Tabell’s Market Letter – December 26, 1975

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON NEW JERSEy 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHA.NGE, INC MEMBER AMERICAN STOCK EXCHANGE December 26, 1975 We reviewed In last week's letter the facts of 1975 market history which we believed relevant toa 1976cforeCast-Herewith that forecast.–1976,' we think i-Is likely to'assume lh-e-approxl – – mate shape of an inside year, one in which neither the 1975 high or the 1975 low is exceeded. Before going to the rationale for this forecast, it Is necessary to reiterate once again the overriding fact which must constitute the background to any market prediction for the 1970' s. That overriding fact, one to which we have been calling attention for five years in this space, Is the flat secular trend which has been the dominant feature of the U.S. equity market since the middle 1960's. Since that time, the market, In terms of the Dow, has spent the bulk of Its time in trading centered around the 800-900 range, precisely the range in which it finds itself today with occasional fluttering and temporary excursions somewhat outside of that range, to the low 600's in 1970 and 1971 and to around 1000 in 1966, 1968 and 1973. Indeed, the very existence of this secular trend makes our inside- year forecast a more plausible one, but one point must be noted. At some pOint, we have no doubt, that trading range will be violated, and our firm belief Is that this violation will take place on the up- side. Such an upside breakout will signal, from a technical point of view, a massive change In the market structure that we have COme to recognize over the past eight years, and, when It takes place, a good deal of stock-market thinking will have to be radically revised. In issuing a forecast with a limited time horizon, however, it is necessary to at least attempt a guess as to when that upside break- out will take place. We think it unlikely that'it will take place at least in the first half of 1976. We pOinted out in last week's letter what we thought were the important facts to note of our market action during 1975. We said, 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 am-ajor market b-ottom;secona7'a-rallycorislitutlrig'a'prrrifarYDullmarketpnase;-a-pnasewnlch; it– is likely, was completed six months ago; and third, an ongoing trading range with many of the charac- teristics of a distributive bull-market phase. The first of these factors constitutes the basic reason that we do not expect the 1975 low to be violated during 1976. We think that the panic condltlonsof late 1974 had all the earmarks of a major cyclical bottom and we are unable to see any of the eVidence apparently perceived by some analysts that the market has embarked on a deflationary downward spiral similar to that of 1929-32. While a short and temporary test of the 1974 lows remains an outside possibility, we do not foresee anything worse on the downside than this. The upside possibilities are the reason we used the word approximate in the first paragraph. As noted above, the available evidence is that we have now entered into a secondary bull- market phase. In such a phase, it is possible, nay, Indeed normal, for the high of the primary phase (881.81 last July) to be exceeded, but market history teUs us it is unlikely to be exceeded by very much. Thus, It would be quite possible to see a new peak during the next year, probably in the first half, without destroying the essential shape of the Inside-year pattern. What Is to be expected following such a high While it is pOSSible, we do not at the moment foresee an Immediate attempt at the sort of upside penetration referred to above. We feel It, first of aU, unlikely that such a penetration would occur in a buU market already evidencing signs of maturity. We find, also, hundreds of Individual stock patterns where the first attempt to move Into the overhead supply existing under previous peaks has hurled prices back sharply, suggesting, In our view, that further consolidation or base-building is necessary before a sustained attack on previous nowpeaks can be mounted. Thus, we would expect, perhaps, during the middle part of the year, a period ofconsolldation -and/or te,lporai'y weakness In 'which partiaUy-cOiiiPleted 'bases can reach a-more mature stage. Once this stage is complete, the second half of 1976 could present a much brighter picture and this, indeed, would be consistent with the historical pattern of Presidential election years which have shown a consistent tendency toward strength In the latter six months. Such strength In the latter part of the year, taking place after stocks have had more time to build meaningful ba ses , might well be a prelude to a move out of the stultifying trading range which has entrapped the st'ock market over the bulk of the last decade. WE WISH YOU ALL A HAPPY AND PROSPEROUS NEW YEAR Dow-Jones Industrials (1200 p.m.) 854.06 ANTHONY W. TABELL S & P Compo (1200 p.m.) 89.68 DELAFIELD, HARVEY, TABELL Cumulative Index (l2/24/75) 481.35 AWT/jb -, No statement or expresSion of opmlon or any other motter herein contained IS, or IS to be deemed to be, directly or Indirectly, an offer or the soliCitation of on offer to buy or sell any security referred to or mentioned The matter IS presented merely for the converlenCE of the subSCriber While we believe the sources of our Informa- tion to be reliable, we m no way represent or guarantee the accuracy thereof nor of the statements mude herem Any octlon to be token by the subscriber lihould be based on hIS own mvestlgatlon and information Jonney Montgomery Scott, Inc, as a corporotlon, and liS offICers or employees, may now have, or moy later take, poslilons or Irade m respect to any secU'llles mentIoned In thIS or any future Issue, and such posItIon may be dIfferent from ony v,ews now or hereofter expressed JT\ thIS or any other Issue Janney Montgomery Scott, Inc. whICh IS registered WIth Ihe SEC as an Investment odv.sor, may gIve adVIce to Its Investment adVIsory and other customers .ndependently of any statements mode In thiS or In any olher Issue Further information on ony security mentioned herein IS available on request