Tabell’s Market Letter – February 06, 1976

— —— – —o– TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIYISION OF MEMBEA NEW YORK STOCK EXCHANGe, INC MEMBER AMERICAN STOCK EXCHANGe February 6, 1976 Last week's issue of this letter discussed the fundamental possibilities regarding an ulti- mate upside breakout from the trading range having a rough ceiling around current levels which has – – effectively cQnfinedcthe DQw-Jones.IndustriaLAverage -since themid-19 60s .-It isperhaps. a-ppr-opriate-'i'''' to return this week to our normal role and discuss the same pssibillties from a technical point of view. What, indeed, is the technlca I evidence so far that the present advance constitutes the first phase in a major upside breakout from what has been a 12-year long plateau and a move to a new and higher normal range for the DJIA and stock prices In general It Is tempting to try to draw conclusions from the astounding market strength of January which, incidentally, constituted the seventh strongest single month since 1926 and the strongest month of the postwar era with a 14.41 advance In the Dow being posted. However, it Is precisely the rarity of an advance of this magnitude that makes it rllfficult to draw analogies. The next best month of the postwar era was, Interestingly, January, 1975, with a 14.19 advance. November, 1962, saw a 10 advance and April, 1968, an 8 advance. These all constituted, in effect, the take-off rallies for what later proved to be major bull markets. However, they all came after sharp market de- clines, not, as did the current advance, after a six-month period of consolidation. One must be hesi- tant, therefore, we think, to generalize about future prospects based on the rapidity of the current rise. (An Interesting sidelight, incidentally, is the appearance of the two strongest rallies of the postwar period in the month of January in each of the past two years. Is this a statistical aberration or a new pattern In today' s institutionally-dominated market) If one turns to conventional point and figure analysis, where time, of course, is not a fac- tor, it now becomes apparent that the base for the current advance was formed over the entire second half of 1975, and that the upside objective Is now,in all probability, in the 1030-1080 range. Ability of the Dow to reach these levels would, indeed, constitute an upside breakout from the trading range —!. we are-ta-I-king'aboutton-Y'onLamargina-1 bas1-sandon-ewhtch';'wefeel, vuuw-nor- De rel1ecionYn'Wn–f–. out the accompaniment of additional technical evidence. The significant development in the present market is not, we think, taking place In the averages, whose major components are beginning to reach short-term upside objectives. It Is in the broadening of the advance to include important numbers of secondary stocks, stocks which effectively have been ignorerl in the marketplace for the past four or five years. As we a 11 know, the advance through the end of 1972 featured the development of the two-tier market in which the institutional growth favorites len the parade. This mania collapsed of its own weight in 1973-74, and the leaders of the subsequent bull market have, of course, been the cyclical issues contained in the DJIA, which, in a sense, have been recovering from the abnormally low comparative valuations placed on them at year-end 1974. The growth favorites of three years ago, interestingly enough, are not participating to any great degree in the current advance (averages of major growth stocks are the only ones at the moment not posting 1975-76 highs). What is taking place is that seconrlary issues are now apparently completing base-building formations and slowly moving into what may be major uptrends. We examine each week some 1500 individual issues and total the number in major and minor up and down trends. The nadir of investor confidence was attained at the end of 1974 when fewer than 2 of all stocks remained in major uptrends and 90 were in major downtrends. By July of last year, this situation had improved to the point where 21 of all stocks were in major long-term uptrends, and around 58 remained in major downtrends. That figure, interestingly enough, did not increase signif- icantly during the consolidation of late 1975 reaching a peak in October of only 60. As of thiS week, we had returnedjusalout theevels of last July Jp termof.percentg!,, of ,tck.. w!!ic!',have. broken out into major uptrends, the sort of uptrends which tend to suggest newall-time cyclical highs. What is also significant is that the number of stocks in major downtrends has now been re- duced to just over half the list indicating that base-building, on a longlange basis, is continuing. It is the continuance of this sort of process, if, indeed, it does continue, that will give us the final piece of evidence that a new market era has, indeed, begun. If the present advance IS to be sustainable on a long-range basis, It must broaden to include not only the large institutional favorites but a wide range of listed issues. The fact that such a broadening could now be well underway is, to us, the single most encouraging facet of recent market history. Dow-Jones Industrials (1200 p.m.) 960.96 ANTHONYW. TAB ELL S & P Compo (1200 p.m.) 99.87 DELAFIELD, HARVEY, TABELL Cumulative Index (2/5/76) 585.79 AWT/lb No statement or expre5slon of OpinIon or Clny other motter herem contolned IS, or IS 10 be deemed to be, dlrealy or indirectly, on offer or the SOllCIlolion of an oHer to buy or sell any security referred 10 Or mentioned Tne molter I presenled merely for tne conver-leneE of tne sublcrlber Wnlle 'lie believe tne sources of our informa- tion to be relloble, we In no way rep-esent or guarantee tne accuracy tnereof nor of tne statements mude herein Any oclion to be taen by Ihe subscflber snould be bosed on hts own Investlgotlon and Informolton Janney Montgomery Scolt, Inc, os 0 corporat.on, and lIS officers or employees, may now hove, or moy loter toke, posttlons or trodes In respect 10 ony S!Kurlhes menttoned In thiS or any future Issue, and such pOSition may be different from OilY VieWS now or hereafter expressed In thiS or ony other Issue Jonney Montgomery Scali, tnc, which IS registered WIth the SEC os on Investment adVisor, moy give adVice to ItS tnVestment adVisory ond othet customers Independently of any slotements mode In thiS or In any other luue Further Information on any security menttoned herein IS aVailable on request