Tabell’s Market Letter – March 11, 1977

Tabell’s Market Letter – March 11, 1977

Tabell's Market Letter - March 11, 1977
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DrVISION OF MEMBER NEW YORK. STOCK. eXCHANGE, INC MEMBER AMERICAN STOCK. EXCHANGE March 11, 1977 We noted in this space last week that, despite the market's having held around recent lows, no meaningful base which would suggest an lmmediate substantlal advance had yet been formed. ,,, 'Th1sWeek's-decline froifl'a Iuesaayil\tra-'daVlfiICor-91i-0-tOThu'fsdaY'-s- low of 938 prtortba-late-' — , Thursday rally could very well be the start of the sort of Sideways action that would lead to a more important base formation. One item prominently featured in this week's financial news was the sharp increase in mutual-fund net sales, whlCh reached 141 million for the month of january. This was the highest in- flow of cash into mutual funds since january, 1975 and, with that single exception, the largest net inflow since October, 1971. Actually, the increased cash inflow had been foreshadowed by a rise in sales to their highest level since 1969 in December, year-end sales flgures of 661 million being the third highest figure recorded for any month Since the data has been mamtained. This rise was offset during that month by a sharp, probably tax-mduced, one-month mcrease m redemptlOns. In january, sales were almost the equal of December, and redemptions dropped off to a more normal level. Thus, the record cash inflow. After 18 months of consecutive net redemptions, through last October, the funds had modest net sales in November and December followed by the near- record net sales figures for the first month of 1977. It is interesting to note that mutual fund managers were not mclined to react to the influx of new money. All of it went toward a buildup in cash positlOn and, indeed, some 59 million worth of stocks were sold during the month, raising cash positlOn at a percent of net assets to 6.44, the highest level m a year. It must be stressed, in looking at these flgures, that the analysls of mutual fund statistics is a tncky business and has become more so in recent years., The first th10g that must be noted is the meanmglessness of netted figures such as net sales, net redemptions or redemptions as a per- cent of sales. This has been due to a secular trend toward net redemptions which has existed through- out much of the 1970's, possibly reflecting well-advertised public disinterest 10 the stock market. The a– … -problem can be solved-by 100king-atialesanaCeaempt1onsasseparate items-atherth'an as net– – figure. The other fact to keep in mind in looking at fund statisllcs lS that we are looking at the behavior of two sets of individuals. When we look at such things as sales and redemptions, we are examining the behavior of the mutual fund mvestor. When we look at such data as changes in cash pOSItion, we are noting decisions made by the mutual fund manager. With this in mind, let us look at a few statistics — first of all, fund redemptions. The historical tendencies of th,S statistic have been that lt dries up sharply during bear markets, rebounds a bit after bottoms and then begins a new sharp rise as a bull market gets underway, reflecting, no doubt, investors' tendency to sell as they get even. Generally, the level of redemptions levels off fairly close, but in advance of, the end of a bull market. The last redemption peak was 10 early 1976, and was nearly equalled last December. Since a leveling off-tendency has been apparent for about a year, data on redemptlOns would tend to suggest cautlOn at the moment. When one looks at sales, however, a different story presents itself. Historically, sales tend to dry up along with redemptlOns during bear markets. After rebounding a bit, they generally do little durmg the early stage of upswings and, generally, commence a sharp increase around the middle of a bull-market cycle. Thus, the rise 10 sales to almost all-time peaks m the past two months must be considered an encouraging factor and would, lf it were to continue, suggest a healthy market. Finally, an analysis of the amount of their portfolio that mutual fund managers have chosen to retain in cash leads uS to some interesting conclusions. Cash position generally tends to reach a peak near major market lows, to decrease sharply as bull markets get underway and, finally, to remain flat for a period of time, increasmg again as bear markets begin. Thus, cash positlOn reached anBlltime hlgh of-13. 5 a month before the bottom-m1974'a-rfd decnn'ed toa-low 01 54-3 last- September– – , October. Last week's rise to a new high was only modest, and this actlOn during 1976 could be attributed to a slmple flattening of the cash posltion curve. Such a flattening has generally persisted in the past for as much as two or three years pnor to bull market peaks, agam suggest10g longer life for the current upsw lng. The most bulhsh configurahon of mutual fund data in coming months would consist of a contlnuing rise in sales accompanied by a like rise, at a somewhat slower rate, 1n redemptions. Thls should also, on an h1stoncal basis, be accompanied by a w1lhngness of managers to invest the cash 1nflow so that overall cash pOSition rema1ns stable. It will be 1nteresting to see If such action, in fact, takes place. Dow-jones Industrials (1200 p.m.) S & P CompOSite (1200 p.m.) Cumulatlve Index (3/10.77) AWT/Jb 948.39 100.74 618.76 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No statement or e)(preSSlon of oplrllon or any other molter herein tontalned IS, or 1 to be deemed 10 be, directly or Irldlrectly, an offer or the soliCitation of an offer to buy or sell any secuTity referred to Or mentioned The malter 1 presented merely for the canveT'lence of the subSCriber While oNe believe the sources af our Informa tlon to be reltable, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Aoy actIOn 10 be toen by the subKrlber should be based on 1115 own Investigation and information Janney Montgomery Scott, Inc, as a corporal lon, and Its officers or employees, may now have, or moy later take, POSitions or trades Irl respect to any securles mentioned In 1hls or any future Isue, and such pOSition moy be different from any views now or hereofter expressed In thIS or any other Issue Jonney Montgomery Scott, Inc, whtch IS registered With the SEC os on Investment adVisor, may give Cldvlte to Its Investment odvlsory and othel customers Independently of ony stotements made In thiS or In any other Issue Further Information on any security mentioned herein IS OVOilabie on request

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