Tabell’s Market Letter – December 10, 1976

Tabell’s Market Letter – December 10, 1976

Tabell's Market Letter - December 10, 1976
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TABELL'S MARKET LETTER 909 STAl'E ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEM8EA NiW YORK STOCK. EXCMANGE, INC MEMBER AMERICAN STOCK EXCHANGE , December 10, 1976 For the past few weeks, this letter has been harping, perhaps to the point of boredom, on two themes. The first of these themes related to the difficulty of recognition of intermediate-term -bottoms–We-noted-tlla-( tnelnarkefas slowlyputU;gtogethetei chaillof evidence suggestu;gtlia' an intermediate-term low might have been made at 924.04 on the Dow in early November, but that that chain was as yet incomplete. We pointed out that the most sensitive technical indicators had turned positive shortly after the low in mid-November and that the downtrend channel from the Septem- ber 21st high to the early November low had been violated. We suggested, however, that more evidence would probably be required. The second theme has been hammered away at, not only by ourselves but also by practi- cally every regular commentator on the technical action of the stock market. That theme relates to the obviousness of the fact that the widely-followed Dow has been underperforming the stock market as a whole. To a degree unprecedented in our own memory, at least, the pecularities of the Dow's construction and the identity of its components have caused it to distort the true image of what has been taking place in the marketplace. Both these themes were underscored in last week's market action. The week was gener- ally on the firm side, even as measured by the DJIA, starting off with an ll-point rally on Monday and following that up with a seven-point rise in Thursday's trading. However, the Dow, as usual, was a good deal less than the entire story. We have been noting for most of the past year, at vary- ing intervals, that one of the' nagging disturbing facts about the stock market was the inability of daily breadth indices (although not weekly ones) to confirm peaks made as long ago as last February. That state of affairs came to an end this week as our daily breadth index reached a figure of 829.64. That particular number will have no Significance to most investors, but its importance lies in the fact that itdecis ively .penetrates -theHgure-of-82 6-.93,whichwas-achieved- back-on-February 24of-this .,..-.- year and which had never been exceeded until this week. This action is, to say the least, unusual. The common relationship between the Dow and breadth indices is that they will move into new high territory within a few days of each other. Some- times the Dow will lead by a week or so and sometimes vice versa. Here, however, we have a situa- tion where breadth is achieving a new peak while the Dow remains some 50 points below its high for the year and some 30 pOints below the February high associated with the prior peak in breadth. Equally interesting is the action of OUr Cumulative Index. This index, it will be recalled, measures the action of all NYSE-listed issues and managed to close on Thursday at 636. B2 achieving an intra day high of 639.24. This figure represents a decisive new high for the year above previous peaks scored first in February, then in July and lastly in late September. That particular new high takes on even more significance when the long-term pattern for the Cumulative Index is observed. Essentially, what the index has done is to break out of a trading range between, roughly, 575 and , 625 which has contained it for the bulk of 1976. This trading range is almost a mirror image of a sim- ilar trading range which occurred between December, 1973 and April, 1974 before the index deClined to its all-time low around 350 in late 1974 and then recovered to its present level. We have, in other words, in this particular measure of all NYSE activity, a potential head-and-shoulders base whose upside implications are, to say the least, impressive. Finally, even the underperforming Dow itself provided us last week with something im- pressive. We had been drawing attention to the fact that ability of that index to move above 966 would represent an upside breakout from a trading range which has existed since late.Septelllber.. That breaJoui;- of-course, took -p1ac in Thursday's' tradtngandaffords at least the- suggestion thatthe most widely-noted market indicator might follow the other less-well-known ones into new high ground. We do not wish to suggest that the picture on the stock market scene is one of tULoi bwet- ness and light. Even the most cursory technical observer will note the existence of heavy overhead supply in the Dow just above current levels. We are, moreover, obviously in the mature stage of the bull market which began at the end of 1974 and, as would be expected at such a mature stage, we are seeing deterioration in a number of individual stock patterns. It is certainly a stage of the upswing where stock selection and the elimination from portfolios of weaker groups will be more and more im- portant. Despite all this, we think the positive implications of last week's stock market action can hardly be ignored. Dow-Jones Industrials (1200 p.m.) 969.66 S & P CompOSite (1200 p. m.) Cumulau.e Index (12/9/76) 104.4B 636.82 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWT!jb No stotement or expression of opinion or ony other motle( herein tontomed 15, or IS 10 be deemed to be, drreC1ly of mdlfectly, on offer or the sol,clloon of on offer to buy or sell any securIty referred 10 or mentioned The molter IS presented merely for the converlenc! of the subSCriber While He believe the sources of our informatIOn 10 be reboble we 1M flO way TePTeel\1 01 9IJcrCl'llee he occurccy Ihereof nor cf Ine statements. mude herem Any ac'lOn to be tolen by the subscriber should be based on hiS own',nvesllgat,on ond Information Janney Montgomery Scoll, Inc, as a corporation, and Its officers or employees, may now have, or may later toke, posilions or trades 1M respect to any securilies mentioned In thiS or ony future Issue, and such pOSition mey be different from any views now or hereofler epreSed III thiS or any other Issue Janney Montgomery SCali, Inc, which IS registered With the SEC as on Investment adVisor, m!ly gIVe adVICe to is Investment adVISOry and othel customers Independently of any statements mode In thiS or 111 ony other Issue Further mformoTlon on any security mentioned herein IS available on request –

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