Tabell’s Market Letter – March 04, 1977

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETOH. NEW JERSEY 08540 DIVISION or MEMBER NEW YORK STOel( EXCHANGE, INC MEMBER AMERICAN STOCK eXCHANoe But thought's a weapon stronger; March 4, 1977 We' W a i.- l t l – win a – I1–t our tle l-'0– obnag-tetlr-e-s. by T its aid;- – – – – 'T- .,.. The Good Coming, Charles Mackay This letter has often sermonized in the past on the virtues of Charles Mackay's book, Extraor- dinary Popular Delusions and the Madness of Crowds. We have even gone so far as to say that anyone not familiar with the history entailed therein ran serious risk of finding himself Ill-equipped to deal with the stock market. Mackay's book Is probably the best extant history for the lay reader of such bizarre events as the SOlth Sea Bubble, and the Holland Tulip Bulb Mania, along with a chapter, which makes Interesting reading in the light of today's fashions, on the Influence of politics and religion on the hair and beard. A fact that may not be widely known, even among those familiar with the book, is that Mackay, a Scotsman who lived from 1814 to 1889, earned his primary reputation as a poet, and the quote above Is taken from one of his poetiC efforts. The quotation Is, we think, as applicable to the current stock market as his book is to markets In general. There has been a distinct change which has taken place in the past three or four weeks In the character of the stock market. It Is certainly one deserving of notice and the application of Mackay's stronger weapon, 1. e., thought. Thought and analysis will, we think, help us a great deal In formulat- ing a forecast as to the future course of stock prices. However, before suggesting any drastic change In investment policy, we prefer, with Mackay, to wait a little longer. The change which has affected the market in recent weeks can be summarized very simply; It has turned weaker. This may not be totally apparent to those who have watched the Dow-Jones Industrial Aver- age rebound twice with moderate vigor from around the 930 level. What is taking place, however, Is exact- ly the reverse of what this letter consistently pointed out was happening in December and January, when a lackluster performance by the-Dow was-masklng-a- m-arker1liat WaSilfl-lfclualitY/acUng verywe11. 'in-the .- past few weeks, exactly the reverse has been the case. The DOW-Jones Industrials have been the strongest component of the market, a fact which can be documented by the following table. DJII DJ Trans. DJ Utll. S&P 500 Mld-february Low 926.03 2/11 221.14 2/14 104.84 2/15 99.51 2/14 Late February Low 926.20 2/25 Amex Index 219.91 2/28 Cum.Index 104.23 2/28 Bdth.Index 98.82 2/25 Mld-february Low 111.79 2/14 653.11 2/14 832.99 2/11 Late February Low 110.20 2/28 641.41 2/28 830.49 2/25 As we are all aware, the general market ceased Its decline In mid-February and then staged a mild rally before resuming Its downtrend. Of all of the averages documented above, including our Cumula- tive Index and ,Dally Breadth Index, all went to new lows at the end of February, with the Cumulative Index, In our view the most accurate measure of the overall market, posting a new low by a substantial amount. Only the Dow was able to hold above Its mid-February low and is now, Indeed, rallying off that low. The question Is, of course, what we are to make of this phenomenon. The lows of mid-February and late February are, In all cases, close enough to each other so that,lf a rally were to continue from these levels, we would have a potential for a so-called double bottom. The upside Implications of that double-bottom base formation are not, at the moment, too terribly excltlng,and we, for one, would prefer to see backing and fllllng around current levels so that a base suggesting a meaningful advance might be formed. The likelihood of such an event Is strengthened by the fact that most of the averages have now moved above the downtrend channels projected from the year–end highs to their lows of last month. Those bullishly Inclined will cite the fact that the renewed strength in the Dow may Indicate that this segment of the market has completed Its correction and that, once the other Indicescomplete-their own correctlonary phases, the market can again get Itself Into gear on the upside. Our own Interpretation of indiVidual patterns suggests that this argument is, indeed, not without plausibility. It Is further true that none of the averages mentioned above have, at their recent bottoms, broken their November lows, lows which from a technical point of view, do, In fact, have true significance. Indeed, only the Dow and the S & P are close to their levels of last November. All of the other indices remain well above them. In short, the question of whether the November lows will be broken or whether the double-bottom thesis will prove to be valid remains unresolved. Before It can be resolved, we will, It seems to us, have to walt a little longer . Dow-Jones Industrials '1200 p. m.l S & P Compcs Ite (1200 p. m.l Cumulative Index (3/3/77) 951. 80 101.11 651. 23 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWT/jb No statement or expression of op'nion or any other motter herein contolned IS, or IS to be deemed to be, directly or ,ndirectly, on oHer or the soliCitation of on offer to buy or sell any security referred 10 or mentioned The motler IS presented merely for Ihe convcrlence of Ihe subscnber Wl'l!le.JIc believe the sources of our lnformolIOn to be reliable, we In no way represent or guorontee Ihe accurocy Ihereof nor of the statements mude herein Any acllon 1-0 be token by the subSCriber !inould be bosed on hiS own Investlgolton and Informotlon Janney Montgomery SCOll, Inc. as a corporation, cnd Its offlCers or employees may now hove, or may loter loke, poSitions or trodes In respect 10 any seculltres mentioned In thIS or any future Issue, and such position may be different from OilY views now or hereafter expressed In thiS or any other Issue Jonney Montgomery Scott, Inc, which 15 registered With the SEC as all Investment adVisor, may gIVe adVice to Its Investment adVisory and othel customers mdependently of ony slotements mode In Ihls or In ony other Issue further ,nformatlon on any security mentioned herein Iii availoble on request