Tabell’s Market Letter – March 18, 1977

Tabell’s Market Letter – March 18, 1977

Tabell's Market Letter - March 18, 1977
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW VOAK STOCK eXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE March 18, 1977 . '. ,C ,The recent short-term action of the stock market remains constructive as the Dow-Jones In- dustrial Averages ad';aced25'10 polntSoVe'r five sfraighftradi aaYstii.rooghWednesday-onlilsweek;- The averages broke out of a minor base on our 2-point and 5-point unit charts, respectively. indicating a short-term upside objective of 974-980. As the averages approach these levels, conventional wisdom would indicate the heavy overhead supply at 980-1020 would necessitate a pause or possible test of the previous lows. It appears we are in the process of broadening a potential base which would be sufficient enough to ultimately penetrate the supply previously mentioned. This type of sideways action leading to a more important base formation is viewed constructively; however. a major ingredient in this process of formation will be time. The New York Stock Exchange earlier this week released their monthly figures of NYSE firms carrying customers' stock margin accounts. Margin debt increased again 10 February and for the 17th month in the last 18 has not declined. Margin customers of the NYSE member firms added 210 million to their indebtedness, bringing a total margin debt to a record 8,480 million at month end. This is the third month in a row customers' margin debt posted an all-time high in the series that dates to January, 1965. The former record of 7,900 million was set in December, 1972. The number of margin accounts for the same period between December, 1972, and February, 1977, has increased from 750,000 to 840,000. Although margin debt is at an all-time high, it is interest- ing to note that the number of margin accounts is still, after almost ten years, well below the level set in September, 1968, when margin accounts numbered 945,000, In the following exhibit, we compare margin debt to margin accounts and show this as a ratio. We have taken the highs and lows of margin debt and compared them to the corresponding major highs and lows of the DJIA. EXHIBIT I . .. . Margin Debt(mll) . Accounts (thou) Ratio June, 1968 ,- High 6690' 940 14.05 Date Dow-Jones n/29/68 .. 985.08 —eo- July,1970 Low 3780 770 20.37 5/26/70 631.16 December,1972 High 7900 750 9.49 1/11/73 1051.70 December,1974 Low 3910 625 15.98 12/6/74 577.60 February, 1976 High 8480 825 9.72 9/29/76 1041. 79 From 1965 to date the range of this ratio is 20.37 high on July, 1970 and 9.35 Iowan Octo- ber, 1972. The ratio tends to be high at market bottoms (July, 1970 and December, 1974) and low at market tops. The relative high ratio in June, 1968, a market high, can obviously be attributable to the large amount of speculation in the market. Also, the ratio peaks before a market high and after a market low. If these observations are correct, the recent or a subsequent j1igh in customer margin debt would indicate the DJIA could be higher at a later date. EXHIBIT II Margin Debt Total Market Value Percentage Date Dow-Jones June, 1968 High 6690 641037 1.043 11/29/68 985.08 July. 1970 Low 3780 531077 .712 5/26/70 631.16 December, 1972 HIgh 7900 872000 .906 1/11/73 1051. 70 December,1974 Low 3910 511054 .765 12/6/74 577.60 February, 1976 High 8270 802504 1. 031 9/29/76 1041. 79 Another way we are able to analyze the customer stock margin debt is to compare it to the total market value of equities listed on the NYSE. From 1965 to date the range of the percentage of margin debt to total NYSE market value has been 1.10 high on September, 1966. and .597 low on January, 1971. Jhe observations see.'! e the sae. J'he hlg!!er !h.e.pentage of !!!.argin debt to mark'..t valtle, the higher the averages and, conversely, the lower the percentage, the lower the averages. Although the above exhibits would allow for stock prices to go higher, one set of figures re- leased by the NYSE would argue this point. Customers carrying margin accounts under 40 equities now stand at 1. 5 billion or 18 of total margin debt. In simplest terms. this means the quality of credit has deteriorated during the month of February with 18 of the debt in accounts in the lowest equity class against 15 in the same class in January. It should be remembered in August of 1974, this ratio reached a high of 23, a series record,and was thought to be a major contributor to the decline in late 1974. Dow-Jones Industrials (1200 p.m.) 962.85 S & P Composite (1200 p.m.) 102.03 Cumulative Index (3/17/77) 661.76 RJS/jb ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY, TABELL No stolemen! or expression of optnlon or any other motter herein contolned Il, or 15 to be deemed to be, directly or Indorectly, on offer or the SollCllotlon of on offer to buy or sell Clny secunly referred to or mentioned The maHer IS presented merely for the (onverlenn of the subscriber While Ne believe the sources of our Information to be rehoble, we In no way represent or gUarantee the accuracy thereof nor of the statements mude herein Any action to be token by the subscriber should be based on hIS own Investlgollon and Information Janney Montgomery Scott, Inc, as a corporation, and Its officers or employees, may now have, or may later take, positions or trades In respect to ony securities mentioned In thiS or any future Issue, and such POSition moy be different from any Views now or hereafter expressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC as an Investment adVisor, may give adVICe to Its Investment adVisory and other customers Independently of any statements mode rn thl or In any other Issue Further information on any security mentioned herern IS available on request

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