Viewing Month: January 1977

Tabell’s Market Letter – January 07, 1977

Tabell’s Market Letter – January 07, 1977

Tabell's Market Letter - January 07, 1977
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TABELL'S MARKET LETTER 909 STATE ROAD. PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE r January 7, 1977 The stock market tried, at least in the first few days of 1977 trading, to obliterate a 79-year01d record;. As we stated'in this space-last.week -and hav,e r,eiteratedin previqusstudes, an identifiable year-end rally has taken place in every year since 1897. Stated in more precise terms, this means that there has never been a case where there has not been at least one January close higher than the highest December close subsequent to the December low. The Dow posted its December peak on the last trading day of the year at 1004.65 and then spent the first three days of January moving downward before a recovery set in in early-Thursday trading. Thus, to date, at least, the year-end rally has not been extended into 1977, something that has invariably eventuated ever since the Dow-Jones Industrial Average has been computed. We find ourselves unable to become unduly worried about this behavior. Certainly, on a short-term basis, the market, at the end of December, was in an extreme-overbought condition, and at any stage of the game profit-taking was to be expected. We still feel, as we said in our year-end forecast of two weeks ago, that the market strength will extend itself at least into the early part of the new year. As we suggested in that same letter, it is whether the market will have the ability to extend that strength into the latter part of 1977 that constitutes the major question mark facing investors at this time. One possible clue as to 'Whether the market possessed the vitality to extend the advance which began in December, 1974 would be a broadening of leadership, and such a broadening of leadership has, in past bull markets, often been characterized by strength, in the late stages, on the part of secondary, more speculative issues. Throughout the most dynamic part of the upswing to date, leadership has been provided by the basic-industry, cyclical issues, which had, by the early 1970's, become undervalued in relation to the rest of the market and which were to -enjoy dramatic profit'improvement-a-s-the1-9-74- recovery-got underwaYT'Thus-,-the Dow ,which-con tained a great many such issues, outperformed the market in the early stages. As compared to the broader S & P 500, for example, the Dow, three days after it made its low in December, 1974, was selling for 8.8 times the S & P. By the fall of 1975, a few months after the market had peaked for that year, the Dow had moved ahead to 9.78 times the S & P 500. Thus, action during this period was largely concentrated in the sort of issue contained in the Dow. The Dow's best level in relation to the S & P in 1976 was scored on March 9 when it sold for 9.88 times the 500, a figure not too different from the fall-1975 relative high and the peak level to date. Ever since the first quarter of 1976, the Dow has been declining relative to the S & P and in early December sold at only 9.25 times that average. Thus, through the first three quarters of 1975, leadership was focused on the Dow. For the last quarter of 1975 and first quarter of 1976, the Dow and S & P performed equally well, and, since the first quarter of 1976, the broader S & P has been outperforming the Dow, thus suggesting some broadening of leadership. That leadership is broadening still further is suggested by the action of our Cumulative Index relative to the S & P 500. At that index's best relative level in 1976, it sold for 6.23 times the S & P index. Throughout the rest of the year it declined moderately on a relative basiS, but the past three weeks have seen renewed strength, and it is now at 6.31 times the S & P, its best relative level since the bull market began. Since this index includes all stocks listed on the New York Stock Exchange, the weight accorded secondary issues is proportionately greater, thus suggesting that these issues may have begun to show above-average market action. A final fact which may be worthy of note is the fact that, of all indicators, the Amer- ican Stock'EXChangeValuatlon-liidex moved, as of just yesterdayc- as a-matter-of fact, to its nesr— level relative to the S & P 500 since the bull market began. Both the Amex index and the Cumulative Index moved to decisive new highs early this week while the S & P was able only to equal its previous high and the Dow remained well below it. While all this may be but a straw in the wind, it is also possible that it constitutes the first phase of renewed interest in secondary issues. Such renewed interest could go a long way toward prolonging the bull market. Dow-Jones Indus'trials (1200 p.m.) S & P Composite (1200 p.m.) Cumulative Index (1/6/77) AWT/jb 979.64 104.82 664.06 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No statement or expreSSion of opinion Or any other matler herem contolned is, or IS 10 be deemed 10 be, directly or mdnec1ly, on offer Of the sohcltatlon of on oHer to buy or sell ony ecurlty referred to or mentioned The motler IS presented merely for Ihe convef'lence of the subscriber While we believe Ihe sources of our mformo- lion to b!! fellabl!!, we In no way r!!pres!!nl or guarantee the accuracy thereof nor of the statements mude herem Any action to be token by Ihe subscriber should be hosed on hiS own IOv!!sllgatlon and Informallon Janney Montgomery Seott, Inc. as a corporation, and Its officers or employees, may now have, or may laler toke, pOSitions or Irades In respect to any securities mentioned m thiS or any future Issue, and such position may be different from any views now or hereatrer exp'essed m thiS or any other usue Janney Montgom!!ry Scott, Inc, which IS registered with the SEC oS on mvestment adVisor, may give adVice to Its investment adVISOry and athel customers independently of any Ualemems mode In IhlS Of In any other Issue Further information on any secuflty mentioned herein IS available on request

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Tabell’s Market Letter – January 14, 1977

Tabell’s Market Letter – January 14, 1977

Tabell's Market Letter - January 14, 1977
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON NEW JERSEY 08S40 DIVISION OF MEMBER New VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGe – january 14, 1977 The past two weeks of stock market action can be. characterized by two adjectives, surprising ,.,;..andconfusing .. –…. -v-.w— L..,– — – -T-'-''''''''' The element of surprise stems from the known reliabllity of the year-end rally as a seasonal pattern. It stems, also, from the relatively short memory of most investors, whose most vivid memories are of most recent stock market history, I.e., 1976 and 1975. In both years, it will be recalled, the market took off like a skyrocket at some point in December and continued upward into january and February after which it spent most of the latter part of the year dOing absolutely nothing whatsoever. Clearly, the formula for success in those two years was to be long stocks as the year began, for it was in the first quarter that the bulk of upside action was concentrated. Apparently in expectation of the same sort of thing, investors spent the entire month of December, 1976, bidding up stock prices. Thus, the surprise when the market immediately turned down as the new year began. The confuSing aspect of the market arises from the fact that the major averages, as we tried to suggest last week, are, at the moment, giving a highly distorted picture of what is really going on in the marketplace. The Dow, which moved to a closing low of 968.25 on Wednesday before rallying sharply in Thursday's trading, was on a closing basis, then 36 pOints below its December 31 high. Yet, whlle all this was going on, no fewer than 461, or more than one of every five issues listed on the New York Stock Exchange, managed to post new 1976-77 highs in the week ended january 7th. On january 12th, the day the Dow achieved its low, 44 issues were, nonetheless, able to post new one-year peaks. Almost uniformly, all major indices of market breadth and vitality continue to show positive action. In market environment such,as this one, those who love to create reasons for stock market behavior have a field day. Since it was agreed almost universally by the experts that the market was supposed to go up in the first two weeks of january, there must, so the reasoning apparently goes, be underlying factors which were not taken into account to explain why the market moved in the opposite direction. thus, two ';;-idely-cIted reasons'Ior the'market's-ffio,hng-,ioi;t last week were'i)ai'fse' in-tne wl'lol-eSaIe–'-h-.,,-, price index and 2) disappOinting earnings on the part of one of the Dow components, International Paper. As usual, we remain unimpressed by reasons of this nature. It is only necessary to look at the record to see that we have had plenty of good markets in the past in the face of rises in wholesale prices and, whlle disappointing earnings may well account for International Paper's moving down, we fall to see why this should apply to the general market, especially since, by and large, fourth quarter projections remain reasonably good. The accession of a new President, especially one such as Mr. Carter whose intentions remain somewhat enigmatic, provides a fertlle environment for the professional creators of reasons. It can be sagaciously explained, a) that the market went up because Mr. Carter's economic programs were going to stimulate the economy or, b) that it went down because the very same programs were inflationary, depending, of course, on which direction the market takes. We have no doubt that the spring of 1977 will constitute a period in which each and every move on the part of the new Administration is seized upon as a reason why the stock market is doing whatever it is, at the moment, doing. As technicians, we continue to prefer to ignore the so-called reasons for market action and allow the market to tell its own story. It is, to date, at least, despite a still rather mlld downswing in the popular averages, indicating robust good health. Quite obviously, the weakness of the first two weeks of 1977 could be the start of some sort of market deterioration. There is, however, absolutely no indication at this point that such is the case, Meanwhlle, as far as downside targets are concerned, most logical objectives center around the 960-950 area in terms of the Dow. This area was touched on an intraday basis on Wednesday,but we would not be surprised by asl1ght fuftherpenetration. Thts area'colncldes-with'fairly-strong support from'the – I October-November base. Of course, since a decline bottoming out in the 960-950 area would appear the most plausible action, there is always the possibility that the market will again do something surprising, something in the vein of the false downside breakout of last September or the non-existent january rally of the past two weeks, Such a surprise could easlly take the form of a downswing which, temporarlly at least, moved lower than expected. Absent more convincing evidence of market deterioration than has yet been seen, however, we would counsel against being panicked by such an eventuallty. Dow-jones Industrials (1200 p.m.) S & P CompOSite (1200 p.m.) Cumulative Index (1/13/77) AWT/jb 972.07 103.89 662.95 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No ltotement or expreSSion of OPiniOn or any other mOiler herein contained IS, or IS to be deemed 10 be, directly or indirectly, an offer or the solicltallon of an offer to buy or sell any eunly referr 10 or mentioned The motter IS presented merely for Ihe conVef'lenCE of the subSCriber While we believe the sources of our Information to be reliable, we In no way represent or guorontee the accuracy Ihereof nor of the statements mude herein 1ny action to be toen by the subSCrIber should be based on hiS own Investigation and Information Jonney Montgomery Scol1, Inc, OS a corporation, and Its offlcer& or employees, may now hove, or ma\, later toke, P011tlons or trades 111 re1pect to any seCurities mentioned 111 thiS or any future ,ssue, and such pOSitIOn may be different from any views now or hereafter e)rpressed 111 thiS or any other Issue Janney Montgomery Scott, Inc, whICh IS registered With the SEC as on Investment adVisor, may give adVice to Its ,vestment adVisory o'ld other cusomers IIldependently of any statements mode, thiS or 111 any other Issue Further Informallon on any security mentioned herein IS available on request

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Tabell’s Market Letter – January 21, 1977

Tabell’s Market Letter – January 21, 1977

Tabell's Market Letter - January 21, 1977
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, TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE Tanuary 21, 1977 We cited in last week's letter the fact that the Wall Street Tournai chose to ascribe one -particularly bad'stock-market 'day 'a 'forfnight ago tothe-reporting'oflower'earningsby one-of,the Dow'com- ponents. On Wednesday, the Tournai's lead article was entitled Bottom Line Blues, and It named a host of companies whose fourtlHjuarter earnings were likely to be disappointing, raising, in the process, the question of what effect the disclosure of these earnings might have on the stock market. We have always had the greatest respect for the Tournai's financial reportage, but we must confess to some degree of skep- ticism as to the effect of quarter-to-quarter earnings changes as far as the stock market as a whole is concerned. Although we personally belong to that small minority of analysts whose professional special- ty is the analysis of price action, we have never felt that the huge resources devoted by the financial community to fundamental analysis were less than worthwhile. Indeed, we have always subscribed to the belief that stock prices, over the long run, are a product of a stream of future earnings and dividends. There is, however, another factor that goes into the determination of prices. That is investor confidence, which, in one sense, can be expressed by the amount the market is willing to pay at a given time for a given dollar of earnings. We think it can be documented that this latter is the more important variable in determining stock price changes over the short-to-medium term. We have buttressed this thesis by a recent study. If earnings and stock prices both change in the same direction over a given time period and the earnings change is equal to or greater than the price change, then It can be said that all of the price change can be ascribed to the change in earnings. If both price and earnings change in the same direction but the price change IS less, then only a portion of the price change can be ascribed to earnings change,and the rest must be ascribed to a change in price/ earnings ratio. If earnings and prices move in oppOSite directions, then, obvIOusly, the entire change is ,due–to acha nge-ininvestor confidence. ,Our studyexamwedthe, quaderto-,quartero priG.echange9.nthe, , ' Dow starting in 1930 and compared it with the quarter-to-quarter earnings change. In 84 of 184 quarters, changes in the P/E ratio explained 100 of the change in stock prices during the quarter. In only 47 quar- ters were earnings changes able to account for the entire price change during the quarter. On average, changes in the P/E ratio accounted for 62.7 of all quarter-to-quarter price change while earnings changes accounted for only 37.2 of quarter-to-quarter price change. The results holo good even when longer pe- riods are examined. In 22 of the past 46 years, all of the change in prices on the year has been explained by a change in multiples. As we all recall, this was especially true in the last three years, when, in 1973 and 1974, the market declined sharply in the face of rising earnings, after which It rose in 1975 in the face of sharply lower earnings. Changes In the P/E ratio have accounteo for 62.4 of the annual varia- bility of the Dow and changes in earnings only 37.6. Another way of determining the relative impact of earnings changes and P/E ratio changes on the Dow is to undertake the following exercise. Envision two hypothetical analysts whose task is to fore- cast price change over a given time period.. Suppose that,in the beginning of each period,one analyst has exact foreknowledge of what earnings are going to be for the period. However, he has no means of ascrib- ing a proper P/E to these earnings so is forced to use the P/E ratio for the prior perio,d. Let us, by contrast, take another analyst who presumes absolutely no foreknowledge of earning-sbut who somehow is able accurately to forecast the P/E ratio which will exist at the end of a given period. For his earnings estimate, he simply uses the latest twelve months earnings — in other words, assumes no earnings change whatsoever. We compared the results of the two above approaches on a quarter-to-quarter basis starting in 1930. The analyst who wasable to forecast the,P/E ratio at the end of agiven quart,er,and used I'.e, –earigs ending- at thebeginningof that quarter hadan'av'eragefo-;'cast error of 5. 62' By'contrast, 'the -, hypothetical analyst who was able to predict earnings with 100 accuracy but who applied the previous quarter's P/E ratio thereto had a forecast error of 8.15. On an annual basis, foreknowledge of the P/E ratio for the next year coupled with no foreknowledge of earnings produced an annual forecast error of 19.5. The forecast error for the oppOSite case was just under 24. All this only reinforces a point we have made for some time — that Investor confidence is a crucial ingredient in determining the intermediate-term course of stock prices. We suspect the present market has reached a point in the cycle where such will be particularly the case. We hope to have the opportunity to discuss this In future issues of this letter. Dow-Tones IndustrIals (1200 p. m.) 957.70 S & P Composite (1200 p.m.) 102.81 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (1/20/77) 665.05 AWT/jb No statement or expreSSion of opinion or any other moiler herein contolned IS, or IS to be deemed to be, directly or Indirectly, an offer or the soliCltotlon of on offer 10 buy or sell any seC\Jrlty reFerred to or menTioned The matter IS presented merely for the conver'!ence of the subscriber While we believe the sources of our IMforma tlon to be reliable, we In no way represent or guoronteB the accuracy thereof nor of the statements mude herem Any oellOn to be toen by the subSCriber should be bosed on h'5 own ,nvest.gat,on and Information Janney Montgomery Scott, Inc, os a corporation, ond Its officers or employees, may now have, or may later toe, POSitiOnS or trades In respect to ony securities mentioned In thiS or any future Issue, cnd such POSition mav be different from any views now or hereafter expressed rn thiS or any other Issue Janney Montgomery cott, Inc, which IS registered With the SEC as on Investment adVisor, moy give adVice to Its Investment adVisory and othe. customers Independently of any statements mode In Ihl5 or In any other Issue Further information on a'ly security mentioned herein IS ovallable on request

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Tabell’s Market Letter – January 28, 1977

Tabell’s Market Letter – January 28, 1977

Tabell's Market Letter - January 28, 1977
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TABELL'S MARKET LETTER 909 STATE ROAD, PRtNCE1'ON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE January 28, 1977 – , .-We attempted in this space last w.eek to advancethe.thesis.that changesin.itlvestorcon- -. fidence, symbolized by the price the market would pay for a dolla r of earning power, tended to exert a more powerful effect on the short-to-intermediate term course of stock prices than did changes in that earning power. We concluded by VOicing the suspicion that the market had entered a phase where this would be particularly the case, Certainly it has been the case over the past year. Earnings on the Dow-Jones Industrial Average hit their recession low of 75.47 in the year ended September 30, 1975, when they com- pleted an almost-25 drop from a peak of almost 100 a year earlier. Since that time, earnings re- covery has progressed nicely. The Dow earned 95.81 for the year ended September 30, 1976, and, although the recent economic slowdown may dampen December somewhat, a recovery to above the 100 level should take place shortlY,and, indeed, according to many analysts, an earnings level of 110-120 for the index is possible at some point in 1977-78. Yet in the face of all this, as we all know, the Dow has done absolutely nothing, standing today at just about the same level it stood in February, 1976, despite the fact that earnings at that time were still mired at recession levels. The entire 1976 market, therefore, can be viewed as a period in which the market evinced increasing skepticism regarding 1976-recovery earnings, being willing to pay, as the year wore on, less and less for those earnings as the earnings improved. If one charts the price/earnings ratio for the current bull market rather than the price itself, one finds that the high was attained back last February when, with the Dow at a high of 994.57, investors were willing to capitalize 75.66 of then- tra!ling-12-month earnings at 13.1 times. Ever since that time, the price/earnings ratio has been declining, and, assuming some modest earnings improvement)n thejourth…9uarter,.tr'liling earrj!I9e.. – are no;'; bi;;gvalued at a;0-;;d9—5timesat cue;;t pices .- –.- — . – – – — . – . — — There are a number of things that can be said about this phenomenon. Fust of all, it cannot be reiterated too strongly that the figure is abysmally low on an absolute historical basis. Indeed, the price/earnings ratio low for every major bear market since 1937 has been around or, in most cases well above, the current figure with the two single exceptions of 1949, when at its low, the Dow stood at 6,8 earnings and the recent bear market low, when in December, 1974, it stood at an incredible 5.8 times trailing 12-month earnings. We suspect that both these occurrences constituted water- shed lows which are unlikely soon to be repeated. What, however, are we to make of the fact that the price/earnings ratio has been tailing off now for almost a year. If we look at the experience of the 1930' s through the 1950's, it is a somewhat less-than-encouraging sign. During this period, peaks in the pie tended to be more or less coincident with market peaks. Since the 1950's, however, a new tendency seems to have emerged. In 1966, for example, the pie ratio peaked some 13 months before the Dow itself. Prior to the 1968-70 decline it peaked with a lead time of 15 months, and, in the most recent bear market, the pie ratio topped out in April, 1971, a full 21 months before the ultimate market peak m January of 1973. It is interesting to note that, in all these cases, earnings continued to rise well after the peak in multiples had been achieved. We, thus, had, in each instance, a phenomenon similar to the present one, a case where the market was placing increasingly lower multiples on improving earmngs. Another interesting factor is the extent to which multiples have traditionally declined during past bear markets. The 1966 bear market saw the Dow multipleco..n!!actrom 19.5 to 13, a 33. de- – cline— The 1968 corr-eCtioniilvolV-ed a decline-froin-I77-tiestolr.7'iimes, a drop of; -roughly;-the same magnitude. Percentage drops of even less magnitude were characteristic of the 1950's. Only the 1973-74 bear market witnessed a decline of appreciably greater size,with the pie declining 66. The interesting thing is that, at the moment, the pie ratio has already declined by some 27 from its high of a year ago. Since earnings are likely to improve in 1977, it could continue this slide without any appreciable effect on stock prices. If an investor conridence recovery then sets in, the upside effect on prices could well be quite exciting. Dow-Jones Industrials (1200 p.m.) S & P Compo (1200 p.m.) Cumulative Index (1/27/77) AWT/Jb 957.78 101.79 664.69 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No statement or expreulon of opinion or any other matler herein conlalned IS, or IS to be deemed to be, dorectly or indirectly, an offer or the 50llCilOlion of an offer 10 buy or sell onr. security referred to or mentioned The matter IS presented merely for the canvellence of the subscriber While we belieVe the sources of our informaTion to be rei lab e, we In no way represent or guarantee the accuracy thereof nor af the statements mude herein Any adlon to be taken by Ihe subSCriber should be based on hiS own InvestigatIOn and Informallon Janney Montgomery Scott, Inc, oS a corpora lion, and lIS officers Of employee, may now have, or may later toke, positions or trades In respect to any seCUrities mentIOned In thiS or any future Issue, and such POSition may be different from any views now or hereafter e)fpressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Investment adVisor, may give adVice 10 115 If\vestment adVisory and C1thel customers Independently of any statements mode In thiS or In any other Issue Further infOrmatIOn on any seaJflty mentIOned hcraln IS available on requaSI

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