Tabell’s Market Letter – May 12, 1978

TABELL'S MARKET LETTER '———– 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEM8ER NEW YORI( STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE May 12, 1978 -'— been inalCaUng–m tifi,r's1aci for a aM-'a'half;-enlr'Of 'frustrating -a-s-pects'of — recent market action is that it provides us with almost nothing in the way of historical precedent upon which to base investment policy. Through February 28 at least, we had been in what, on the surface, appeared to be a bear market of perfectly conventional stripe. The Dow was down 26 over a period of 14 months and the S & P by a similar If somewhat lesser amount. In terms of length and amplitude, the declines in both Indices were precisely within the framework of what market'historians are accustomed to call major bear markets. The trouble was, as we all know, that this so-called bear market was confined almost exclusively to the popular averages. Unweighted, broader-based !ndices, in which the influence of secondary stocks was greater, were moving ahead to new highs throughout the first half of the downswlng,and were essen- tially moving sideways during the second half. Recently, such indicators have moved to new peaks without ever, over the 16-month period, having undergone anything noticeable In the way of correction. As we noted above, this Is unprecedented. The usual timetable In these cases Is for secondary stocks to top out and move sideways well before the averages. In due course, first-tier issues tum down and begin to follow their junior brethren into lower territory. As the bear market gets under way, secondary issues usually lead on the downSide, scoring greater percentage declines than the higher grade compon- ents of the averages. Finally, as the market bottoms, ,It Is generally quality issues that enjoy a sharp rebound well before much action takes place on the secondary !ssues. There have been variations on the above scenario but none so striking as the recent one. For hlgh- grade issues to have undergone a full-scale bear market,while secondaries not only falled to decline but moved ahead rather sharply,ls without parallel In recent market memory. It Is hardly surprising, therefore, that there should exist conflicting interpretations of the phenomenon. It Is perfectly , -PlaUSible, .in otherwords that-theLb,ear,market –;,..f- over before secondary stocks join In. The optimist, on the other hand, since the whole thing Is without precedent anyway, can adapt the view that first-tier stocks, having gone down all by themselves, can just as easily bottom by themselves and join the booming secondaries on the upside. Herein, of course, lies the dilemma, and it Is a dilemma that remains totally unresolved by recent frenetic upside action. The peSSimist stoutly maintains that, with no secondary correction, the current action can be nothing more than a rally In a bear market. The optimist can see It as part of a bottoming out process In the beleagured high-quality Issues. We tend to place ourselves In the optimistic camp. The trouble with the gloomy scenario, In our view, Is that, If it were a correct Interpretation of the facts, certain things should now be happening. These phenomena, however, are, at the moment, notable for their complete absence from the market scene and, Indeed, for the most part, precisely the oppOSite of what the pessimist would expect seems to be taking place. It would be normal, under the gloomy view, to expect, with recent upside action having shifted to first-tier Issues, that secondary stocks should tum laggard. Precisely the opposite has been the case. There have, In the past three weeks, among the 1500 stocks we follow on an Individual basis, been no fewer than 170 upside breakouts of either major or minor proportions, the bulk of those having taken place In secondary Issues. Since we have been keeping the figures at least, this number Is a record for any three-week period. Meanwhile, our Cumulative Index continues to soar to deciSive new bull-market heights. In the upper tier, one would expect those Issues that had participated In the bear market to have re- mained short of dow'nside targets. Again, precisely the oppOSite has been the case. Basic-Industry Issues, at least, had reached major support levels by early this year. Their action since that time has cliaracterlzed off that support and i;tOtally conslstant 1Vlth the-earlY ,-, stages of bas!ng action. As far as the other bear-market leaders, the heavlly capitalized growth stocks, are concerned,the bulk of these stocks, although admltt,edly not all, have adequately tested their 1974 lows, a level which, under conventional technical theory, should fully correct their overextension of the late 1960's and early 1970's. Action In these Issues also has been cons!stent with an early base-formation process. There may be factors, economic and otherwise, present at the moment which suggest an ongoing bear market. We suspect these factors have been widely noted and have by now attained the status of con- ventional wisdom. It must be stressed, however, that the scenario of continued decline Is one which is, at present, emphatically not supported by analysis of the action of individual stocks In the marketplace. Dow-Jones Industrials (1200 p. m.) 840.78 ANTHONY W. TABELL S & P CompOSite (1200 p.m.) 98.00 DELAFIELD, HARVEY, TABELL Cumulative Index (5/11/78) 738.81 AWTrak No statement or expreSSion of opinion or cny olher malter here'n contolned IS, or 15 to be deemed to be, dlretlly or Indirectly, on offer or the sol'Cltollon of on offer 10 buy or sell any secunty referred 10 or mentioned The motter 15 presented merely for Ihe (Qnverlence of the subscr,ber. While we believe the sources of o\Jr informa- tion to bl') relloble, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Any oct Ion to be laken by the subSCriber should be bosed on hl own investigation and Information Janney Montgomery Sco, Inc, as 0 corporation, and 115 officers or e'Tlployees, may now hove, or may later toke. pOSitions or trades In respect to ony 5elJrltle mentioned In thIS or ony future Issue, ond such posItIon may be dIfferent from any vIews now or hereafter In thIS or any other ISsue Jonney Montgomery Seolf, Inc, whIch IS regIstered WIth the SEC as on Inve!otment adVIsor, may gIve adVICe to Its Investment adVISOry and other customers Independently of any statements mode In thIS or In any other Issue Further Informotlon on any security mentIoned herein IS available on request