Tabell’s Market Letter – November 18, 1977

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 PIVISION OF MEMBER New VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE – November 18, 1977 . –..–…She ,market.technician,has. beOiln.defined, ,most often by…..disbel1evers.in technicalowork,. as . an analyst who is prone to comments on th-e order of, If the 'market goes up, it will go up, and, if It goes down, it will go down. The cavil, of course, is not totally fair, and it can be answered on a number of levels. Perhaps the simplest one, however, is the innocent rejoinder, So what, what's wrong with that What is wrong with it, of course, is that it goes against the grain. We are all imbued ,with the myth of the rational economic decision-maker. It is accepted as given that the only sensible attitude toward trading any good is to attempt to buy cheap and sell dear. How, then, to rationalize buying that which has just lately been cheaper or selling what has only recently been higher-priced How, also, to rationalize the converse, refraining from the purchase of assets now at substantial discounts from recent levels In defense of his own approach, the technician begins with a certain skepticism regarding the ability of others to determine just how cheap Is cheap and how dear is dear. (It is worthwhile to recall, say, the fundamental justifications advanced for buying growth stocks in 1972-73). He can go on to suggest that the idea in purchasing a capital asset, such as a common stock, is not necessarily to buy it cheaper than it has sold In the past, but cheaper than it will sell in the future. If this necessitates buying after an advance, he will aver, the premium Is simply the price one pays for a somewhat higher degree of certainty. The technician further asserts that markets and stocks tend to move In broad price trends which are most often unrecognizable at the instant of their turning. This was the rationale behind the earliest technical precepts, such as the Dow theory, which advocated gauging major movements In the I–…-tock-mak-et-by-measur-ing-.m!nor-'-Gnes .-Itisposs-lble–toquaiTelwith 's-imple-minded,acceptance 'of-the- original Dow theory tenets almost a century after their inception. It Is hard to prove, however, that the baSic premise of the theory is unsound. All of the above is not unrelated to the present case. The DOW-Jones Industrial Average in the seven market trading days between November 2 and November 11 moved up 5.62. Prior to that, it had moved down 20.3 over the ten months which had, to then, comprised 1977. What does this ability to advance suggest regarding future prospects for stock prices To begin with, the 20 decline places us In a rather unique historical category. Only six previous declines of this magnitude have occurred In the past thirty-six years of market history. It seems, therefore, at least worth examining what the ability to rally approximately 5 over a week and a half meant during the course of those previous six declines. If one looks only at the first four drops In question, those of 1946, 1957, 1961-62 and 1966, it is easy to become convinced that recent action Is encouraging Indeed. In the course of these declines, there was noadvance of as much as 5 until such'time as they had largely run their course. (In the latter two cases, a 5 advance occurred before, but fairly close to, the ultimate bottom). The most recent two bear markets, however, tell a different story Indeed. During the course of the 196870 downswing, during which the Dow dropped 45, there were four advances of 5 or more, and three of these were quite protracted, lasting for 54,73 and 47 trading days, respectively. The record of the most recent bear market, that of 1973-74, Is even more discouraging. That one,whlch reached Its high of 1051. 70 In January, 1973 and Its low of 577.60 on December 6, 1974,included no fewer than 13 flve-percent-or-greater advances. Most of these were of rather short duration, but at least one, – that of August-October; 1973; lasted 46 trading' days .'Ori tliis most recent record, It\votild -seem 'ad– vlsable to do less than wax ecstatic over a 5 1/2, shorter-than-two-week rally. We are, therefore, loath to do so, yet on the record, as we have suggested, the doctrine that the market will go up If It goes up is not all that bad. It Is worth remembering that each of the 20 declines referred to above were followed by advances ranging In amplitude from 32 to 354. If the present short-term rally can prove Itself by advancing to significant further new highs or by extendIng itself in time appreciably, the upside prospects will be worthwhile Indeed. We are perfectly w!llIng In this Instance to accept the premise that strength begets strength. Dow-Jones Industrials (1200 p.m.) S & P CompOSite (1200 p. m.) Cumulative Index (11/17/77) AWT/jb 836.54 95.30 665.75 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No statement or expression of Opinion or any other metier herem contClined IS, or IS to be deemed to be, directly or indirectly, on offer or the soliCitation of on offer to buy or sell any security referred fa or mentioned The motter IS presented merely for the convePlenceJ of the subscriber. While we believe the sources of our Informa tlon to be rehable. we 1(1 no way represent or guarantee the accuracy thereof nor of the statements ml,lde herein Any action fa be talen by the subSCriber should be based on hiS own Investigation and ,nformation Janney Montgomery Seott. Inc. as a corporohon, and Its officers or employees, may now have. or may later toke, posItions Of trades In respect to ony secuflhes menllaned In thiS or any future Issue, and such POSltlOr'l may be different from any views now or hereofter eo;pressed m thiS or any other Issue Janney Montgomery Seoll. Inc, which IS registered With the SEC as on ,vestment adVisor, may give adce to Its Investment adVisory and othel customers mdependently of any statements made In thiS or In any other Issue Further information on any seCtHIty mentioned herein 15 available on request