Tabell’s Market Letter – September 28, 1979

Tabell’s Market Letter – September 28, 1979

Tabell's Market Letter - September 28, 1979
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF' MEMBEfI NEW YORK STOCK eXCHANGE, INC. MEMBER AMERICAN STOCK EXCHANGE September 28, 1979 It is often dangerous to anthropomorphize an institution such as the stock market, but, if one looks — '-lWIS.st-weeks p-ricrreliaVior, -tne-overwhe1minlfimpressloniS'one -ofjjervousness7 Kaffiiftetlly is plenty to be nervous about. As suggested last week, it is difficult to pinpoint just what, precisely, 400-per-ounce gold means as far as the stock market is concerned. It is also difficult to assess the exact impact of short-term money rates approaching 12 except to suggest that they are hardly bullish. Such rates obviously continue to make alternative forms of investment relatively attractive vis-a-vis stocks and increase the borrowing cost of carrying stocks. The foregoing negatives are piled upon a skyrocketing rate of inflation, a rising money supply, and, as an election year approaches, continuing reminders of both the actual and alleged shortcomings of the present administration. Under these conditions, it is hardly surprising to see a market which, after posting a near-record advance to a new high, as the Dow did on September 20, totally fail to hold that gain as it did in Friday's trading, and then plunge sharply as it did on Monday. Equally typical is a market such as Tuesday's which continued the previous day's slide, and then recovered almost totally in the final hour, fOllowed by one which extended the prior day's rally and then lost almost all that gain at the tail-end of the day. Meanwhile, the financial commentary seems to be focused more and more one these erratic short-term swings and less on basic trends and fundamentals. We have been trying to establish in these letters our belief that, as of mid-August at any rate, bull- market conditions existed. We have, in the past, likened the management of money under such condi- tions to the process of driving a car at night. The obvious requirements are that one should remain alert and carefully inspect that which is taking place within the range of one's headlights. Obsessive worry about what obstacles mayor may not lie beyond the range of the headlights can produce nothing but schizophrenia. The relative point in the present instance, it seems to us, is that, at least until headlights available revealed the stoc1\; market ahead to be free of obstacles. Whatever threats may have developed in the past three or four weeks seem — to be of potential rather than actual significance One fear, for example, that appears to preoccupy many investors is a repetition of the sharp intermediate-term crash of October a year ago. (Actually, if one is looking for significance in anniversaries, an even more significant one is occurring in September-October, 1979. That, of course, is the 50th anniversary of the 1929 crash, an anniversary which we do not intend to allow to pass without comment next month.) In any case, we pointed out a fortnight ago that the potential distributional pattern which had formed bore no resemblance whatsoever to that which had formed during the summer of 1978. Despite the fact that an area of potential distribution has continued to build, centering around 880- 890 on the Dow, that area is still of significantly less magnitude than the one which preceded last year's Halloween Massacre. Just as generals have a tendency to fight the last war, bearish analysts seem to be enamored with protecting us against the last down-swing. It is seldom a productive exercise. None of this is to say that areas of possible concern are, at the moment, totally lacking. For the technician, one such area must be breadth action which, since mid-August, has been, in a word, abysmal. This is taking place at a time when a fair number of market averages (although not the Dow against which breadth is usually measured) have moved into new high territory while all breadth measurements remain below their levels of September, 1978. This sort of action sets the scene for a divergence of the classic sort It must, however, be remembered that breadth divergences, historically, have taken place Over protracted periods of time, and there have often been long lags between new highs in the averages and ultimate confirmation by market breadth. We are inclined, therefore, to give this factor, for the time being, at least, the benefit of the doubt. Still another potential area of concern is the lack of confirmation of the Dow's new high by either the Transportation or Utility averages. Here again, it is perfectly true that such confirmation is lack- ing as of the present date. It is, however, certainly not impossible for later Utility and Transport strength to bring these averages once again into gear on the upside. What we are saying, in summary, is that any market which has advanced as sharply as the current one did during the summer rally of 1979 is vulnerable to a short-term correction. What needs to be assessed is the risk that such a correction, if it occurs, might develop into something of more serious import. Our own assessment, based on the evidence presently available, does not indicate such vul- nerability. We think, therefore, that a continued aggressive attitude toward the equity market appears warranted. ANTHONY W. TABELL Dow-Jones Industrials (12 00 PM) 886.60 DELAFIELD, HARVEY, TABELL S & P Composite (12 00 PM) 110.18 \ Cumulative Index (9/27/79) 798.18 No stotement or expressIon of opinion or any other motter herein contOlned Is, or IS to be deemed 10 be, dIrectly or Indncc!ly, on offer or the 50licllollon of on oFfel to buy or sell any secunty referred 10 or mentIOned The marter presen1ed merely for the of Ihe subScriber While we beheve Ihe sourl;es of our Informa- tion 10 bl! reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mode herem Any aellon 10 be by the subSCriber should be based on hiS own ,vestlgollon and mformaHon Janney Monlgomery Scali, fnc, as a corporohon, and ,ts offICers Or employees, may now have, or may laler role, poslhans or trades 10 respect to any securlt,es mentioned In thiS or any future 's,ue, and such POSITion may be different from any views now or hereafter expressed In th,s or any olher Issue Janney Montgomery cott, Inc, wh,ch IS registered w,th the SEC as an ,nvestment adVisor, may give adv,ce to Its Inveslment advlilory and olhe, customers Independenlly of any statements made In thiS or In any ather 'ssue Further Information on any secunly menhoned herein ,s avmlable on request

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