Tabell’s Market Letter – December 08, 1978

Tabell’s Market Letter – December 08, 1978

Tabell's Market Letter - December 08, 1978
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r– I I I ,–.- –l TABELL'S MARKET LETTER \ — 909 STATE ROAD, PRINCETON, NEW JERSEY 08!540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER AMERICAN STOCK EXCHANGE December 8, 1978 The stock market, as can be perceived by even the most cursory observer, has begun to act distinctly, . ,iLrather indecisively., better oyer.jhe ..past,three,toJoucwe,ks. The formation to date at least in some — – – – – M – – … – ,..JT- ' of the popular averages, has been an inside formation. This arises from the the Halloween debacle, when the Dow reached an intra day low of 782.05 on October 30th and a closing low of 792.45 on October 31st. This was fOllowed by the November 1st rally which brought the average to a closing level of 827.79 and an intra day peak of 831.69. To date, neither of these highs has been exceeded, thus creating the inside pattern. In the 24 trading days since November 1st, the late-October low has twice been successfully tested and has held each time. The first test came in mid-November, when marginal new lows were scored on both a closing and intra day basis. This test was followed by a rally culminating in a closing high of 813.84 on November 27th. The Dow then broke below 800 for a second time on November 29th-30th and has since rallied toward a second attempt at exceeding the early November peak. The pattern, rather obviously, is one of a triple bottom, a formation, which, in the past, has tended to have bullish short-term cornotations. So far, with the early November high not yet having been exceeded, the formation, in the Dow at least, can not yet be said to be complete. Were it to proceed to completion with an upside breakout at this stage, however, the rally potential would be fairly meaningful. Most upside targets now center on the 860-870 range, a not-at-all-illogical temporary stopping place, since it is just underneath the overhead supply from the September top which preceded the decline in the first place. Not all the averages have patterns similar to that of the Dow-Jones Industrials, although the Dow Transportation Index does bear distinct similarities. It also has not yet exceeded its early November high, and its base formation is similar although somewhat less impressive, yielding an upside objective I – t ea,t.!ono,t 226, versus a current level of 216. The Dow-Jones Utillties have a different pattern altogether. They have already broken- cnit of their-parallel base formation and, –in a sha-rp of strength, have moved from a recent low just above 96 to over 100. The problem with this index is that the upside objective of the tiny base formed in November has already been reached. It is at least partially Utility strength that has caused the broad-based S&P 500 index to break above its November 1st high. This upside breakout is also typical of the general bias which has caused the S &P to act better than the Dow for quite some time now. Present objectives on this index would call for price targets around the 100 level. That the market should begin to act better at this stage should not be surpriSing, given the familiar seasonal pattern of December strength — a tendency referred to many times in this letter–, and it probably makes sense to posit a short-term rally as a working assumption. One piece of information that that rally, if indeed it occurs, should help to provide us is the character of forthcoming leadership. The September-October downswing, it will be recalled, was a phenomenon led by, although not confined to, secondary stocks. While the Dow dropped only a modest 12 during the decline, the American Stock Exchange Index, in the space of less than a month, plunged a Sickening 22.7, from a high of 176.87 on September 13th to a low of 136.75 at the end of October. As we have been suggesting in this space, it is our belief that margin liquidation was the major contributing factor to this disaster, and, quite obviously, the sort of stock represented in this index remains vulnerable to further such liquidation. Despite this fact, it is interesting that, throughout November-December to date, secondary issues, rather than underperforming the Dow, have been outperforming it. Unlike the Dow, which has fa iled to move above its November 1st high, most unweighted indices have already done so. Breadth indices 'like\vise;-fended to -move 'this weekabove earlyNoveiffber levels;thus resuming the famili,fr pattern of a posltlve Dow!breadth divergence which characterized the market for two years prior to the September slide. Inspection of individual patterns reveals the fact that secondary Issues, following their October price break, have built impressive base formations suggesting, In some cases, moves to new highs. All this Is hard to square with the technical damage done to secondaries in September-October. It will thus be interesting to see if that damage can be completely repaired by a broad extension of the recent rally. If such Is the case, it will have important technicalimplicatlons for the 1979 stock price pattern. Dow-Jones Industrials (1200 p.m.) S&P Composite (1200 p.m.) Cumulative Index (12/7/78) 812.98 96.83 691. 24 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWTrak No stotement or expressIon of opInion or any other matter herem Conto.ned IS, or .s to be deemed to be. directly or indirectly, an offer or the sollc.tot.on of on offer to buy Or sell any security referred to or mentioned The matter IS presented merely for the converlenC6 of the subSCriber While Ne believe the sOurces of our Informa lion 10 be reliable, we In no way represent or guarantee the accuracy thereof nor of the mude herem Any action to be taken by the subSCriber should be based on his own Inesllgollon and Informat1On Janney Montgomery Scott, Inc, as a corporatIon, and liS offICers or employees, may now hove, or may laler toke, posilions or Irodes In respect to any secuntles menlloned In thiS or any future Issue, ond such posltton may be different from any vIews now or hereafter e1pressed In Ihls or any olher ISsue Janney Montgomery Scott, Inc, which IS registered With Ihe SEC as on Investment adVIsor, may give adVIce 10 Its Investment odvlsary and othel customers mdependently of ony statements mode In thiS or In ony other Issue FUr1her information on any secuflly menlloned herein IS available on request

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