Tabell’s Market Letter – August 29, 1980

.;, 0-' 'TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF' MEMBER NEW YORI( STOCK EXCHANGE. INC MEMBER AMERICAN STOCI( EXCHANGE August 29, 1980 . almost linear- upward trend that iias 'characterized it since last spring. We have had, in the-p'ast'f6rt– night, three separate rally attempts, all of which were turned back around the intraday level of 970 on the Dow-Jones Industrial Average. The last of these culminated into the decline which began at midday on Tuesday and continued through Thursday's trading, the average back to a new low at 930. Action has by no means been uniform. Each of the three rallies in question carried to new highs on the Transportation Index, and the Utility Average, which remains well below its high of a month ago, really failed to participate at all. All the drops took place. furthermore, on reduced volume, with Mon- day's trading dropping to new low levels around 35 million shares. It is difficult to observe a great deal of distribution, eitner in the averages or in individual stock patterns. It is, for example, extremely difficult to read any serious downside implications in the recent trading pattern with its 970 ceiling on the Dow. In order for any further serious vulnerability to be adduced, a broadening of the potential top would have to take place. This broadening could take one of two forms. The first possible form would be for one or more rallies to develop andto be turned back at around the 960- 970 level, action which would create a possible distributional top of some importance. The second possible source of vulnerability would be for the -tradIng rarige of the past fortnight to turn out to be the head portion of a head-and-shoulders top formation. This would require a continued decline to around the levels of mid-July, 920 roughly on the DJIA, further backing and falling in the area of 920-940, and an ultimate downside penetration of that range. Such a formation would provide a downside objective of moderately serious import. If must, of course, be pointed out that we are discussing above not the content Of the technical pattern to date, but a chart pattern that or might not form in the future. All of the above could, of course be cancelled which achieved new one that was ac- camp, with proof for the view yet to be forthcoming. One aspect of the past two weeks' trading has done a great deal to weaken the arguments available to the pessimists. If there existed, throughout the recent rise, one area of potential vulnerability, that vulnerability existed in the oils and oil-related securities. We discussed this at some length in our letter of August 1, pointing out these issues, which had generally outperformed the market for as much as six years, had suddenly begun to demonstrate somewhat inferior relative strength. Interest- ingly enough, the rally through August 22 took a few oil issues to newall-time highs, thus effectively destroying whatever potential tops they may have had. This sort of action has not yet occurred in any- thing approaching the majority of the group, but, were it to follow through with a fair number of the other petroleum issues, one major source of potential vulnerability would have eliminated. This would not suggest, necessarily, that oils were about to outperform the market on a short-term basis. It would simply foreclose the possibility of the sort of intermediate-term decline for oil stocks which would invariably have a depressing effect on the general market. We attempted, in our discussion of two weeks ago in this space, to point out some of the implications of the extraordinary rise of 27 on the Dow from the April 21 low. We indicated that the rise was, by most measurements, the most dynamic rally that has occurred since the lift-off rally which ended the bear market of 1972-1974, and that it had many characteristics of the initial rallies of major bull markets in the past. It is true that the very steepness of the advance makes the possibility of a slightly steeper than normal correction all the more likely. The rally in question in 1974-1975, for example, was finally interrupted, after a three-month period, by a correction of some 6 percent. The point is, however, that once this correction was past, new highs. were shortly achieved and continued to be achieved on a fairly regular basis for the better part of two years. Such, of course, may not be the case this time. We find ourselves once more in that area on the Dow-Jones Industrial Average which has turned back every important rally attempt since 1966. The market attained this level last fall and immediately re- traced the entire advance just as it has repeatedly done over the past decade. We have talked about this secular trading range since 1971, and we have been suggesting ever since that we did not expect it to continue indefinitely. In the absence of the sort of developments referred to above, developments which are, at this point, conjectural, the possibilities for an upside penetration of that secular trading range appear to be as good at the moment as they have been at any time during recent market history. Dow-Jones Industrials (12 00 PM) S P Composite (1200 PM) Cumulative Index (8/28/80) 931. 06 122.20 966.56 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL AWTsla No statement or expressiOn of opinion or ony other motter herein contOlned IS, or IS 10 be deemed 10 be, directly or mdHectly, on offer or the soliCitation of on offer to bvy or Sell! ony security referred to or men honed The malter 15 presented merely for the of the Whde we belteve the of our tnforma- han to be rei table, we In no way represent or guarantee the accuracy thereof nor of the stale'T1ents mode herem Any aC'ltOn to be taken by the subscrtber should be based on hIS own investIgatIon and Informollon Janney Montgomery Scott, Inc, as a corporatIon, and Its offICers or employees, may now hove, or may later toke, posltlon or trades In respeC'l to any SecUflhe mentIoned In thIS or any future Issue, and such POSItiOn may be dIfferent from any vIews now or hereafter expressed In thIS or any other ISsue Janney Montgomery Seoll, tnc , whteh .s regIstered w.th the SEC as on Investment odv.sar, may give adVIce 10 lIs .nvestment adVISOry and other customers Independently of any statemenh mode In Ihls or In any other Issue Furlher mformolton on any securtty mentioned hereIn IS ovollable on request