Tabell’s Market Letter – April 15, 1977

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY OB540 DIVISION OF MEMBER NEW YOAK TOCK EXCHANGE, INC MEMSER AMEAICAN STOCK EXCHANGE April 15, 1977 The stock market continues its somewhat schizophrenic behavior. We commentedinthis ,space twoweeks.ago'aboutthe markets .strange..action foHow- ing the rally which took the Dow to the mid-970's at the end of March. The aftermath of this rally, at a time when it might have been logical to expect continued strength, was a sickening plunge in late March and early April to new IS-month lows. In the process a large number of widely-followed indicators (although not all of,them) moved out of year-long trading ranges on the downside. Con- ventionally, this might have foreshadowed accelerated weakness. Instead, the market chose, this week, to move up — sharply, on reasonably good breadth and with increasing volume. It is, perhaps, as good a time as any to bring up the subject of breakouts from trad- ing ranges. The word is a familiar one in technical jargon, and readers will be familiar with its use in this letter. The concept of a trading-range breakout is a perfectly valid one from an ana- lytical point of view. It can be justified on the rather simple premise that,if an object is gOing to move from point A to point B, it must pass various pOints in between along the way. Thus, if a stock is going to move, for example, from 50 to lOa, it must, at some pOint, pass, say, 60. The burden of technical work is to determine whether 60 in this case is more or less significant than 56 3/4 or 69 7/8. It is, in our experience, possible to determine such significance only imper- fectly. This does not, of course, suggest that the attempt should not be made. The simple-minded follower of breakouts, however, has had a hard time of it lately. On September 22, the Dow reached a new high for 1976 at 1026.26, in the process breaking out of a trading range which had contained it since February. That high lasted for precisely two days, following which the average'sank to a new low at 917.89 on November 10. That low was immediatelY'foHowedby-a-move-to aJanuary-3rd-intra'day-peak of-l-007 .-8-1 -Th-e aftermathof tnat — new high, interrupted by the late March rally, was a new low at 909.74, a couple of weeks ago. This downSide breakout led in tum to this week's rise. The whole picture becomes even more confused when we start looking at averages other than the Dow. In the case of a large number of indices, the early January peak, for exam- ple, was well above the One made in September. As noted above, some, but not all, of the other market indicators followed the Dow Into new low territory early this month. The situation has approached the point wherewhatever one's personal predilection, bullish, bearish or neutral, he has little difficulty digging up some average which will support his view. . In such an environment, as we have been trying to suggest since the first of the year, it seems folly to pay too much attention to the averages or to become too terribly concerned about breakouts by a few pOints in one direction Or another. The market has, for almost a year now, been subject to all manner of cross-currents with patterns developing in widely divergent directions for individual stocks. This whole picture has been further complicated by the fact that stocks not in the popular indices (or little represented in those indices) have acted demonstrably better than the more widely-followed,larger companies. By and large, however, the bulk of in- diVidual stock patterns, especially when viewed on a long-range basis, appear relatively attrac- tive. That there has been some deterioration in the overall picture in the past six months is a fact which cannot be denied. The problem for the technician is in gauging the seriousness 'of that deterioratio-n. Wh'en-'compared, for example;' with the sort of'masslvettecnnlCal weakness – that manifested itself in the late 1960's or in 1972-73, the technical damage appears miniscule. The current investor acceptance of a declining market as a normal phenomenon, something we re- ferred to last week, argues further against excessive pessimism. On the other hand, we would not want to become bemused by this week's rally. By itself it has, we think, only minor significance. Eventually, along with all the other false starts which have characterized the past six months, it will become part of a pattern which will lend it- self to analysis. While we await that eventuality, there are, in our view, a large number of attractive havens in equity markets for investment funds. Dow-Jones Industrials (1200 p.m.) 949.46 ANTHONY W. TABELL S & P Composite (1200 p.m.) 101.15 DELAFIELD, HARVEY, TABELL Cumulative Index (4/14/77) 659.23 AWT/jb No statement or exprelon of opinion Of any other matter herein on'alned IS, or 15 1o be deemed to be, directly or indirectly, an offer or the soliCItation of on offer 10 buy or sell ony security referred 10 or mentioned The mollet 15 presented merely for The conVCl'lcnce of The ubscnber While -He believe the sources of our Informohan To be relHJble, we 1M no way represent or guarantee the occurocy thereof nor of the sTatements mude herein Any action to be token by the subSCriber should be based on hiS own investigation and Informat.on Janney Montgomery Scali, Inc. as 0 corporollon, and Its offIcers or employees, may now have. or may later toke. pOSitions or trades In respecr to any seeuritlcs mentioned 1M thIS or any future Issue, ond such pOJlllon may be different from ony vIews now or hereafter expreued In Ihls or any other luue Janney Montgomery Scott, tnc , whIch IS regIstered WIth the SEC as on Investment adVIsor, may gIve adVICe to lis Investment adVISOry and olhe. customers Independently of any statements mode In thIS or In any other lSue Further 'nformot,an on any securIty mentIoned herem IS available on request