Tabell’s Market Letter – October 02, 1981

.- i TABELL1S MARKET .' , LETTER goe STATE ROAD, PRINCETON. NEW JERSEY 08540 DIYla'ON OF MEMBER HEW YORK STOCK EXCHANGE. INC MEMBER AMEFueAN STOCK EXCHANGe October 2, 1981 There has been enough apocalyptic comment on the international imancial scene of late that It Is perhaps advisable to restate our own stock-market opinion in as dispassionate a form as possible. That opinion is as follows 1. We do not view the past five months' market weakness as the beginning of the decline of western civilization. 2. We confess to no knowledge whatsoever as to what particular day will turn out to be the worst one of the present decline. 3. We think the stock market Is likely to head lower. The last Item Is the only possibly useful piece of information in the triad. and we have tried to arrive at that conclusion as rationally as possible. It is based on the sort of reasoning we have been setting forth in this space for the past couple of months. This particular hypothesis takes cognizance of the fact that the market Is, by historical standards, in a deeply oversold technical position. It however notes that declines, once they have become severe as this one has, generally signal their effective bottom by producing a selling climax of the classical form. Such a climax remains noticably absent In recent trading, even last Monday's rather bizarre trading session, in which the market reversed directions four different times during the day. It is of course possible, although not, on the record, probable, that the market could bottom without producing the usual climactic symptoms. Evidence that it had done so, however, would come, not in the form of an instant reversal, but out of a long period of base-building and building up of underlying technical strength. We think it advisable at this point, therefore, to maintain a cautious attitude. Readers will note that the above reasoning, along with most of what influences our current thinking. is based on purely statistical grounds, i.e., on technical analysis of the market's recent action. This is the only area of expertise we claim, and it is presumably this expertise for which our clients are paying us. We presume our readers have not the slightest interest in our political views on whether or not equity-market weakness heralds the collapse of Reagan economics. We admit we do not have the slightest Idea of whether or not this Is the case, and we suspect that most of the commentstors who have taken a firm view, pro or con. on the question are reflecting their own bias, rather than any firmlygrounded opinion. In other words, in our view, the recent linkage between politics and the stock market is unfortunate, albeit somewhat amusing. The amusing part lies in the nature of some of the comments arising on the Washington scene. DemOQratic critics of the President, hardly known in the past as avid admirers of Wall Street, seem to have taken to viewing the New York Stock Exchange as the latter-day reincarnation of the Temple of Delphi. Wall Street in its onmlsclent wisdom, we are being told, Is informing us that the Republican economic program is fated to failure. Possibly It is our short memory, but we do not recall any of the gentlemen who are espousing this view telling us, back in 1962, that President Kennedy's economic policy of not allowing the steel industry to raise prices was ill-advised, this policy, of course, being the popularly-accepted reason for that year's market 'collapse. Not that the Republican response has been any more intelligent. Avid supporters of the free market, one would think, could express that support in better ways than petulantly accusing the stock market of lack of patriotism in failing to snap to attention and fall respectfully into line behind the leadership of the new economics. All that this parade of rather vacuous commentary proves, we suspect, Is that the banks of the Potomac continue to be a poor vantage point for viewing what goes on in lower Manhattan. To anyone who has spent a career observing Wall Street, of course, the Idea that it possesses some sort of orscular wisdom Is nothing short of laughable. The market, as technicians have long been aware, Is the distillation of collective emotions, and emotion, however admirable a quality It may be in certain aspects, tends to get in the way when it comes to forecasting. We hsve cited in the past a few previous occasions when Wall Street has unmistskdly expressed its collective wisdom. One such piece of wisdom from the late 1940's was the certainty of s post-war depression, which certainty caused blue- chip stocks to become available at yields three times those offered by marginal bonds. Another brilliant piece of conventional stock-market wisdom was the early-1970's belief that the earnings, and therefore the prices, of high-grade growth stocks were going to go on compounding forever into the infinite future,thus produaing an elite class of one-decision stocks. When the late Fiorello LaGuardia admitted that when I make a mistake, its a beaut , he could very well have been talking sbout Wall Street conventional wisdom. ' We think the greatest mistake the investor could make at the present juncture would be to pay a great deal of attention to widely-heralded economic forecasts, especially when those forecasts represent some sort of vested political interest. We suspect the very uncertainty of the economic climate at this stage is a major contributor to the stock-market malaise. and, reflecting our own bias as stock-mar'ket technicians, we suspect that the market will. as It has in the past. give Its own signals that this uncertainty has become fully discounted. We will attempt to comment on such signsla as they occur. Dow-Jones Industrials (1200 p.m.) 857.12 S P Composite (12 00 p.m.) 118.29 Cumulative Index (l0/1/81) 1016.17 ANTHONY W. TAELL DELAFIELD, HARVEY, TABELL No 51clement or CICpreulol'l of opinion or any other matter here,n tOnlcllned Is, or IS 10 be deemed 10 be, dHettly or indirectly, on offer or Ihe lollcltollon of on offer 10 bvy or sell onr. SeCUrity referred 10 or mentioned The moiler presented merely for Ihe converlenCE of Ihe ubstrlber Whlle..,e believe Ihe Ol)rces of our Informolion 10 be rehab e, we In no way represent or guarantee the OCturocy thereof nOf of the stolernenls mude herein Any oct.OI'l to be taken by the sub5Cflber should be based on hIS own Investigation ond information Jonl'ley Montgomery Scoll, Inc, as 0 corpO'Ollon, and lIS officers or employees, moy now have, or may 10ler toke, POSitlClI'IS or trades In respect 10 any securnles mentioned In IhlS or ony future ISsue, and suen PO;ltlon may be different from any views now or hereafter c.-pressed In Ihl!. or any other luue Janney Montgomery Sco, Inc, which IS registered With Ihc SEC as on Investment odvisor, may give odvlce 10 lIS Inve!.lment advlsQry and otnel evsl.omers Indendently of any Sloleme'lfs mode It'I 1'IIS or It'I onyother Inlle Fllrt),er mformot,oll on o'lY senmll' mt'nlloned herein U ovolloble on requesl