Tabell’s Market Letter – January 23, 1976

TABELL'S MARKET LETTER I \ I I 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBeR NEW YOFIK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE January 23, 1976 The third week of 1976 provided just about as much in the way of upside fireworks as tlie'msT1woMonaay's-markElt sWw-,,–I,'!'poinCadvanc,noanew highonne'Dow-and-on-1'U;jS – ..,.. day, what was, around noontime, a modest decline reversed itself and turned into another six- point advance. Wednesday's trading followed the same pattern, with a sharp decline in the early morning turning into a move to a marginal new high in the afternoon. Shortly before the close a mild sell-off, which continued on Thursday, set in. Not unexpectedly, most breadth indices, by last week, had confirmed the new peaks in the major averages, thus underscoring the probability that the advance which started last December, however far it may eventua lly wind up carrying, will ultimately be viewed, in an his- torical context, as the second leg of the major bull market which began at the end of 1974. To those of us whose profession is commenting on the stock market, there is always some pressure to venture a guess as to how far any move underway, may eventually carry. We are reluctant at the moment to put forth any hard and fast opinion on the subject. A basic prin- ciple of technical work is that the ultimate extent of a given move depends upon the size of the accumulation base which precederl it. The problem at the moment is that there is some difficulty in determining just what was the base for the current upsirle move. One interpretation would have it that the base was formed over the July-September period and that the sirleways trading of Octo- ber-December was simply a consolidation pr eceding the January takeoff. Under this view, the Dow had alreacly reached Its most plausible upside objectives at recent highs. If one, however, is to view all of the second half of 1975 as part of the base formation, somewhat higher upside objectives, modestly above the 1000 level,are, indeecl, readable. – – – -'–The 'point -is..,.,-howeverl that-itis -not-really-necessary to-spenda -great -dea-I-of4ime – .. at this stage in trying to formulate upsicle targets. We have tried to clraw in this space in the past the nistinction between forecasting and investment policy, emphasizing that while the form- er is an interesting exercise and often necessary, it is the latter that rletermines stock market profits. Many investors seem to be nervous about advancing markets, feeling that they will, somehow, turn around on a dime and crash back to whence they came. The one thing that a study of market hIstory tells us is that this, indeed, is seldom the case. The most bearish possible assumption that one could possibly make about the current market is that the high scored th,s week constituted a major peak, an unlikely assumption, it must be emphasized, but a possibility. The following table takes seven major market peaks over the past 23 years and shows the percentage decline on the Dow at selected later monthly intervals A close look at the figures should give some reassurance as to the minimal downside risk posed at this point. PERCENTAGE DECLINE NO. OF MONTHS LATER Date of High I2 3 4 5 6 9 12 Jan. 5, 1953 -0.88 -3.05 -6.34 -5.33 -8.90 -7.92 -9.57 -3.35 Apr. 6,1956 -1.57 -7.77 -3.25 -1.38 -2.16 -7.64 -5.22 -8.06 Jan. 5,1960 -7.95 -11.04 -9.76 -10.87 -8.24 -6.50 -15.71 -9.33 Feb. 13,1961 -3.46 -2.80 -1.55 -6.40 -10.82 -23.39 -17.81 -12.21 Feb. 9,1966 -6.75 -5.82 -10.02 -10.39 -10.95 -15.74 -18.61 -13.83 Feb.-3,-1968- -6.49 -3.91 -6.-52.-5.. 25 .-2.78-8.18 -16.18 -20.42- Jan. 11, 1973 -5.72 -6.93 -8.34 -13.50 -12.95 -15.76 -7.19 -19.99 As the table quite clearly shows, there has inevitably been some period well after past market peaks when prices were down from that peak, but only a monest amount. Even in cases like 1968 where the initial declme was sharp, there was, as the table mdicates, some, subsequent recovery. It is for this reason that we prefer not to indulge at the moment in the forecasting game. What the market has incontrovertIbly shown us, at least as of mIn-week, IS that bull market conn itions are still unrlerway. Confucius' well-known anVlce about the inevit- able, Relax and enjoy it, appears applicable in the present instance. Dow-Jones Industrials (1200 p.m.) 948.60 ANTHONYW. TABELL S & P Compo (1200 p.m.) 98.70 DELAFIELD, HARVEY, TABELL Cumulative Index (1/22/76) 553.19 lIWT/jb No stctement or expreSSion of opinion or any other matler here'n contomed IS, or IS 10 be deemed 10 be, dHec11y or Indirectly, on offer or the 501'ClI0110'l of O'l offer 10 bll)' or sell cny security referred 10 or mentioned The mOiler IS presented merely for the conver-rence ef the subscrrber Whrle we belreve the Ources of our rnformohon to be relroble, we In no way represent or guarantee the occurocy thereof nor of the stclements mode herem Any actron to be teken by the subscriber should be based en hrs own Investigation and information Jenney Montgomery Scott, Inc, as 0 corporatron, and Its offrcers or employees, may now hove, or may later take, peslhons or trades rn respect to any seCUrities mentioned rn thrs or any folure Issue, ond such pesltlon may be ddferent from any views now or hereafter expressed 1M thiS or any other rssue Janney Mentgamery Seoll, Inc, which IS registered With the SEC as on mvestment adVisor, may give adVIce to rts Investment adVISOry and other customers Independently of any slotements mode In thiS or In any other Issue Further .nformallon on any security mentioned herein rs available On request