Viewing Month: July 1979

Tabell’s Market Letter – July 06, 1979

Tabell’s Market Letter – July 06, 1979

Tabell's Market Letter - July 06, 1979
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TABELL'S MARKET LETTER , J 909 STATE ROA.D, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORI( STOCK EXCHANGE, INC MEMBER A.MERICAN STOCK EXCHANGe July 6, 1979 and Merck in; Chrysler arid 'Esmark out; from readers. It was asked, for example, why the split in du Pont caused the weight of that stock in the Dow to be reduced substantially. The answer lies in the method of computation chosen by Dow-Jones in 1897, when the Average was started, and maintained ever since. That method was the eminently simple and sensible one of adding the prices of the individual component stocks and dividing by the number of those components. However, this technique, exactly the same one we were all taught to use when com- puting an average in grade school, posed a question of how to adjust for stock splits. One method that could have been applied would have been, if a stock split, say, 2 for I, forever after to multiply the price of that stock by two. Dow-Jones rejected this method. They decided instead that, when a stock split occurred, they would adjust the divisor, so that the reduction in the price of the component stock due to the split would not affect the average. The same technique of divisor adjustment would be used when individual stocks were added or removed. Needless to say, there have been a good many such changes since 1897, and these, in most cases, resulted in a reduction of the divisor, which is now 1.465. This relatively low divisor accounts for the fact that the Dow is now well above 800, although none of its individual components sells above 80. This difference between the level of the average and the level of the average stock in the average is one of the commonly-voiced objections to the Dow as an indicator. Another is the arbitrary weighting of each stock by the price at which it happens to sell, a weighting that is radically changed by splits. Thus du Pont around 120 constituted more than 10 percent of the average. At around 40 it constitutes about 3 percent. Procter & Gamble and IBM, because of their high price, are about four times as important to the Dow as Goodyear and Sears Roebuck for the same reason. Why, it may be asked, did Dow-Jones not choose the first alternative referred to above, multiplying the split prices by the amount of the split ,or did it not choose to weight equal dollar investment newspaper , and it was, a time, market indicator. One of the components, however, was IBM, and, as most of us are aware, the price history of IBM in the 1940's and 1950's was somewhat spectacular. Under these conditions the weight of IBM in the index in question became so heavy that, as an average, it was entirely useless. It simply tended to reflect what its major component was doing. The average has since been discontinued. What other methods for computing averages exist Standard & Poors has chosen to weight its indices by capitalizations, in effect taking the price of each issue in its 500-stock universe and multiplying by the number of shares outstanding. The resultant total market value is then divided by a figure calcu- lated on a given base period, which happens to be 1941-1943. This method has the advantage of obviat- ing any adjustment for splits. Moreover, the inclusion of a large number of stocks prevents any single issue from ever obtaining a disproportional weight. Thus IBM, although the largest component, accounts for only 6 percent of the index. – The difficulty is, in our view, that it is fairly difficult to justify capitalization as a criterion for relative weighting. This is especially true when an index is used as a standard against which to measure portfolio performance, as the S & P often is. The small investor, at least, has an equal opportunity to purchase any of the components of the average. Why, therefore, should Kroehler Manufacturing, the smallest component, carry only 1/300Oth the weight of the largest It is possible, of course, to construct an average which weights all stocks equally. This is precisely what our Cumulative Index does for all issues on the New York Stock Exchange, essentially taking the percentage change for all these issues, averaging it, and applying that percentage change to the index each day. An indicator of this type is called a geometric average. We think this index useful, which is why we compute and publish it, but it also has a limitation, in that to duplicate its performance in an actual portfolio, one would have to keep the individual components of that portfolio equally weighted on a daily basis. This is, of course, impossible. The moral of this whole discussion is that the construction of a market average is hardly the simple task it appears on the surface, and there exists no single perfect method of computation. Different market indicators are appropriately used for different purposes, and it is the responsibility of the analyst to justify the use of a market average in any particular context. Dow-Jones Industrials (1200 PM) S & P Composite (1200 PM) Cumulative Index (7/6/79) 837.54 102.66 759.83 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL AWTsla No statement or expression of OpInion or any other matter herein contained IS, or IS 10 be deemed to be, directly or lOdHectly, on oHer or the Ollcltatlon of on offer to buy or sell any secuflly referred 10 or mel'lfloned The matter IS presented merely for Ihe convellenCE of the subscriber While oNe believe the sources of our Information to be reliable, we In no way represent or guarantee Ihe accuracy thereof nor of Ihe statements mode herein Any !lellon to be token by ihe subscriber should be b!lsed on hiS own Invesllg!ltlon !lnd 'nfarmai'on Janney Montgomery SCali, tnc, !l a corporotlon, ond lIs officers or employees, may now have, or may laler toke, positions or irades In respect to any securities mentioned In Ihls or any future Issue, and such position may be different from ony View! now or hereafter eprened In thiS or ony other IHue Janney Montgomery Scott, Inc, whICh IS registered With the SEC as on Invesiment odvlsor, may give adVICe to tts ,vestment odvlsory and othel customers Independently of any stotements mode In thiS or In ony other Issue Further Informalron on any securrly mentioned herein IS available on request

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Tabell’s Market Letter – July 13, 1979

Tabell’s Market Letter – July 13, 1979

Tabell's Market Letter - July 13, 1979
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, –…………… – —- TABEl;L'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION 5'F MEMBER NEW VORK STOCK eXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGe – July 13, 1979 It ; thAt wo hoo Qnont tho lOQt t, Ii, -,. 'L.1-, i. and. ofiiiii n JOneS Industrial Average appropriate because if, in the recent penod, one had focused on the Dow as the only barometer of market action, the impression gained would have been one of less market strength than has actually been the case. For whatever reason, the venerable indicator has, of late, seriously lagged behind most other barometers of market action, and a look at other averages suggests that the market is, in fact, acting a good deal better than the Dow would have us believe. The general pattern of the past fortnight's trading has been one of market strength initiated at the start of the abbreviated Independence-Day week, strength which continued until early this Monday. A correction which occupied just about all of this week's trading set in. In terms of the Dow, the move was from an intraday low of 829.27 on July 3 to a peak around the 857 level early this week, followed by a retracement to lows still being set at this writing. We must, initially, point out that we do not, at this stage, regard the week's retracement of this prior advance as being of yet notable significance. The following discussion, therefore, will center on action. through the highs scored early this week. Even for the Dow, this action was significant. Friday's and Monday's 18-point advance on expanded volume moved the average above a 3-times-tested high in the high 840's, and has, we think, to be considered an upside breakout from a short-term base formation. The most plausible upside objectives of this base formation are somewhere around the 880 level, a figure which would just about equal the intraday peak of 884.62 chalked up on April 11. Therein, of course, lies'the rub. As far as the DJIA is concerned, we are talking about a rally which would do no more than equal the high of three months ago. That high in turn, was Significantly below the 917.27 high chalked up on September 11, 1978 which, of course, is well below the 1976 high of 1014.79. It is not necessary to go searching after esoteric indicators to suggest the stock market has, in fact, acted a great deal better than this. It is, in fact, necessary to search no farther than the Standard 80 Poors 500. Tuesday's high in that indicator was 105.17, significantly above the April 10 peak of 103.83. Thus the 500, as of a few days ago, found itself achieving a new peak in an upswing which began last October and which now, on an intraday basis, has moved that barometer up better than 14. In addition, while the Dow has just commenced a move which can tentatively be targeted to approximate its September, 1978 high, the S 80 P, by contrast, is within hailing distance of that high which was, intraday, 108.05. Indeed at the peak reached early this week, it was just 3 points away, and, the S 80 P is not now all that far away from its 1976 high of 107.83, a figure a shade lower than last fall's peak. These figures may be put in still another perspective. Taking Monday's close as a benchmark, the Dow would have to advance 3 to exceed its April high, 6.4 to exceed its September high, and 19 to move above its 1976 level. The S 80 P, by contrast, has already exceeded the . pril peak, and would need a move of only' 2 to move above its peak levels of 1976 and 1978. Evidence exists, moreover, that it is the Dow rather than the S 80 P which, at the moment, constitutes the aberation. Both Breadth and our Cumulative Indexhave posted'new moves above—l–I their April peaks, and we will not bore our readers by once more detailing the action of the American Stock Exchange Index which proceeds merrily across its chart in a north-by-northeasterly direction. While the financial press is full of stories about recession fears, energy shortages, etc., the stock market, by contrast, appears to be telling its own significantly different story. Dow-Jones Industrials (12 00 PM) 832.42 S & P Composite (12 00 PM) 102.09 Cumulative Index (7/13/79) 764.43 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL AWTsla No statement or expressIon of opInion or cny olner motter herein contolned IS, or IS 10 be deemed 10 be, directly or mdlrectly, on offer or the soliCitation of on offer to buy or sel! cny security referred 10 or mentIOned The motter IS presened merely for the converlenc;E of the While we believe the sources of our Informa- lion to be reliable, we In no way represent or guarantee the acwracy thereof nor of the statements mude herein Any action to be token by the subSCriber should be based on hiS own investigation and information Janney Montgomery SCali, Inc, as a corporation, and Its officers or employees, may now hove, or may later lake, positions or trodes In respect to any 5ecurllics mentioned In thiS or any future Issue, and such position may be different from any views now or hereafter expressed In thl or any other ilsue Janney Montgomery Scott, Inc, which IS registered With Ihe SEC as on Investment adVisor, may give adVice to Its Investment adVisory and other customers Independently of any statements mode In thiS or In any other Issue Further Information on any security mentioned nereln 1 available on request

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Tabell’s Market Letter – July 20, 1979

Tabell’s Market Letter – July 20, 1979

Tabell's Market Letter - July 20, 1979
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK eXCHANoe, INC MEMBER AMERICAN STOCK EXCHANGe July 20, 1979 .. . -…… –;— – – ;;…..,. ——– —- – 0 – '– A bit over a quarter of a century ago, we entered the-secunties-business and coinmenced a period of training aimed at turning us into something called a market technician. Shortly there- after, having mastered a few of the elements of this art, we loaded a briefcase with charts and went forth into the world, prepared to preach the gospel of this technique to anyone who cared to listen. Few did. Most money managers, 25 years ago, felt that quantitative analysis of the phenomenon of stock prices was of little use in helping them arrive at investment decisions. This feeling, at the time, was based largely on ignorance. Most financial practitioners dis- believed technical analysis simply because they had little idea of what it was. Stock charts were not widely published and were looked at only by a small, and somewhat off-beat, group. Needless to say, this attitude has changed. We would like to think that technical work has become more widely accepted, but in any case, it is indisputable that familiarity with its techniques has grown. Even the latter-day academic assault on technical analysis required some familiarity with the tools involved in order to produce a so-called refutation. The average member of the fmancial community today, whatever his belief of efficacy of technical analysis, has, at least, some understanding of the basic tools involved. This understanding may not be terribly deep. (Anyone can recite e mc 2 without really understanding the Theory of Relativity). The understanding, nevertheless, exists. All of this is occasioned by the fact that, some two weeks ago, an upside breakout in terms of most of the major averages took place. That breakout had a fair amount of conventional significance in technical terms, and we ourselves, in this space last week, noted the breakout and a conventional analysis of its implications. Shortly thereafter, the market reversed and plunged into the trading -ran-ge whence-It had come.' proved, for the time being, to be false — a phenomenon which, in our view, has emerged with increasing frequency as familiarity with technical work has grown. Now it will be argued in some quarters that this retreat was a response to new information, information embodied in President Carter's Sunday-night speech and the subsequent realignment of his staff. We find ourselves unconvinced by this reasoning. The market's immediate response to this speech on Monday, it will be recalled, was to move in a narrow trading range on low volume, doing absoloutely nothing. We suspect, in other words, that the energy situation, however sorry (or sad) it may be, is as much built into the current structure of stock prices as the well- advertised impending recession. The market retreat having occurred, the next point which will be looked for by breakout watchers will be 821.21 on the Dow-Jones Industrial Average, the June 1 low from which the current move started. A downside penetration will, we suppose, be noted as widely as was the recent new high. We suspect that, if it occurs, it will be equally insignificant. None of the above is meant to denigrate the practice of breakout analysis, a practice which, as noted, we engaged in as recently as last week. It is only meant to suggest that such break- outs must be analyzed in terms of an overall and often complex market context. That context does not, in our view, suggest the sort of serious market debacle that conventional analysis of a move below 821 might otherwise indicate. We think, in other words, that the overall market pattern remains constructive, and that the destruction of one link in that constructive chain by the re- tracement of the breakout last week does not alter the basic situation embodied in the overall patterns of most individual stocks. Dow-Jones Industrials (12 00 PM) S & P Composite (12 00 PM) Cumulative Index (7/19/79) 827.47 101. 60 756.01 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWTsla No statement or expreSSIon of opinion or ony other motter herem contained IS, or IS to be deemed to be, directly or Indirectly, on offer or Ihe soliCltotlon of on offer to buy or sell ony security referred 10 or mentioned The matter IS presented merely for the convef'lena of the subSCriber While we believe the sources of our Informa- tion to be reliable, we In no way represent or guarantee the accuracy thereof nor af the statemenlS mude hereto Any action to be token by the subscTlber should be based on hiS own mvestlgatlon and mformatlon Janney Montgomery Scali, Inc, as a corporohon, ond Its offICers or employees, moy now have, or may loter toke, positions or trodes In respect to any seCUrities mentioned In thiS or any future Issue, and such position may be dlfferenl from any views no, or hereafter expressed In thiS or ony other lSue Janney Montgomery Scolt, Inc, which IS registered With the SEC as on Investment adVisor, may give adVICe to lIs Investment adVisory and othel customers Independently at any statements mode In thiS or In any other Issue F'Irther tnformatlon on any security mentioned herein IS available on request

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Tabell’s Market Letter – July 27, 1979

Tabell’s Market Letter – July 27, 1979

Tabell's Market Letter - July 27, 1979
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TABELL'S MARKET LETTER 909 STATE ROAC, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANpE July 27, 1979 A few weeks ago, we discussed the details of compilation for the Dow-Jones Industrial Average and averages in general, this being occasioned by the recent DJIA which added IBM and comifared -the Dbw-with Standard-'& -Poors indices — – which are, of course, capitalization weighted rather than effectively weighted by share price as is the Dow. With the recent revisions, another comparison of this sort may be of interest. Standard & Poors 400-Stock Industrial Index is essentially a composite of a number of industrial group indices. While the Dow contains only 30 stocks,'each of these stocks may be thought of as a proxy for an entire industry since most of the Dow components are the major factors in their own industries. The following table divides the Dow into the industrial-group classifications used by Standard & Poors, this breakdown showing that 19 industries are thus represented. Three stocks are treated individually rather than as part of an industry group, since S &; P places them in a miscellaneous category. The table shows, for each group, the number of stocks (in parentheses). the group per- centage weight in the Dow-Jones and in the S &; P 400, and finally the Dow-Jones weight as a percent of ,the S & P weight. Obviously. the larger this last figure, the more the industry group is over- replesented in the Dow relative to the 400, and the closer it is to 100. the greater the similiarity of the two averages as far as the industry is concerned. Industry DJIA Weight S&P 400 Weight DJIA as of 400 Oil -Integrated International (3) Chemicals (3) Soap (1) Electronic – Major (2) Office Equipment (1) Drugs (1) Minnesota Mining (1) Tobacco (1) – …. Auto (1) American Telephone (Ie) Eastman Kodak (1) Aluminium (1) Steel (2) Retail General Merchandise ( 2) Paper (1) Agricultural Machinery ( 1) Aerospace (1) Food (1) Building (Roofing & Wallboard) (1) Metals, Miscellaneous (1) Tire & Rubber (1) 11.00 9.39 6.02 5.80 5.65 5.43 5.37 4.99 4-st 4.67 4.66 4.37 4.25 3.66 3.64 3.43 3.29 3.05 2.58 2.08 1. 57 1. 28 11. 42 96 3.17 296 1. 75 344 2.67 217 9.61 59 -4.47 121 1.10 448 -1. 59 '-0.50 …. 314 …. ''0 3.91 119 6.72 69 1. 52 287 0.80 531 1. 04 352 2.07 176 1. 36 282 0.73 451 1. 74 175 3.24 77 0.45 462 1.17 134 0.40 320 Interestingly, the largest industrial component of the DJIA. International Oils, shows up with almost exactly the same Dow weight as S & P weight, The DJIA contains three international oil stocks compris- ing 11 percent of its total weight; the 400 contains six, with almost identical influence, 11. 42 percent of its total weight. The Dow's biggest distortion arises from the inclusion of two stocks (American Can & Owens Illinois) in the Metal and Glass Container industry, a group which constitutes only half of one percent of the S &; P 400. The inclusion of Alcoa, International Harvester, Goodyear, and American Brands in the Dow tends to overstate the importance of their respective industrial groups as does the inclusion of two steel stocks. Minnesota Mining and, to a lesser degree, Eastman Kodak, exercise a dis- proportionate influence on the Dow.since these stocks must be considered unique rather than represen- tative of large industries. The relationship may be turned around to explore those industry groups which comprise major portions of the 400 and which are unrepresented in the Dow. Here the Dow, especially with its recent changes. appears to be fairly representative. The ten largest industnes in the 400 collectively consti- tute 52 of the weight of that index. Three of these are missing from the Dow. but two are oil-related, and the DJIA does. after all, contain three oil stocks. Conglomerates, however. constitute 2.22 of the 400, the tenth largest single industry. and have no representative in the senior average. The next 10 S & P industrial groups constitute another 15 of the 400. Of these, Hospital Supplies, Forest Products. Soft Drinks, and Construction Machinery are unrepresented in the Dow. There is, of course. some question as whether the compilers of the Industrial Average really wish. or indeed should wish, to make it more similar to acapitalization-weight index than it currently is. It is worth noting, however, that such a task could easily be accomplished by removal of some of the smaller companies referred to above. and their replacement by major factors in the under-represented or un- represented industries. ANTHONY W. TABELL Dow-Jones Industrials (12 00 PM) 836.60 DELAFIELD, HARVEY, TABELL S & P Composite (1200 PM) 102.68 Cumulative Index (7/26/79) 767.62 AWTsla No stotement or expressIon of op'nion or any other molter hereIn contained IS, or IS to be deemed to be directly or ind,rectly, on offer or the sol,CitatIOn of on offer to buy or sell any referred to or menlloned The malter IS presented merely for the conVel'lenCE of the subscrIber While we belIeve the sources of our Informa- tIon 10 be reliable, we In no way represent or guarantee Ihe accuracy Ihereof nor of the stolements mude herem Any octlon to be loken by Ihe subscrIber should be based on h,s awn Invesllgotlan and InformatIon Janney Montgomery Scolt, Inc, as 0 corporatIon, ond Its officers or employees, may now hove, or may later toke, poslilons or trades ,respect to any seCUrltlE'S mentIoned In thIS or any future ISsue, and such POSitIOn may be dIfferent from any Views now or hereafter expressed II' thIS or ony other ISSIJI'l Janney Montgomery Scott, Inc, which IS regIstered WIth the SEC os on Investment adVisor, may gIve adVICe to Its Investment adVisory and olhet cuslomers Independently of ony stotements mode In Ihls or In any olher Issue F,Hther Informallon on ony securIty mentioned hereIn IS ava.lable on request

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