Tabell’s Market Letter – November 19, 1976

Tabell’s Market Letter – November 19, 1976

Tabell's Market Letter - November 19, 1976
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 081540 DIVISION OF MEMBER NEW YOAK STOCK eXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE November 19, 1976 A fair degree of strength manifested itself on the stock market scene last week as the Dow- Jones Industrial Average moved sharply ahead from its early November low, notably in a twelve-point -''l'huts day rally –Tne'imProve ment'wa s 'hot onfined to-th-elh-dus trial-segmentof-';he-mak-et'a sth-e — – Utility Average, for example, simultaneously moved ahead to achieve a new three-year high. Trading . volume expanded moderately from its recent sluggish levels reaching 24 million shares on Thursday. Despite this week's strength, the market, in our view, remains in a somewhat uncertain state,and it is perhaps worthwhile to consider the nature of this uncertainty. In such a process, it is always best to start with the known facts. The first known fact is that, as of September 21, we were still in a major bull market, most major averages having posted new peaks around that date, enough above their 1974 lows to deserve the appellation. The second known fact is that, since that time, through November 10, the Dow has declined just under 9, a figure which, on an historical basis, qualifies the drop as an intermediate-term decline. The problem, of course, is that major declines, the sort that end major bull markets, inevitably pass 9 somewhere on the way down. The central question, therefore, consists of whether the recent,weakness is the start of a major bear mar- ket which will firmly fix the end date of the 1973-75 major upswing at September 21 or an intermediate- term decline which mayor may not proceed a bit further but which, at some point not too far from current levels, will reverse itself and produce a worthwhile upside move. As we have stated in previous issues of this letter, the strongest argument in favor of the major-bear-market scenario is the pattern on the Dow-Jones Industrial Average which, if it is read as a distributional top, does, indeed, suggest a decline of major proportions. As we have also been pointing out, however, this weakness has been largely localized. It is a strange bear market, indeed, when the utilities, as noted above, post a new three-year peak. The Dow-Jones Transportation Average has alre'ady reached the downside objective of a minor top and ha's moved into an uptrend on a horttermDas is MosfOnhToroaa;based'inorces'1iioVea'Oown -olTth-eTecennvea kh'e'ssto-tes!'their-;– lows of last summer but did not decisively penetrate those lows,and, as we tried to suggest statisti- cally last week, breadth deterioration has been relatively minor, thus suggesting that the average stock has been acting nowhere near as badly as the widely-followed Dow. We have thus chosen, as our readers are aware, to operate for the time being on the assump- tion that the present weakness is intermediate-term in nature, rather than the start of a major collapse. Operating on this assumption, however, poses another dilemma for the forecaster in that intermediate- term bottoms often tend to be more tentative and difficult to identify than major lows. At the time of truly important market bottoms, the existence of a bear market is already firmly established, and we can look for those familiar Signs of a selling climax which so often suggest that a trough has been reached. At intermediate-term lows, these Signs are seldom present, and identifying the bottom con- sists of recognizing a sequence of events which normally develop as the market halts its slide and starts to move ahead. Such will undoubtedly be the case in the present instance. Last week's market strength was sufficient to turn some of the most sensitive technical indicators to a bullish configuration. The problem with sensitive indicators, of course, is that while they rarely fall to identify bottoms, they are prone to false signals. It is, at the moment, only this sort of indicator which has turned positive, thus giving scant ground for an unreservedly optimistic forecast. The next step in a chain of events suggesting an intermediate-term bottom would be an up- side penetration by the Dow of its mathematically-computed downtrend channel, the upper limit of that channel being currently at 947. Obviously, this has also taken place, but it would have to hold fora few-days to be considered'decTsive'AstllClaler'step woul;rbthe'aliilitYcifthe'Dow to reach – , 968 (a comparable figure is 103 on the S & P 500). This would move the index out of its most recent trading range and suggest, at the very least, an attack on the overhead supply from last summer. Meanwhile, we must continually be aware of any developing evidence that our original hypothesis is incorrect and that a major decline is, indeed, in the offing. This would have to take the form of further broad deterioration in large numbers of individual stock patterns and has not, to date, occurred. We have commented in the past on the inadvisability of rushing out with forecasts at a time when the evidence is incomplete. Such, we believe, is the case at the present. Dow-Jones Industrials (1200 p.m.) 950.38 S & P Composite (1200 p.m.) 102.03 ANTHONYW. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (11/18/76) 602.19 AWT/jb No slotemer'l' to bvy or sell or expression of opinion or any other ony security referred to or mentioned matter herein The matter IS contolned presented IS, or IS 10 be merely for the cdoenevmee…dre1n0cboef, dlrect!y or .ndlrectly. the subscriber While on we offer or believe the the soliCitation of sources of our on offer Infarmo lion to be reliable, we In no way represent or guarantee Ine accuracy Inereaf nor of the statements mode herein. Any action to be token by tne subscriber should be based on hiS own Investlgallon and Informolron Janney Montgomery Scali, Inc, as a corporation, and Its officers or employees, may now have, or may loter toke, positions or trodes In respect to any securIties mentioned In thiS or any future Issue, and such pOSition may be different 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 other customers Independently of any statements made In thiS or In any other Issue Further Information on any security mentioned herein IS aVailable on request

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