Tabell’s Market Letter – December 17, 1976

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBEI'I NEW YORK STOCK eXCHANGE. INC MEMBER AMERICAN STOCK EXCHANGE December 17, 1976 The season has arrived in which we traditionally fill this space for a fortnight with our two-part'foreeast for the-upcoming ,year,. – We,suppose-.that-thisqear ,-, more -than-any-year, ,we.. should – be tempted to discontinue the practice. We uttered in this letter, 51 weeks ago, the memorable state- ment, 1976, we think, is likely to assume the approximate shape of an 'inside year', one in which neither the 1975 high or the 1975 low is exceeded. As Tom Wolfe might say, Zap!!!. The 1975 high of 881.81 was exceeded on January 6, the third day of trading in the new year, and the Dow went on to move above 1000 on an intra day basis for the first time in February. One of our friends and valued clients has spent the year calling us Mr. Inside. Such are the perils of the forecasting busi- ness. In partial mitigation, we will note that we did underline the word approximate and went on to suggest that we suspected that the market had entered a secondary bull-market phase, not- ing that it would be quite possible to see a new peak during the next year, probably in the first half, without destroying the essential shape of the inside-year pattern. The new peak, indeed, arrived with embarrassing rapidity, but subsequent action was more or less what we had in mind, albeit that that subsequent action took place at a level 100 points higher than we suspected it would. After reaching 1000 for the first time in February, the Dow, as we all know, penetrated and repenetrated that magic level no fewer than 12 times during the rest of 1976. It further confused the issue by posting a false upside breakout to an intraday high of 1026.26 in September, holding that high for about two days and then moving to a disturbing new low of 924.04 on November 10, this breakout apparently as false as the previous one had been. As this is written, there is some evidence that a new upward move is under- way. Although the Dow is not yet in new high territory, our Cumulative Index is chalking up new peaks for 1976 and breadth, as we noted last week, is showing unusually positive action, havmg soared to .' .ct.,is iv,.JQ 7.Q.highs overthe pas.t two-eeJ!loJh. tl1e Dow .and the…& P !iOQJ1Y.!' O\ove.d s ttrply ouL of their September-November trading ranges and the year-end ralli,; is apparently underway in tradi- – tional fashion. We couched our forecast last year in terms of primary and secondary phases of a bull market. That bull market has advanced, in 1976, to the point where we must now be thinking in terms of a tertiary phase. Indeed, a new buzz word has emerged among financial writers, that buzz word being third leg. It is based on the popular belief that there are invariably three legs to a normal bull market, a belief which probably arose from a body of theory called Elliott's Wave Principle, which has long been an often-valuable forecasting tool but which is a great deal more complicated than a Simple belief in tripartite upswings. Part of the copious comment on the question of the three legs arises from the distinct and obvious shape of the bull market to date. The current upswing began, it will be recalled, from a slough of despond two years ago with the Dow having moved below 580. Over a seven-month period it rose sharply to its July, 1975 high of 881 whereupon it spent the entire second half of 1975 in a trading range between, roughly, 800 and 840. It now becomes evident, with 20/20 hindsight, that that trading range was the correction of the first leg of the advance which occupied early 1975. 1976, in turn, duplicated the previous year's performance in a way few markets, in our memory, have done. As we noted above, it moved sharply upward in an obvious second leg over the first two months of the year. It then spent from February to November, in terms of the Dow at least, doing essentially nothing. The essential difference between 1975 and 1976 was that in the latter year the upswing phase was shorter, two months instead of Six, and the subsequent sideways movement more protracted. .. Thus, the interest in the third leg.- We tfilnk it probable that such a leg has 'begun and; – , indeed, it has, in fact, done so in terms of a number of indices which, as we pOinted out above, have, as of this moment, soared to new bull market peaks. It would be a not-unusual development to see this strength continue into early 1977. What will be crucial, however, is the length and vigor of that continuance. We are dealing, let us remember, with an upward cycle now two years old which, based on the historical record of past bull markets, is, if not senility, at least advanced middle age. The extent to which the current upswing can sustain itself into 1977 will be crucial in drawing conclusions regarding the basic secular market trend. We intend to discuss this subject at some length next week. A VERY MERRY CHRISTMAS TO ALL Dow-Jones Industrials (1200 p. m.) S&P Composite (1200 p.m.) 984.71 104.88 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (12/16/76) 644.17 AWT/jb No stotfment or expression of opinion or any other motter herein contolned IS, or IS to be deemed 10 be, directly or indirectly, on offer or the sollCltotlon of on offer 10 buy or sell any security referred to Of mentioned The motter IS presented merely for the conVI'!ilence of the subscriber While oNe believe the sources of our Informotlon to be reliable, we In no woy represent or guorontee the occurocy thereof nor of the stotement& mude herein Any action to be token by Ihe subscnber should be based on hiS own InVesllgatlon and information Janney Montgomery Scott, Inc, as a corporation, and 11& officers or employees, may now have, or moy laler toke, posiTIons or trades III respect to any securiTies menlloned III thiS or any future 1Ue, ond such position tTIoy be different from any views now or hereafter expressed III ttliS or any other Issue Janney Montgomery Scott, Inc, whIch IS regltered With the SEC as on IIlvestment adVisor, tTIoy give adVice to Its IIlvestment adVIsory and olhel custotTIers Independently of any statements mode III thiS or III any other Issue further ,nformat,on on any security mentioned herein IS available on request