Tabell’s Market Letter – November 04, 1977

,/ v —, TABELL'S MARKET JLETTER 909 STATE ROAD. PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORI( STOCK eXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE November 4, 1977 This letter has reiterated at various times In the past the rather simple axiom that moving objects. This Is an assertion that should surprise'-noone,tocksare .A- —- – ….,………..- —-,.,.- -''-.-,,- especially following –the market of the past few weeks, when the'movement h'as'beEfn all1oo a-pparentand -Ifs'-dlrectlon quite clearly down. It Is necessary, however, periodically to remind oneself of this truism since the techniques Involved In analyzing stationary and moving objects are, In fact, quite different. A stationary object can be viewed Simply In terms of Its location at a given point In time, 1. e., Its level. A moving obj ect has to be thought of not only In terms of its level but also In terms of direction. We have often used the analogy of two airplanes at Identical altitudes, one In a tail- spin and the other In a controlled, powered climb. Despite their Identical levels, one's attitudes toward being a passenger on the respective planes should be quite different. If one considers nothing more than the level of the current stock market, It Is very difficult to become concerned. It Is, Indeed, even arguable that current equity prices are, on an historical baSiS, highly attractive. This Is certainly the view espoused by large numbers of corporate managements who have, in the recent past, been willing to make bids to take over en- tire companies at prices Significantly above the levels at which the stock market was valuing them. The same sort of judgment is reinforced by looking at stock prices In relation to current earning power and dividends. When this sort of measure is employed, It becomes apparent that the mar- ket is now priced not too far from those levels which characterized the bottom in 1974, a period we know in retros pect to have been a unique historical opportunity. It Is when we start looking at direction that we begin to have difficulty with the Cur- rent climate for equity prices. It certainly does not require sophisticated technical analysis to recognize the fact that the current direction of prices is downward and has been so since the first 0t-the ,yar. It.has, mOleover, been downward with a persistence and la.k,arial1lity w,hiC;'hi..S. 1 relatively rare in stock market downswings. In addition, there Is' reasonably al5undant evidence – – that the weakness, which was confined to a relatively narrOW segment of the list at the beginning of the year, has, in recent weeks, been spreading to broad numbers of stocks. The number of new lows being attained on a daily basis attests to this quite vividly. In the face of this sort of evidence, It Is obviously rather hard to react with wild ecstasy to the current level of stock prices, however attractive that level may be on the basis of historical comparison. Nonetheless, that attractive level remains a fact of stock-market life and will probably remain so for some time. Its existence as a fact should, if we are rational, make us all the more enthusiastic over any visible evidence that downSide momentum is waning or re- versing. To this end, we presented last week a rather detailed analysis attempting to assess whether recent action had, in fact, been symptomatic of a market turn. We were forced to come to the regrtful conclusion that such was not the case. It must, however, be admitted that this sort of conclUSion Is one that can legitimately be reversed at any moment. It would, in other words, be fairly easy for the market, in a very short time, to produce the kind of performance which would suggest the advisability of a highly aggressive stance toward equities. There remains Insufficient space here to document in detail the sort of evidence which the stock market would have to provide, although we may have the opportunity to comment on this sort of thing In future Issues. Basically what Is needed, however, Is more volume and more fluctuation. Until last week, at least, volume had been holding around levels which had characterlzed it all the waythrough the decline. An historical symptom of market bottoms, by con..-.. – trast, is shrplY e';panded VOlume, -bOth on the-downside and subsequently 0;; the upside. – Llke— wise, fairly Violent fluctuations in both directions tend to be characteristic of bottoms. The warning flag provided by a few days of truly severe market decline followed by a distinct and broad rebound would, similarly, constitute bullish evidence. These signs may manifest them- selves at any moment and, were they to do so, would call for a sharp reversal of attitude as re- gards Immediate stock-price prospects. Until such action takes place, however, consideration of the direction of the stock market must take precedence over recognition of Its admittedly attractive level. Dow-Jones Industrials (1200 p. m.) S & P Composite (1200 p.m.) 806.31 91.16 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (11/3/77) 627.93 AWT/jb No stalement or eKpresslon of opinion or any other matter herem conto!ned IS, or 1 to be deemed to be, directly or Indirectly, on offer or the soliCItation of on offer to buy or sell ony security referred to or mentioned The mailer I preented merely for the Convef'lcnce of the subcrlber While we believe the sources of our Information to be reliable, we In no way represent or guarantee the occuracy thereof nor of Ihe stotements mude herein Any achon to be token by the subSCriber should be based on hiS own Investigation and information Janney Montgomery SCalf, Inc, a5 a corporation, and Its officers or t'mployees, may now have, or may loler toke, poslhons or trades In respect to any securilies mentioned In Ih,s or any future Issue, ond such position moy be d,fferent from any Views now or hereafter expressed In thIS or any other Issue Janney Montgomery Scott, Inc. which IS registered With the SEC as on Investment adVisor, moy give adVice to 11 Investment advisory ond othel customers Independently of any statements mode In this or In any other lSue Further Information on ony seC\wty mentioned herein IS ovorlable on request