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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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