Tabell’s Market Letter – December 09, 1977

TABELL'S MARKET I LETTER 1 I J 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVIBION OF MEMBER NEW VORK STOCK EXCHANGE. INC MEMBER AMERICAN STOCK EXCt-lANGE December 9, 1977 One of the reasons that technical analysis of the stock market has managed to hold '– –our -unflagginginterest for the'past -24 -yeacs-is thatit'isa subjectat 0nce-simpleand'inflnitely .- complex. In practice, technical work may involve numerous difficult and highly esoteric tech- niques including the application of some of the more abstruse branches of higher mathematics. And, yet, at the heart of it all are a few eminently simple principles. Among these principles are the dictum that a trend, once established, tends to remain in force and that longer-term trends, even as bricks and mortar make up a building, are made up of shorter and intermediate-term trends. The two principles above apply not only to trends, it seems to us, but to general markel environments, a subjective definition that goes beyond simple up or down trends. The longer a given market environment remains in effect, the more obvious its individual elements be- come and the more clearly-etched its profile. As time goes on, of course, there will be short periods of market behavior which are inconsistent with this long-range environment. Often the central question faCing the technician is whether or not the short periods cumulate to form a chain of evidence strong enough to suggest that the basic climate may be undergoing fundamental change. To illustrate this sort of dilemma, it is only necessary to look at the experience of the past two years. 1976, at least subsequent to mid-February, constituted an identifiable mar- ket environment. The Dow, although It reached Its high in September, moved sideways for a period of six months. It is a fair statement that, during this period, the Dow was typical of the action of most indiVidual stocks. Breadth, during the middle two quarters of 1976, had no notice- able trend nor did our Cumulative Index of all New York Stock Exchange issues. Indeed, unlike the Dow, it fa iled to move to a new high In the latter part of the year. After a short correction In October-November, 1976, the market began moving a- '-had 'sharply ;this 'ra1iy-occupying'mollt01'h-mrjth-Uf-Decem1Jenlyear ag-o-'Hbwever, starfing—I with this period, a noticeable divergence took place between the Dow and the more broadly-based market Indicators. The Dow topped out on December 31, having failed to move to a new high. In terms of individual issues, however, the rally was a good deal more dynamic. Breadth,the Cum- ulative Index and, incidentally, the American Stock Exchange index shot ahead to new cycle peaks. We, thus, embarked, In that short month, on a period in which the popular averages were drasti- cally understating the market's performance. That one month was indicative of a change in the ba sic climate. Thus, although the trend of the averages altered radically as 1977 began, the dis- parity between those averages and the broad market continued. If one looked at the Dow, the first half of 1977 could be characterized as an irregular, not very steep, downtrend. As far as the other three indicators were concerned, the trend was also irregular but the bias was distinctly up- ward. It was quite clearly a market environment In which, despite the fact that the averages were trending lower, It was a senSible proposition to own stocks. The scene shifted again in July. At that point, the downtrend in the averages be- came steeper, but this time It was joined by the other indicators. Breadth and the Cumulative In- dex both sunk to new lows although by a much lesser amount than the Dow. The question posed centered on whether this short-term action indicated an end to the superior performance of the broad-based indicators, just as the action of December, 1976 suggested the start of that per- formance. The evidence to date does not so suggest. As we all know, the Dow rallied sharp- – , l)i'last month -ana has; in the past week-;b-e'en correcting agood part of that rally. A character- istic of the rally once more was superior action on the part of broad-based indicators. Breadth moved above its October high and close to Its 1977 peak. So did the Cumulative Index, and the American Stock Exchange index, as recently as this week, posted a new high for 1977. Mean- while, the recent downswing,which brought that rally to an end, Is far too new a phenomenon to evaluate. The indication seems to be that the basic market environment which characterized most of 1977 remains essenhally unchanged. The picture on the Dow, In a downtrend all year, remains clouded. However, there appears to be little to suggest that that wavering action is not continu- ing to understate the performance of the market. Dow-Jones Industrials (1200 p.m.) 812.37 S & P Composite (1200 p,m.) 93.43 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (12/8/77) 668.00 AWT/jb No 510lement or exprenlon of opinion or ony olher motter here'n contolned IS, or IS to be deemed to be, dlredly or tndlredly, on offer or the soliCitation of on offer to buy or sell any security referred to or menhoned The mOiler IS presented merely for the converlence- of the subscnber While we believe the sources of our mforma tlon to be reliable we m no way represent or guarantee Ihe accuracy thereof nar af ,he statements mude herem Any achon 10 be token by the subscriber should be based on hiS own'lnvestlgalion ond Information Janney MOnlgarflery Scott, Inc, 05 0 corporation, and ItS officers or employees, may now have, or May lofer toke, paslhans or trades In respect to any secuTltl!!S mentioned In thiS or any future Issue, and such posllion may be different from any views now or hereafter expressed In thiS or any other Issue Janney Montgomery Scoll. 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