Tabell’s Market Letter – January 22, 1982

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 06540 DIVISION OF MEMBER NEW VORK STOCI( EXCHANGE, INC, MEMBER AMERICAN STOel( EXCHANQE January 22, 1982 A month ago we occupied this pace with a study of the action of major market indi- catol'S using–what-is.knownas.aeference..,qz;cle-approach .-T.hisappr9ach. cpmpal'edthe. action. .,.,.. of those indicators-following-'the September 25,- 1981 low, the low scorea- 75 trading days ago which remains, to date, unbroken, with market action at past known major low points — the low points of each of the eight major market cycles since 1949. The purpose of the exercise, of course, was to determine whether or not market action was consistent with the thesis that an important low was being formed. When we first did the study on December 11, we concluded that there were precious few similarities between market action in 1981 and the sort of thing that had taken place at past major bottoms. Updating that study, with 75 days of market action since September 25 now available to us, reinforces the previous conclusion. It must be rngrettably noted that there is almost nothing in the current market pattern historically consistent with the formation of past major reversals. The table below, a current update of the previous one, shows the 75-day high figure reached for each of four market indicators as a percentage of the prior market low. As can be seen, the Dow has acted notably worse in the first 75 days than on any of the previous major oottoms, and, at most past important lows, the S & P 500 has performed notably better than it has in the present instance. As the fourth column shows, volume expansion in most prior cases was considerably greater than it has been to date. The most notable divergence between the present market and past low points, however, is seen in the action of the advance-decline line. As the table clearly suggests, it moved up a great deal more following past cycle bottoms than it did following September 25. What the table does not show is that,after making its high, – – -th-eA'-D-line-has'recentlyQniovedd6wnwartlah-d-isC\irrentlytesting itSS'ej5'tember251TI1i's' action is totally inconsistent with the maimer in which it behaved at past major low points. Date of Market Low Jun 13 1949 Sep 14 1953 Oct 22 1957 Jun 26 1962 Oct 7 1966 May 26 1970 Dec 6 1974 Feb 28 1978 Sep 25 1981 DJ I A 113.42 110.98 109.26 114.98 113.89 122.50 136.17 116.76 108.34 High in First 75 Days As Percentage of Market Low S & P 500 Adv Dec Line 116.16 129.63 110.04 11 7.36 108.93 132.26 114.26 136.01 118.18 142.53 ll9.84 127.40 132.30 157.98 ll5.26 122.96 ll2.04 113.29 Volume 126.43 137.73 109.36 100.18 150.95 111. 76 168.91 211. 40 ll2.28 If current market action is unlike that at major lows, what sort of historical period does it, in fact recall It is, unfortunately, all too easy to find a significant parallel. Market behavior since September has been strikingly similar to that following December 5, 1973. On that date, the Dow had completed an 11-month, 25 decline from 1051. 70 to 788.31. This is roughly analogous to the five-month 20 drop posted in April-September, 1981. The December, 1973 low was to hold for six months through the summer ,of 1974. ,During those six months there were four se parate advances and retracements of 5 or more, 'all of which failed to pim- etrate the December 5 low, just as two advance-retracement cycles have failed to penetrate the low made on September 25. Two of the 1973-4 rallying phases took the Dow slightly higher percentagewise than it has moved up so far. However, just as in the current case, volume totally failed to expand, and — most notably — breadth peaked out and declined to its previous low in just about the same time frame which it demonstrated since September. As we all know from history, the aftermath of December, 1973 was a full-scale, bearmarket leg which took the DJIA down from a trading-range high of 891. 66 to an ultimate low of 577.60, a further 35 decline. It should be noted that we do not foresee a drop of anything like this magnitude in the present case. However, the similarities between the present period and that past one seem to be real and disturbing Dow-Jones Industrials (1200 p.m.) 845.89 S & P Composite (12 00 p.m.) 115.70 Cumulative Index 1I21/82) 1068.42 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL No statement or eXpreSlon of opinion or cny other moiler herein tonlomed is, or , 10 be deemed to be, dHCdly or mdlfcctly, on offer or Ihe SOllcllohon of on offer to buy or sell any seurlty referred to or mentioned The matter IS presented merely for rhe convenlencs of the subscriber While He believe the sources of our Informa- tion to be reltable, we m no way represent or guarantee the accuracy thereof nor of rhe uotemenls mude herem Any acllon to be taken by the subscflber should be based an hiS own Investigation and Information Janney Montgomery Scott, Inc, as c corporation, and Its officers or employees, may now hove, or may later Icke, poI'lon or trades In respect to any ecurltles mentioned In thiS or any future ISSUe, and such POSition may be different from any views now or hereofter efpresscd In thl or cny other Issue. 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