Tabell’s Market Letter – April 23, 1976

–… TABELL'S MARKET LETTER 909 STATE ROAD. PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER New YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGe April 23, 1976 We have attempted in recent issues of this letter to emphasize two concurrent themes. We have tried to pOint, first of all, to some of the signs of loss of momentum in the stock market -aninosuCggestttiat-deve16pmeri1s'inthlSareWOulilc6iitlriue to-Dearw,Hiiling-.We-havealSotrled— to suggest, on the other hand, that excessive bearishness at this stage of the game prior to the emergence of further negative evidence might tum out to be somewhat premature. The second part of this reasoning was vindicated, at least temporarily, by the market action of last week, as the Dow moved ahead to a new cycle closing high of 1011.02 on Wednesday, a lthough the intra-day peak of 1017.71, achieved on Thursday before profit-taking set in on Thursday afternoon and Friday morning, just failed to match the March 24 intra-day high of 10 18.03. The Industrials' high was confirmed by new closing and mtra-day peaks in the Transportation Average. Thus, by the only objective standard, the 1974-76 bull market remains, at least as of midweek, In effect. This shouB be hardly surprising to those who have Studied market histor. A correction of intermediate-term proportions after an upswing is barely three months old is an event almost wlth- O'lt historical precedent. Furthermore, as we have suggested in the past, the most logical upside target on the Dow centered on the 1030-1080 range, and, while the lower part of that range has been approached, the upper part has yet to be attained. Thus, further strength, although probably on the same sort of irregular basis that has prevailed since mid-February, appears a reasonably likely prospect. What the market strength has unfortunately not done to date is dispel a number of clouds which have begun to appear on the horizon since the market's rise began decelerating at the end of February. One of these clouds, which we discussed at some length in our letter of two weeks ago, – – – – I-ha s been.thedjsa ppointingactionf .breadth .mdices ,most.of. whichseac.hed .theirpea kJoack.in February and have failed to move to new high territory since despite a series of three successive new highs on the Dow. As technical analysis has grown in popularity, the use of breadth has re- ceived increasing recognition, and indices based on advance-decline statistics now appear in many publications and are watched by a great number of investors. We do not feel that this increased popularity decreases the value of breadth observations one iota. The fact that breadth is lagging the Dow is a simple indication that fewer stocks are advanCing and this is a warning that should not be ta ken lightly. A number of factors, however, should be pOinted out. The first is that there have been often lags of as much as six months, where breadth has turned down before reversing itself and mcv- ing on to new peaks. A perfect and recent example is the mild consolidation which characterized the second half of 1975. At that time our own breadth index dropped off from a July high of 807 to a low in mid-September of 777, a drop of some 30 points. Nonetheless, when the market finally turned at the end of 1975, by mid-January, 1976, breadth had moved up and achieved a new high. What should further be underscored is that the decline in breadth in 1976 so far has been relatively mild. In 1975, as noted above, the breadth index moved down by some 30 pOints from high to low. The decline in 1976 to date took the index from 827 in February to 815 a week ago, a total drop of only 12 points. Some five of those pOints have since been recovered so tha t a seven-pOint rise would erase the potential divergence which exists. Such a rise could easily be produced by five or six strong trading days and, were this to occur, the divergence which has been worrying us aand others over the past month would instantly evaporate, and the likelihood of further prolongation of the upng, from tlmep'olnt of viewat'ieast, Would be greatly increased. – – – – It is not our mtention with all of this to encourage wide-eyed optimism. The potential breadth divergence does still exist and, as we suggested last week, distributional patterns are be- ginning to appear. However, almost uniformly, they are of a minor nature and are appearing in only a small number of stocks. The emergence of such patterns at the mature stage of a bull market is not an uncommon phenomenon and, absent further evidence of weakness, should be of little concern other than to holders of the stocks involved, who may want to act on them based on their own invest- ment objectives and trading philosophy. Evidence on the general market that has appeared so far, however, consists more of potential cause for future worry rather than incentive to immediate action. Dow-Jones Industrials (1200 p. m.) 1003.38 ANTHONY W. TABELL S & P Compo (1200 p.m.) 102.63 DELAFIELD, HARVEY, TABELL Cumulative Index (4/22/76) 605.75 AWT/jb No tolement or expreslon of oplOlOn or cny other motier herein contOlned I, or IS 10 be deemed 10 be, directly or mdlrectly, on offer or the OIU;llot,on of on offer to buy or sell any securrty referred to ar mentioned The moiler IS presented merely for the COnVellenCC of the subscrlber While we believe the sources of our Informahon to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Any action to be token by the subsrlber should be based on hiS own Investigation and information Janney Montgomery Scolt, Inc, as a corporation, and lIS offlers or employees, may now have, or may later lake, POSitionS or trades In respect to any secunlles menhoned In thiS or any future 15SUe, and such POSition may be dlfferenl from any views now or hereafter expressed In this or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Investment adVisor, may give adVice to Its Investment adVISOry and othel cvSlomea Independently of any statements mode In thiS or In any other Issue Further Information on any security mentioned herein IS aVailable on request