Tabell’s Market Letter – January 18, 1980

— TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY DIVISION OF MEMBER NEW VORK STOCK EXCHANOE, tNC MEM8ER AMERICAN STOCK EXCHANGE January 18, 1980 It is almost unreasonable carping to voice any criticism of the way the stock market has acted so -,- — September-October weakness, and contiriuation'of the -year-end-rally1iito January iooK –, place almost precisely on schedule, preceded on the first couple of trading days of the year by a test of that base prior to the breakout. The clear-cut move above the 850 level which took place this week I completes the base pattern, confirming the end of the short -term decline from last fall, and suggesting that the market has now moved into a new intermediate uptrend phase. The implications of the head and shoulders base formation between 800 and 850 on the Dow are, if followed through to their logical conclusion, optimistic indeed. It is now at least plausible, consider- ing the extent of this base, to read upside targets above the 900 level, thus suggesting that the Dow may finally achieve new high ground above its previous peaks in September, 1978 and September, 1979. All this would then make it at least arguable,that the entire 1977-79 period, which the Dow spent almost exclusively in the 800-900 area, constitutes a base formation. This base, in turn, is wide enough to suggest the penetration of what now becomes relatively minor overhead supply between 900 and 1000, and in turn, raises the possibility of a denouement to the relatively flat trading range which has con- tained the DJIA since the middle 1960's. We have been mentioning that trading range in this space for almost a decade now, and have suggested that its eventual resolution would be on the upside, although we had no idea when such a resolution might take paIce. Such an upside resolution now appears more plausible than has been true for quite some time. The formation of this pattern, moreover, has taken place'accompanied by highly favorable volume characteristics. Trading bettered 50 million shares on six of the first ten days of the new year, and this activity was accompanied by an almost 50-point rise in the Dow from a January 3 close of -820.31 to a Wednesday high of around 870. It seemed obvious to even the most jaded observer that big-money demand has entered the stock market scene to an extent almost unprecedented in recent years. Under-trie mfluenceof-fleavy ;-most-indicatorsm-market–r– momentum, even those which had turned down last fall, moved again into positive territory, suggesting the continuance of a positive major trend. It can hardly be gainsaid that 1980 seems to be off to an auspicious start, A number of questions, however, must be raised. It must be noted, for example, that the advance so far lacks the breadth one would normally associate with a move as dynamic as this one in the aver- ages. There were, it is true, two days when more than 1200 issues advanced and a couple more when advancing stocks exceeded 1000. It is not necessary to point to the action of esoteric breadth indices to suggest that such action is sub-par in light of the extent of the move in the averages. It is only necessary to recall, for comparative purposes, that when moving down last October, the market had two days where declining stocks averaged 1700 and a couple of more where they exceeded 1500, Any- thing remotely comparable on the upside has yet to manifest itself. The advances' lack of breadth is, we think, manifested in individual stock patterns. A fairly large number of individual issues, rather than moving ahead to new highs, have been moving laterally below highs made last summer and fall. Potentially, at least, it must, therefore, be noted that a fair number of individual top formations exist. The market, in many ways, seems to have come full circle from its behavior of a couple of years ago. At that time, the averages and, by extension, the leading issues contained in those averages, suffered from an obvious- lack of the institutional buying pressures needed to move large capitalization stocks. Where the averages were doing nothing, however, a fairly large number of secondary issues were behaving extremely well. At the moment, by contrast, institutional buying pressure, as evidenced by the last couple of weeks' volume, has obviously returned and, as might be expected, it is concentrated among first-tier issues, explaining the averages' excellent behavior, To date, however, upside action in secondary stocks, so -characteristic of recent- markets, appears lacking;- One of the oldest of Wall Street maxims concerns the inadvisability of fighting the tape, and it is certainly not our intention to do so in the present instance. There is certainly no reason .why the upside pressure, now concentrated in large-capitalization issues, cannot spread once more to the broad mass by equities, producing belated confirmation of an uptrend by breadth action which, in turn, would suggest a sustainable upswing. It is, indeed, not at all unprecedented for major bull markets to begin with a concentration in primary issues and have the action broaden to inClude secondary stocks at a later date. Such action, if it cocurs, would be bullish indeed. It must be noted, however, that it has not, as yet, taken place. ANTHONY W. TABELL Dow-Jones Industrials (1100 AM) 862.12 DELAFIELD, HARVEY, TABELL S&p Composite (1100 AM) 110.63 Cumulative Index (/17/80) 823.14 AWTsla No statement or ew;prenlon of op!l'lion or ony other moiler herein tontamed IS, or IS to be deemed to be, d!rectly or !nd,rectly, on offer or the soilcltatlon of on offer to buy or sell (my secunty referred to or mentioned The molter IS presented merely for the onverent(l of the substrlber While we belIeve the sources of our Inferma tlon to be relloble, we ,n no way represent or guorontee the accuracy thereof nor of the statements mude herein Any oellon to be by the subSCriber should be based on his own mveST!gatu;m ond mformallon Janney Montgomery col!, Inc, os a corporation, ond ,ts offlters or employees, may now have, or may loter toke, posltlon or trodes In respect to ony securities menhoned In Ihls or ony future Issue, and such posItIon may be different from ony VIews now or hereafter epressed In Ih,s or ony olher Issue Janney Montgomery Scott, Inc, which IS registered With Ihe SEC as on InvestmMt adVIsor, moy gIve adVIce to Its mvestment adVIsory ond othel customers Independently of any statements mode In It'IIS or In any other l\Sue Further mformahon on ony security mentIoned hereIn 1 avollable on request