Tabell’s Market Letter – August 17, 1979

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK eXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE August 17, 1979 in relation -to the-former hlghs-oian-assortmeid of wldely'followed market indices, suggesting that ' the penetration of those highs would admit of no interpretation other than that the market has been in a major upswing dating back some 18 months. The past fortnight of market strength has left just about all of those prior peaks safely in the dust, and indeed even the Dow, which, as we have been pointing out, has lagged just about everything else in sight, moved last week to new high levels for 1979, although it still has its September, 1978 peak of 907.74 to work on. There will, however, be no further discussion of past peaks and mythical bear-market rallies in this space. The time has come to get on with it. Not to put too fine a point on the whole thing, the Standard & Poors 500-Stock Index closed on Wednesday, August 15,1979 at 108.25. It closed on March 6,1978 at 86.90 and has, therefore, in the interim, advanced 24.57 percent. This is well beyond the threshold which the historical frame- work suggests as appropriate for defining major swings. Within 'this framework, therefore, a major bull market existed as of the close of last Wednesday, and any previous prior interpretation was, by definition, wrong. It will have been no less wrong in the unlikely eventuality that market turns immediately down from Wednesday's close, and that high turns out to be a major peak. For those in- vestors who have been operating on the rally-in-a-bear-market theory, the only possible suggestion at this point is that appropriate adjustments be made forthwith. Getting on with it, as suggested above, involves asking the questions appropriate to any reason- ably mature bull market, i. e., How Far and How Long Let us, first, offer a few thoughts on the latter subject. This letter has long leaned toward the interpretation that March, 1978 constituted a cycle bottom We firsi,Jiuggesi – – dence In favor cif -this hypothesis has accuriiulated' fairly usionon…ApriLl4 ,-19'18 ,andevi—f ever since, having, in our view, become just about conclusive this week. It is generally agreed that stock market cycles tend to have an identifiable periodicity, giving rise to the familiar term four-year-cycle. The four-year appelation is somewhat inexact, since the average length of the 19 cycles during this century through December, 1974 has been 42 months. During the post-World-War-II period, they had tended to be somewhat longer, averaging 51 months, this greater recent length having caused some difficulty in identifying the March, 1978 cycle lows, that date having completed a cycle only 43 month long. Assuming it is now possible to measure forward from March, 1978, a 42-month cycle length would call for the next major low to occur sometime in the fall of 1981. The extention of the cycle to the post-war average of 51 months would postpone that low until the spring of 1982, Now cycles, of course, are measured from'low to low, and the date of next low is of limited prac- tical interest at this time. For so long as the cycle remains in an up phase, we are interested in identifying the eventual high. We are, in other words, trying to guess the shape of the cycle which , began a year and a half ago. It has been characteristic of recent cycles, since the late 1960's, that they spent only a bit more than half their alotted lifespan in an advancing phase. If this holds true in the present instance, a peak could occur as early as 21 months after March, 1978, in other words, as soon as December of this year. On the other hand, a return to the genral post-1942 pattern would suggest a cycle of 50 months,spending 80 percent of its time in an advancing phase. This takes us out 40 months from March of last year or into the summer of 1981. Taking the longer view, what we are really questioning here is whether or not the long secular sideways (down in real-dollar terms) movement in stock prices, dating back is, in fact, over, or whether yet another downswing within the framework of that secular environment is in store. We think this question is a single most important one that can be posed at the moment for the equity investor, and we intend to re-examine some of its ramifications in future issues of this letter. Dow-Jones Industrials (12 00 PM) 884.22 S & P Composite (12 00 PM) 108.17 Cumulative Index (8/16/79) 806.14 ANTHONY W. 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