Viewing Month: November 1978

Tabell’s Market Letter – November 03, 1978

Tabell’s Market Letter – November 03, 1978

Tabell's Market Letter - November 03, 1978
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– -. —–,——– TABELL'S MARKET LETTER ———– — 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCI( eXCHANGe. INC MEMBER AMERICAN STOCK eXCHANGE – – – -. . –.- – —,.. – – – – November 3, 1978 …. .– We attempted last week to preach a sermon on the virtues of not becoming panicked by the short term gyrations of the market while, at the same time, trying to pay heed to whatever message was being conveyed by those gyrations. This week's action made the first part of the admonition even more difficult at the same time that the message, however jumbled, was becoming more insistent. Monday featured an almost-classic selling climax which totally failed to follow through in Tuesday's trading as a 17-point decline to 792.45 took place in what may come to be known as the Halloween Horror Story. Then on Wednesday, ostensibly due to President Carter's plans to strengthen the dollar, cilme a 35-point rally which petered out and was partially retraced in Thursday and early Friday trading. For volatility, at least, it was quite a week. It is worth the risk of boring the reader by citing a few figures in an attempt to put the whole thing into historical persepctive. Wednesday's advance was heralded by many who should know better as the largest in history, which, of course, it was only if one has not yet learned to compute percentages. In terms of percentage advance, 4.46 , ranks 73rd on the all-time list of one-day advances, although, it must be admitted, in the post-World War II period, it has been approached only by advances occuring near the bottoms inOctober,1957, May, 1962, May, 1970, and October, 1974. Much has also been made of the steepness of the decline which, over 14 trading days, took the Dow down just over 12. This again is a phenomenon that has occured no fewer than 53 times in the past, although again very rarely since 1946, and, in most cases, associated with upside reversals. In one sense, it should duly be noted,the decline did set a record. It was, by at least one measurement, the broadest decline in stock market history of the past 52 years, exceeding, in – -breadth-terms,- a nything-that-took-place-during-the4-9 29-3 2,period-and-S-Uf-ja set at the October bottom in 1937 and at the fall of France in May, 1940. The measurement which exceeded these previous periods is the familiar 10-day advance-decline oscillator which, on October 27th, reached a record oversold condition at -9382. To make this figure comparable historically, it must be adjusted for the number of issues traded,but even when this adjustment is made the con- dition of last Friday outranks all previous short-term oversold conditions by a considerable margin. It is , ih sum, an undeniable fact that the sort of condition that the market had reached late last week and early this week was a rare bird indeed for the post-World-War-II period. It is possible to go even further and state that that condition, when achieved in the past 30 years, has been almost universally associated with major market bottoms. Climax lows are not always the actual lows in the averages, and, indeed, they may be followed by new lows often quite some time later. Such climactic troughs, however, have usually tended to pinpoint what may be thought of as the effective bottom. Having said all this, we are compelled to raise a more-than-moderately disquieting pOint. It all took place at the wrong time. The textbook climax action of last week occured, not after a major downswing, but very close to a market top scored just last September. This, and the fact cannot be ignored, is totally without precedent for the last 30 years. As we suggested above, to find the sort of action which featured last week occuring on a repeated basis, one has to go back to the 1930's. In those highly volatile markets wide short-term swings were the order of the day. market environment similar to that of 40-50 years ago. What we are suggesting, however, is that the market, via the suddeness and viciousness of the recent decline, is clearly trying to send us -. some sort-of .message. -Decoding,that message will.be-the major task of. market analys-is in -the- – weeks ahead. Dow-Jones Industrials (1200 p.m.) S&P Composite (1200 p.m.) Cumulative Index(1l/2/78) 819.04 95.76 677.84 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWTrak No !clement or e)(preS5lon of opinion or any otner moiler herein contained IS, or IS 10 be deemed to be, directly or ,ndlrectly, on offer or Ihe 501lcllollon of an offer to buy or sell any security refered 10 or mentioned tlon 10 be reliable we In no way represent or guaronlee the accuracy Ihereof nor at the s;olemenls mude herein Any octlon to be to en y t e su sconfbeoru1rSt ou t k dbased on hiS own' Inves'lgallon ond mformotlon Janney Montgomery Scol!, Inc, os 0 corporation, and Its officers or employees, moy now have, or may a er e, pOSitiOns or trodes In to any seCUrities mentioned In thiS or any future Issue, and such position may be different from ony views now or hereoJter e)(prcdse thin thiS or any other Issue Janney Montgomery Scolt, Inc, whICh IS registered With Ihe SEC as on II'Ivestment adVisor, may give adVice to Its a yuory, on a el customers Independently of any statements mode In thiS or In any other Issue Further information on any security mentioned herem IS avol a e on rllques

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Tabell’s Market Letter – November 10, 1978

Tabell’s Market Letter – November 10, 1978

Tabell's Market Letter - November 10, 1978
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 OIVISION OF MEMBER NEW YORK STOCK eXCHANGE. INC MEMBER AMERICAN STOCK EXCHANGe November 10, 1978 We noted last week that, based on the past 30 years' experience, the market configuration produced October decline'was a constructive-onein-terms'of the probability 'of having been reached. We felt it necessary, however, to insert the mildly cautionary note that it was, 10 say the least, unusual for an oversold condition of such virulence to manifest itself so shortly after a new cylical market peak. We promised, at that time, to explore some of the possible reasons for such an occurance, and, although any explanation at this stage must be tentative, it is worth starting on an examination of possible causes. – It is now apparent, based on a number of sources, that, as the drop reached it most vicious stage during the last week in October, margin liquidation was an important, if not the major, contributing factor. Our colleague, Robert J. Simpkins, Jr., explored in this space last summer the phenomenon of the four-year rise in margin debt, a manifestation which continued unabated through the end of September, at which time total NYSE margin debt had reached a level three times what it had been in December, 1974. With an almost uninterrupted rise over those 44 months, margin debt figures had been behaving in a manner which could be correlated with our Cumulative Index rather than the Dow. The level of margin borrowing is normally a statistic which moves up and down coincidentally with the trend of the market, and the period December, 1976-February, 1978 was the first time since the figures had been compiled that it rose in the face of a sharply-declining Dow Jones Industrial Average. During that period, of course, the more broadly-based indices hardly declined at all, thus pointing to the not-implausible con- clusion that a large part of the rise in debt had gone to finance the purchase of secondary stocks. In the light of this rise, the mechanics of margin regulation are worth reviewing. Maintenance margin, the point at which a lender chooses to ask for additional funds to support declining portfolio collateral value, is at the discretion of the lending broker, subject to an NYSE minimum. That level is generally 30-3 5 ent 'of–ia-rgenumb ccounts'below' th ity -wh-ich—–l- actually triggers margin calls. Initial margin, the funds which must be deposited when a stock is first purchased on margin, on the other hand, is set by the Federal Reserve Board. Although these Federal levels have no direct relation to collateral calls, the two factors, initial and maintenance margin, are inextricably intertwined as we shall see in a moment. It may well have been forgotten that the Federal Reserve is indeed responsible for initial margin requirements, and there is some evidence to suggest that the Federal Reserve may have forgottren it also. The Fed has not seen fit to change those requirements since they were set at 50 on January 3, 1974, a period of almost five years. This is the longest time the authorities have left margin requirements alone since they were kept at 40 from 1937 to 1945. It has normally been the tendency of the Federal Reserve Board to raise margin requirements progres- sively as the market rises, and the Fed's record in inadvertantly forecasting tops by this device is one that might be envied by prognosticators. In the bull market of 1946 for example, margin was raised three times starting 15 months before the top and culminating in a rise to 100 four months before the market peak. There were two raises, 19 and 16 months before the top, in the 1953-56 bull market, two prior to the 1961 peak, one prior to the 1966 market high, and one each prior to the market highs in 1968 and 1972. In general, the tendency of the Fed has been to drop margin requirements to around 50 shortly before or shortly after major market bottoms and to raise them succesively as the market moves ahead. Thus, in the broad-based indices at least, we have just gone through the first bull market in memory when the Federal Reserve has chosen to leave margin requirement set at the 50 level throughout the entire rise. Now the difference between 50 and 70 margin is not at all a miniscule one. With 70 initial margin 'requirements, an-investor may purchase a -margin-portfolio and see-'it decline 57 before he is subject to a margin call, assuming a 30 maintenance requirement. If, however, initial margin is 50, a drop of only 28 will produce the 30 equity figure and trigger a request for additional collateral. It is not too hard to envision portfolios purchased last summer undergoing declines of this magnitude. What may have been seen in late October, in other words, is a normal correction after a four-year advance being sharply exacerbated by levels of margin equity we now know to have been less than conservative. We will try to explore these levels and their implications in subsequent issues. Dow-Jones Industrials (1200 p.m.) S&P Composite (1200 p.m.) Cumulative Indes (11/9/78) 808.13 94.84 666.41 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWTrak No statement or of opmion or any other matter herein contolned IS, or IS to be deemed to be, directly or mdlrectly, on offer or the SOIICI'otlon of on offer to buy or sell any referred 10 or mentioned The moiler IS preented merely for Ihe conve',enn of the subscriber While oNe believe the sources of our rnformo tron to be relrable, we rn no woy represent or guarantee the occurocy there;f nor of the statements mude herem Any actron to be token by Ihe subscriber should be based on hrs own rnveslrgallon and Informotlo'l Janney Montgomery Scott, Inc, as a corporation, and lIs officers or employees, may now have, or may later toke, posltlonl or irades ,n respect to any securities mentioned In thiS or any future Issue, and such position may be different from any views now or hereafter c1pressed In thiS or any other luue Janney Montgomery Scott, Inc, which IS registered with the SEC as an Investment adVisor, may give adVice 10 Its Investment adVisory and othel customers Independently of any statements made In thiS or In any other Issue Further Informallon on any securrty mentioned herein IS available on request

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Tabell’s Market Letter – November 17, 1978

Tabell’s Market Letter – November 17, 1978

Tabell's Market Letter - November 17, 1978 page 1
Tabell's Market Letter - November 17, 1978 page 2
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r — ——-I TABELL'S i MARKET JLETTER \ 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGe November 17, 1978 this..oweek the stock market found itself once more in the vicinity of (actually, in the caseof most av-erages, slightly reacheif'adhe end of'Ocfober. differefi'cP– ….co,– appeared to be that action had become somewhat less frenetic. Volume, which had peaked at the 45-60 million share level a couple of weeks before, had dried up to around 25-30 million shares a day, and even the move to new lows early this week was unable to produce much in the way of followthrough, as the Dow twice rallied from around the 780 level. The history of markets which have behaved the way this one has lends little hope that the present torpor will be more than a temporary respite. It appears appropriate, however, to take advantage of the lull to try to review just what has taken place. We will admit freely to Our own lack (l)f prescience and confess that we detected nothing in the trad- ing activity of, say, August-September to suggest that an imminent decline of the sort of magnitude October produced was in the cards. For the past year, there have existed, to be sure, a number of bearish factors, most of them relating not directly to the action of the market itself but to conditions in the money and credit markets which had, by last summer,begun to display a high degree of similarity to conditions preceeding prior stock market drops. We made the choice, at the time, to ignore thos e factors on the theory that they were inconsistent with the story being told by the market itself. That story became altered very quickly as distributional patterns were formed throughout September. Subsequent downside penetration of these distributional patterns led, of course, to the weakness we have just experienced. Even granting that patterns suggesting some vulnerability did build up during September, however, those patterns did not suggest, under normal conditions, a drop of the severity of the one which took place. It is an axiom of technical work that distributional tops do not generally suggest a single down- side target but rather a range of possible downside objectives. It is also usually true, that when the — do. not. generallymove to.theirdowns ide targets …s taneously but rather at intervals over a period of time. In'the present case, the lower limits of the of downside targets appear to have been reached in the vast majority of cases, and the reaching of those lower limits seems to have been compressed Into a relatively short time period, a period, covering, by and large, the past two weeks. What might, under another set of circumstances, have been a normal corrective phase became in reality something a great deal more painful. It is, of course, worthwhile asking why all this should have been so in this particular Instance. Quite obviously, there were factors present in the fil)al quarter of 1978 not common to past similar market phases. We suggested in last week's letter that one such factor might have been what we now know to be an un- healtl level of margin borrowing, and we intend to comment further on this particular aspect. However, it is probably of more immediate importance to attempt to assess, the trauma of October-November, 1978 having taken place, just what it may portend for the market's futUre. Perhaps the most Important statement that can be made is that, despite the suddeness of occurance and surpr ising extent of the October-November difficulties, they do not alter, In our view, the basic technical assessment made last summer. The pattern does not suggest to us the onset of a conventional cyclical bear market. The technical difficulties that have manifested themselves have done so by and large in a particular segment of the market, the secondary Issues that had, contra-cyclically, been gOing through a four-year advance, which, by its very nature, had left them vulnerable, especially to the extent that that advance had been fueled by credit. By contrast, the stocks representing the vast preponderance of U.S. equity market value had moved up, by late summer, only by a modest amount from a two-year bear market low and have, by now, retraced just about 1/2 of that advance. The patterns which would suggest major cyclical vulnerability in large-capitalization stocks were not then and are not now present. -The 'levels of these stocks-, moreover, as'our fundamentalist brethren-have aBundantly pointed out,-are ' at historical nadirs in relation to earnings, dividends and book value. We have just spent a year and a half, during which primary and secondary issues moved in diametrically opposite directions — the former down- ward and the latter upward. A simple reversal of thos e roles v.o uld not, in our view, be all that incredible an occurance. None of this is intended by us to suggest undue optimism concerning the market's immediate future. As we noted above, a test of the October low is now obviously taking place, and a series of such tests would not be an historically unprededentedevent. Nor would it be unprededented for such tests to pro- duce new lows in the averages by fairly significant amounts. It will, furthermore, be extremely dif- ficult for the market to recover internally from the technical damage which has been inflicted upon it. We do not, however, tend to see Armageddon present in the market forces which have now been built up any more than was the case a few months ago. Da…. -Jones Industrials (1200 p. m.) 796.52 S&P Composite (1200 p.m.) 94.13 ANTHONY W. TABELL DELAFIELD, 'HARVEY, TABELL Cumulative Index (11/16/78) 653.64 No statement or expression of opinion or any other molter herein contained IS, or IS TO be deemed To be, directly or Indirectly, on offer or Ihe soliCitaTion of an offer sell ony security referred to or menTioned The matter IS presented merely for the of the subScriber While we believe Ihe sources of our Informa iion TO be reliable, we In no way represent or guaronlee Ihe accuracy thereof nor of the statements mude herein Any action to be taken by the subSCriber should be hosed on hiS own investigation and Information Janney Montgomery Scoll, Inc, as a corporaTion, and lIs officers or employees, may now have, or may laer toke, poSitions or trades In respect to any SeCurities mentioned In this or any future Issue, and such position may be different from any views now or hereafter expressed In this or any other Issue Janney Montgomery Stctt, Inc, which IS registered With the SEC as an Investment adVIsor, may give adVice 0 lIs Investment adVISOry and othel customers Independently of any statements made In thiS or In any other Issue Further Informallon on any security mentioned herein IS aVailable on request t\ i …' ! i i a.-…,., 0 — t-' w w0 (f) – .z…., Z tel a I ' to b; – …. ,.- ….. …- .. .. . …… .. 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Tabell’s Market Letter – November 24, 1978

Tabell’s Market Letter – November 24, 1978

Tabell's Market Letter - November 24, 1978
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW .JERSEY 081540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMEftlCAN STOCK EXCHANQE o -cO. S'lnce 'f!gues I;'een' ava or margin' a November ccounts in 24, 1978 'haiv'e.;..-…… generally moved in the same direction as stock prices, but more sharply. The chart on the opposide page shows this to be true, until the Dow Jones InElllstrial Average from its 1976 high declined to its February 1978 low. Uncharacteristically during this time, margin debt increased uninterrupted to new high through September of this year. Two important influences both hard to quantify for this spectacular increase would seem to be clients' borrowing money for non-stock purposes from the margin account and the convenient use of the margin account for the next-day settlement of option trades. the new game in town. Margin credit has been singled out for selective control ever since the Securities and Ex- change Act of 1934. which directed the Federal Reserve to prevent the excessive use of credit in the purchase and carrying of securities. It is important to note this concept of excessive credit use relates not to the level of margin debt but rather to the actual or potential effect of such credit on the stock market. Initial margin requirements are not aimed at restricting the total amount of margin debt to some predetermined level. Instead, the Federal Reserve's purpose, it would seem, is first in rising markets to limit the magnitude of credit-based buying pressure generated by riSing loan values and second in declining markets to provide a buffer between customers' initial equity and the minimum maintenance levels that would initiate wide spread margin calls. The changes in the level of these initial margins affect relative rates or credit expansion or contraction as compared with stock price changes over the same period. Much attention has been given in recent week to the Federal Reserves' responsibilities in !he 910ser the borr!wers' initial margin is to the minimum maintenance margin requirements of the New York Stock Exchange, the greater the possibility that price declines will lead to margin calls. This forced selling exerts downward pressure on an already falling market. New declines then trigger more margin calls causing a perpetualizlng spiral of selling pressure, price decline, etc. This scenerio is not necessarily meant to explain Or simplify the behavior of our recent stock market. However, it Is interesting to look at the action of the stock market since the short-term oversold selling climax occurred last October. Since then, the market has rallied over 35 paints in one day, unsuccessfully tested the selling climax low, returned to a more normalized, albiet volitile, condition, and rallied to date over twenty pOints from its November 14th low of 785.26. This oversold condition was triggered in part by the declining quality of credit in margin accounts in an environment of short-term falling prices and high interest rates. Since statistics have been available, similarities can be seen between recent figures on the quality of margin debt and the figures registered at the 1974 low. In September, 1974, the quality of margin debt deteriorated seriously as 22 of customers' margin accounts were under 40 equity compared to 21 in October, 1978. Additionally, in September 1974, this represented 58 of the total margin debt under 40 compared to 47 in October, 1978. We are, of course, familiar with the two- year perfromance of the market since the 1974 low (October 4, 1975, DJIA 584.56 – September 21, 1976, DJIA 1014.76 73.60). It must be noted, however, en route to this spectacular advance an initial short-term rally of 90.19 points occured posting a high on November 5 or 674.75 which was followed immediately by a decline of 97.15 points to a low of 577.60 penetrating the selling climax low by a slight margin. Selling climaxes of this type are not unprecedented'October 1957, –May the behaviorof margin debt s't'a1iStics aCOr nea7iil'ajor marketllOitoms-' can be instructive. As previously painted out in this letter, climax lows are not always the actual lows in averages but rather tend to reflect an effective market bottom. The market action at the end of last October fits the criteria of a short-term selling climax. Historically, these conditions have occurred at Significant market bottoms — this possibility should not be discounted. Dow-Jones Industrials (1200 p.m.) S&P CompOSite (1200 p.m.) Cumulative Index (11/22/78) RJSrak 806.65 55.39 672.79 ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY, TABELL No tclement or expression of opinion or any olher matier herem contolned IS, or IS 10 be deemed to be, directly or Indlrectlr.' an offer Of the sollcltotlon of on offer to buy or sell (lnr. sl!cvruy referred to or mentioned The matter IS presented merely for the converlence of the subSCriber Whl e we believe the sources of Iur mformo- tlon to be rei lab e, we In no way represent or guarantee the occuracy thereof nor of the mude herem Any achon to be taken by the subSCriber should be based on his own Investigation and Information Janney Montgomery Scott, Inc, as a corporat,on, Clnd Its offoers or employees, may now have, or may later take, positions or trades In respect to any securities mentioned mil-lis or any future ISsue, and such posillon may be different from any views now or hereafter (lxpressed m In)s or cny olner ISsue Janney Montgomery Scott, Inc, ,nlch /5 registered woh Ine SEC as on InveMmenl adVisor, may gIVe adVice to lIs Investment adViSOry and olhel customers Independently of any statements made In thiS or In onf other Inue Further information on any security menlloned hcrCln h available on request

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