Tabell’s Market Letter – October 05, 1979

TABELL'S MARKET LETTER – 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGe, INC MEMBER STOCK EXCHANGE October 5, 1979 Our readers are undoubtedly aware that this letter's attitude toward the stock market has, for some time, one. When the market outlook appears positive, however, it is necessary to be aware of potentiBl clouds-onAhe -liorlzon–;- and one–suchC1ouil, -as of market breadth. This action does, indeed, raise a few mildly disquieting questions, but, before becom- ing overly concerned, it Is, perhaps, worthwhile examining recent breadth behavior in some detsil. Perhaps the most important point that can be made is that there are currently two separate and distinct developments as regards breadth which have possible negative implications. The first of these is longterm in nature and has been present for some time. The second is shorter-term and of relstively recent vintage. Let us first examine the shorter term problem. The following table shows the major short-term swings in both the Standard 81 Poors 50o-Stock Index and our breadth index since the low of October, 1978. New highs both in the breadth index and in the 500 are indicated with an asterisk. SiP 500 BREADTH DATE SloP 500 BREADTH Oct 31, 1978 Nov I, 1978 Dec 6, 1978 Jan 26, 1979 93.15 96.85 97.49 101. 73 805.17 811.79 813.60 819.61 Apr 10, 1979 Jul 9, 1979 Aug 31, 1979 Sep 20, 1979 103.34 104.47 109.32 110.51 821. 75 822.88 831. 62825.24 Classic breadth theory, it will be recaJIed, suggests potential bearish implications whenever a new high in the market averages is unconfirmed by a like high in breadth. As the table quite clearly indicates, each new high in the S 81 P since last October has been confirmed by a new breadth peak with the single exception of the last one, the September 20 high of 110.51 which found the breadth index some 61 points below the peak it had attsined on August 31. The following table is constructed Blong the same lines and goes back to the beginning of 1976. This longer-term perspective reveals still another difficulty. DATE S&P 500 —–.Jan-1-4-,-1-97G – Feb 4, 1976 Feb 20, 1976 Apr 5, 1976 Jun 21, 1976 Jul 14, 1976 Sep 21, 1976 Dec 15, 1976 Jan 3, 1977 101.91 102.10 103.51104.28105.95107.83 105.14 107.00 BREADTH 804.12 818.43 824.15 820.21 815.77 821. 72 823.85 829.84 836.15 DATE Jun -27. 1977 Jul 22, 1977 May 17, 1978 Jun 8, 1978 Aug 17, 1978 Aug 25, 1978 Sep 11, 1978 Aug 31, 1979 Sep 20, 1979 SiP 500 100.98 101. 67 99.60 100.21 105.08 104.90 106.98 109.32 110.51 BREADTH 836.94839.4U 840.22 841.07 849.40849.76 853.78 831. 62 825.24 The highs of early 1976 in the S 81 P 500 were confirmed by new breadth peaks up through February 20. However, four-successive new market peaks in April, June, July, and September of 1976 were unconfirmed by new highs in the breadth indicator. This, on the record, suggested a bear market as far as the S &P was concerned, and indeed, one ensued, since the average dropped from 107.83 to a low of 8Y.19 in March, 1978. It was a peculiar bear market, however, since, as the- table shows, each successive short-term peak took breadth to new highs even though the 500, at each peak, tended to be lower. As the market moved up again to a high of 106; 98 in September, 1978, breadth continued to achieve new peaks. There then ensued the break of September-October, 1978 which took Blmost a year to recover. When the 500 finaJIy managed to achieve a new high in the end of August this year, breadth, Blthough it had risen satisfactorily as the first table shows, was still unable to rise above its September, 1978 peak. Needless to say, it remsins below that peak today. Let us examine each of these divergences. The first one is ,- indeed, disturbing, and the six-point difference between breadth on September 20 and its higb of three weeks earlier is an unusaJIy wide one. It must, however, be noted that this particular divergence is barely a month old Hlld could easily be erased by a couple of weeks of markets which demonstrated across-the-board strength. The second divergence is indeed real, but its implications are, in our view, somewhat ambiguous. We discussed a couple of weeks ago the theory that the period March-September, 1978 constituted, in many ways, a sort of double bottom. If this is the case, the fsilure of breadth to better its September, 1978 high is of little-consequence since divergence. are normBlly measured from the start of bull markets. Also, the superior action of the breadth during 1977 and 1978 is historicaJIy unprecedented. Although breadth has not yet bettered its own high, made in September, 1978, it is, at current levels, comfortably above its level of September, 1976, the last time the 500 achieved a major high. The unusuaJIy strong breadth action during the 1976–78 bear market, in other words, has made current interpretation somewhat difficult. We are trying here to put breadth action in perspective, not to paint an overly rosy picture. Recent breadth has, perhaps, placed the market in a position where it must prove itself — by putting On a raJIy sufficiently dynamic to rsise breadth to new peaks. This would not be at an difficult in the current context. On the other hand, it is becoming just about a necessity if the doubts referred to above are to be dispelled. Dow-Jones IndustriBls (12 00 PM) S & P Composite (12 00 PM) 897.18 111.09 ANTHONY W. TABllLL DELAFiELD, HARVEY, TABELL Cumulative Index (10/4/79) 801. 57 AWTsIa 1 'fNo statement Or expresSion of opinion or any olher motter herein coni d to buy or sell any secvrory referred fo or mentioned Th off olned IS, 10 b he dd eeme 10 be, dlreetly or indirectly, on offer or the SOllCllotlon of on offer tlon to be reliable we In no way re re t em er IS presente mere Y or t e of Ihe subscriber While we believe the sources of our Inforrna bosed on his own 'investigation and nor of the stotement!, mode herein Any action 10 be token by the subscriber should be positions or trades m H!Spect to any SeCUrities mention dYm ttl go ery co t, nc, os 0 corporation, ond Its offIcers or employees, moy now have, or mcy Icter tOke, 1hlS or any other ISsue Janney Mont orne Sc II I e IS or any future ISsue, and such POSition may be different from any Y'eWl now or hereafter eypressed In CVltamers mdependenlly of any , 'm 's which IS With, 'h'h SEC ,os on mvestment advisor, moy give adVICe to lis mveslment adVisory and othel I or In any 0 er Issue urt er In orrnotlOn on any seruflly mentioned herern 15 aVailable on requeu