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f ,, 1'-'. TABELL'S MARKET .. .'h' i l LETTER .,1.'..' –…. -. -. .\ e09 BTATE ROAD. PRINCETON. NEW JERSEY 081540 MEMBE NEW VOAK STOCK EXCH ….NGE. INC MEM8EA A ..' 'leAN STOCK EXCHANQE December 23, 1981 We concluded our summary of the stock-market year 1981 Isst week by saying that it can be interpreted only as a bear marker which terminated three months ago at levels not too far different from those of today or one which wiIJ terminate fairly shortly. If that 'sssumption regarding last year is correct, a forecast for 1982 becomes easy. It will be s bull-market year. Such a forecsst is. as we said. easy. but. in the early stages of 1982 at lesst. it is spt to prove less than useful. This lsck of usefulness stems from the fsct that the major unanswered question regarding recent stock-market action remains whether or not the DJIA low of 824.01 on September 25 constituted s major cycle bottom. Throughout the rmal quarter of 1981. this letter hss chosen to proceed on the assumption that such was not the case. for reasons which. we hope, we have made clear. If we are incorrect in this assumption, it has not, to date, cost us slI that much in terms of foregone opportunity. (The Dow at the moment is less than 6 above its September low.) If we are correct in our hypothesis, the possibility of another downward move in 1982 remains. This, it seems to us, would logicslly take place early in the year and might involve nothing more than a test of the lows of last September. At the worst, it could involve a full-fledged rmal bear-market leg which might carry as low as the mid-700's on the Dow. Even when considered only ss a possibility, this is serious enough to justify our present attitude of caution. There is, of course, some hypothetical justification for this expected downward leg's not materi- alizing. The table below traces the range of the Dow for various periods following the lows of October 22, 1957 and September 25, 1981. By coincidence, the Dow in the earlier period was slmost exactly one- half its level today, so figures for the post-1957 months have been multiplied by two. It is interesting to note the extent to which market action for the first three months following the two lows is similsr in each of the widely separated eras. The 1957 aftermath, as the table shows, was bullish in the extreme. W/lether 1982 can trace a similar pattern is a question yet to be answered. 1957 (times 2) 1981 Market Range Following Low First 2 weeks ext 2 -weeks- Next 2 months Next 6 months 882 – 839 878 – 859 899 – 851 986 – 873 878 – 824 873 – 847 892 – 831 Next Year 1328 – 989 1 There is no one indicator, we think, that will afford us an answer ss to whether the 1982-1981 bull market will emerge from a basing process which began last September or whether it will emerge from a new low to be made later on in the year. We think that the earliest clue will come from our regular practice of monitOring the development of individual patterns ss they unfOld in the early months of the year ahead. As we continue to observe that development, we would hope either to maintain and reinforce our present cautious attitude or to abandon it before the market hss made too much upside progress. We do not Bee this as an impossible tssk. Since we view 1982 as marking the completion of a four-year cycle, we took the occssion. this week. to review out' year-end forecast of 1977 – four years ago. We said then. If weaknells occurs in 1978, we would expt it GUrul!; the first half. This, of course, occurred, with the current cycle low reached in March, 1978. We also, however, speculated on the possibility that, 1978 might see the resolution of the dilemma — the ultimate end of the dreary sidewise action that has characterized the market since the mid-1960's. With the four-year cycle that followed that letter now completed or lsrgely completed, we now know that this did not occur. Will it occur during the cycle we expect to commence in 19821 There is, we think, accumulating evidence that points in this direction. If the past two decades can be succinctly summarized, they constituted a period of inferior performance on the part of financial assets (both stocks and bonds) vis-a-vis the performance of tangible sssets (real estate, collect- ibles, gold, etc.). No financial trend continues forever, and we do not expect this one to do so either. Indeed, we are perhaps embarking on a period when a program of government incentives toward savings and investment in financial sssets is st lesst partially replscing that of incentives toward investment in real assets that characterized the psst 20 years. That the American public has begun to discover the attractiveness of financial instruments is evidenced by some 180 billion currently residing in money- market funds, an amount equal to 16 of the market value of slI common Btocks listed in the New York Stock Exchange and equal to the market value of about six months of NY SE trading of current levels. The emergence of liberalized Individual Retirement Accounts in 1982 may produce financial shifts just as dramatic. Were these and other financial shifts to impsct even partislly, the equity market, the bull market, which we see as taking place during st lesst part of the year ahead, could indeed be one far more dramatic than the rather tepid affsirs which have characterized more recent stock-market history. Dow-Jones Industrials 869.67 S P Composite 122.31 Cumulative Index (12/22) 1108.81 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL WE WISH YOU ALL A HAPPY AND PROSPEROUS NEW YEAR No slclemen! or e;preluon of (lpm,on or any other molter herein contolned II, or II 10 be deemed to be, dHeC1ly or Indirectly, on offer or the lollcllollon of on offel to buy or sell ony security referred to or mentioned The malTel presenTed melllly for The convellence of the subSCriber While Ne believe Ihe aour'es of our Informo1101'1 to be reliable. we In no way represenT or gUO'onlee the occurocy IhelltOf nor of Ihe stoTemenh mude herein Any CIchon to be loken by Ihe subSCriber Ihould be based on hiS own II'Ivelllgcllon ond Informolion Janney Montgomery Scott, Inc, os CI corporollon ond III off,eers or employees, may now have, or mCly Icter loke, PO!t,ons or trades In respeCT to any securiTIes menhoned In Ihls or ony futule usve, ond such pos,llcn moy be dlfferenl from ony v,ews now or hereofter Itltpressed ,1'1 th.s or ony olher ISSue Jonney Montgomery coli, Inc, which IS regisTered With Ihe SEC as on Investmenl odvnor, may give odvlce to 115 Investment adVISOry ond Olhe. customers Independently of onv sloteme,s mode 11'1 thiS or 11'1 any other Inve Further ….formol,on on any security rnenoned herein U aVailable on requel.