indeed, a conventional first bull-market phase. If we are willing to accept the first half of last year as a primary bull-market phase, then it naturally follows that the second half can be categorized as a secondary, or distributive phase, a phase probably still in progress. We noted above that the transition from the primary to the secondary phase of a bull market is marked by the first intermediate-term correction and this, in our view, took place with the 11 decline in the Dow from July 15 to October 1, a decline which extended, as we pOinted out last week, to 17 in terms of our Cumulative Index,reflecting the action of all stocks on the New York Stock Exchange. We have noted in the past that, historically, the ending of the primary phase do.esnot necessarily signal the.end. of a bull market in terms of time,.pointing .opt that,theulti mate high of past upswings has been reached between nine months and two years after the peak of the primary phase was attained. We also noted, however, that experience shows that the ultimate high which is attained on any upswing is very often not substantially greater than the high attained on the primary phase. Here we have, then, the three background ingredients essential, in our view, to a 1976 forecast first, a deeply oversold condition with all the attributes of a major market bottom; second, a rally constituting a primary bull-market phase, a phase which, it is likely, was completed six months ago; and third, an ongoing trading range with many of the characteristics of a distributive bull-market phase. It is against this background that the outlook for 1976 will be assessed, Dow-Jones Industrials (1200 p. m.) 848.71 A VERY MERRY CHRISTMAS TO ALL S & P. Compo (1200 p.m.) Cumulative Index (12/18/75 AWT/jb 89.18 476.73 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No talemenl or expression of opinion or cny olher motter here, contolned Is, or IS 10 be deemed to be, dlredly or indirectly, en offer or the sollloilon of on offer to buy or sell any security referred 10 or mentioned The molter IS presenTed merely for the converlence. of the subSCriber WhIle oNe belIeve the ources of our mformo- hon to be relloble, we m no woy represent or guorontee Ihe accuracy thereof nor of the statement& mude herein Any action to be taken by the subscriber should be based on hiS own mvestlgat,on ond mformatlOn Janney Montgomery Scott, Inc, os a corporation, and lIS officers or employees, may now have, or moy loter tolre, positions or trades In respect to any seCUritIes mentioned In thiS or ony Future issue, ond such position may be different from ony VieNS now or hereofter expressed Ifl thiS or ony other Issue lanney Montgomery Scott, Inc, which IS registered With the SEC as on mvestment adVisor, moy give adVice to Its Investment adVisory and other customers Independently of any stotements mode In thiS or In ony or her Inue Further Information on ony ecJflty mentioned herein IS available on request

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