Viewing Month: February 1982

Tabell’s Market Letter – February 05, 1982

Tabell’s Market Letter – February 05, 1982

Tabell's Market Letter - February 05, 1982
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY OB540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANoe February 5, 1982 We.devoted. this -letter .three.,weeks.ago.-to. adiscussion .of .recent -legislation ,allowing, every ..,, .. American jobholder -to'place 2,000 in-;m Individual Retirement 'AccounC– The occasion of President Reagan's recent State-of-the-Union message is as good an excuse as any to bring up this subject once again. The President announced that he is standing by the centerpiece of his program, the personal income-tax cut, and much of the debate between him and his critics has centered around whether the deficits which mayor may not result from that cut are too high and thus require revenue enhancements to bring them down. While our legislators valiantly argue about the advisability of tacking 50 onto the price of a bottle of booze, the IRA has gone largely unnoticed –in the news columns of the press if not in its advertising lineage. This is not without irony since, in our view — in terms of long-term potential for transferring wealth from the public sector to the private sector — the IRA dwarfs anything else in the entire administration tax package. In our prior discussion, we likened the impact of the IRA to that of the various government programs to encourage housing. We think the analogy continues to be apt. Effectively, in terms of the tax advantage provided to owners of their own homes, housing policy encouraged the individual to become a borrower at what had been historically low interest rates. With that policy now foundering on the rock of expensive credit, the government is now using tax policy to encourage saving at currently high interest rates. Another similarity between the IRA and the housing program is that they are each founded on a simple, but not too widely understood, concept of financial mathematics. In the case of the housing program, that concept was leverage. In the case of the IRA, the concept is compound interest. The dramatic power of compound interest over long periods of time has been illustrated in many ways. One of our favon te illustrations involves the purchase of Manhattan Island from the Indians by the Dutch for a reputed 24. The price is widely held to be unfair, yet had the Indians simply invested that 2.4.at6.interestannuallycompounded.,theirtoJ.aL.w.ealth-w.ould,todayxceed- the-1otal value of Manhattan real estate. The power of compound .interest has, of course, also been alluded to in those bank advertisements which promise to make millionaires out of those who will cross their threshholds bearing 2000. Let us, however, try to discuss some possible realistic effects of compound interest from the point-of-view of the average IRA saver. Let us assume that this individual is in the 30 tax bracket and let us further assume an interest rate of 10 (one purposely lower than that available at the moment). Such an individual's after-tax return on savings is 7, and were said individual to save 2000 today at that 7 rate he would have, in 30 years 15,224. The IRA, however, allows him to compound those savings at the full (assumed) 10 rate. At that rate, the 2000 saved today is in 30 years worth 34,898. The IRA has effectively handed him 19,764. Now it is true that the IRA is a tax deferral program, and when he starts withdrawing those savings that withdrawal will be taxed, presumably at the same 30 rate.' Thus his 34,898 is worth only 24,429 after taxes. However, even allowing for this, a difference of 9,205 remains between what he has been able to save under an IRA and what he could have saved on his own. The present value of that difference (at the 7 after-tax saving rate) can be computed. It is 1,209. To this must be added the 600 tax saving arising from the tax deduct ability of the original 2000 investment. For the 2000 he invests, the United States is harding this individual 1,809 in present value of foregone current and future government revenue. The compound interest effect can also be used to gauge the eventual magnitude of wealth which might reside in IRA programs. We assumed three weeks ago an annual infusion of 18 billion annually, a figure based on, roughly, a 10 participation by those eligible. Under this assumption, plus a 10 interest rate, some 315 billion will reside in IRA accounts after a decade. This is, interestingly, just under one-third of the total present U. S…. government debt. Totals of this magnitude could accumulate much faster or be even greater given the continuance of present iiiferest levels or' a higher participation than the 10 we have assumed. We noted in our original commentary our feeling that it was appropriate for a letter devoted to the stock market to comment on the IRA legislation. We continue to think this is so because, as the elementary exercise above has tried to suggest, we are dealing here with very large numbers. These very large numbers are, in our view, going to find their way directly or indirectly into financial markets, admittedly over the longer term. Over that long term, however, we think the magnitude of the effect could turn out to be astonishing. AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL Dow-Jones Industrials (1200 p.m.) 847.03 S & P Composite (12 00 p. m . ) 116.58 Cumulative Index (2/4/82) 1077.67 No !.tolement or eXpreSSion of opinion or any other moiler herein contained Is, or IS to be deemed to be, directly or Indirectly, on offer or Ihe 10l1cllollon of 01'1 offer 10 buy or sell any seomfy referred to or menhoned The matter I' presenled merely for Ihe convenience of the lubscflber WIllie we believe the sources of our ,formalion 10 be reliable, we In no way represcnt or guoranlee Ihe accuracy Ihereaf nor of rhe statements rnude herem Any action to be taken by the subSCriber should be bosed on hiS own Investigation and Information Janney Montgomery ScOI!, Inc, as a corporation, and Its offICers or employees, may now have, or may later toke, pasHlans or trades In respect to any securctles mentioned In Ihls or any future Issue, and such poslhon moy be dlfferenl from any views now or hereafter e)(presed In Ihls or any other Issue Janney Montgomery Scali, Inc, which IS reglslered WITh Ihe SEC 05 on Investment adVisor, may give adVICe to 115 Investment odvlsary and olher customers Independently of any slotemenlS mode In thiS or to any olhtlr ,ssue Further tnformahon on ony securlly mentioned herein IS availoble on requesl

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Tabell’s Market Letter – February 12, 1982

Tabell’s Market Letter – February 12, 1982

Tabell's Market Letter - February 12, 1982
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08840 DIVISION OF MEMBER NEW YORK STOCK EXCHANOE, INC MEMBER AMERICAN STOCI( EXCHANGE – February 12, 1982 Followers of esoteric technical indicators received somewhat of a jolt a couple of weeks ago, when the New – Yark' Stock' Exchan-ge . reportea'the' .fact -that ai!,–ofthesettlemelfCdllte of danuary— 15, total short interest had reached 84,969,000 shares. Although this was a drop from the prior month, the significant fact was that it constituted exactly twice the daily trading volume for the relevant period. An indictor known as the short-interest ratio, therefore, had reached 2.00. Since this ratio is fairly easily calculated, and two is a round number, it is widely known that this occurrence constitutes a highly bullish signaL The record certainly tends to bear out this contention. In 445 market months since 1945 it has occurred only 19 times. With a high degree of regularity these occurrences have tended to cluster around major bull-market lows, 1949, 1957-58, 1962, 1966, and 1970. Although the short-interest ratio failed to call the bottoms of 1974 and 1978, it has reached the 2.0 level around every major cycle bottom since 1949, and, with a couple of exceptions, only at such times. A record such as this, therefore, bears some scrutiny. We therefore undertook, this week, a preliminary critical look at the short-interest ratio, and we intend to pursue this research further. A few observations, however, can now be noted. The first question that needs to be explored is whether or not this particular indicator, like other indicators in the past, has been rendered obsolete by new structural market develop- ments. Two such developments come readily to mind. The first is the recent emergence of large short positions as the result of takeover arbitrages. This development does, in our view, cause a problem. The theory behind the short-interest ratio has always been that a high level signi- fies a potential future market demand. This is not the case in a takeover situation where the short interest will be largely unwound on the consummation of the takeover or will be offset by an equal selling pressure should the takeover be unsuccessful. However, the extent to which this factor affects Knotlier new- sdheovretl-oipnmteernetstilehveels is almost exitence impossible to quantify on of short posiTIonsheageCl an historical With options. baWsi;s;..ea,-r-e——II—I not sure that this changes the theory much, since, although the hedge protects the short-seller agnnst loss, the position must still ultimately be undone and therefore constitutes a potential demand source. A third possible distortion, whioh we tried to explore in some depth, is the fact that the ratio historically has been based on the short interest versus New York Stock Exchange volume. However, since the mid-1970's, composite volume figures have been available, and currently some 13 of the trading in NYSE-listed stocks takes place on other exchanges. Had this figure been a constant over the past 30-40 years, it could probably safely be ignored, but, as anyone familiar with recent trading developments is aware, such is not the case. Non-NYSE trading has in- creased dramatically over recent decades. Total Midwest Stock Exchange volume, for example, increased from 18.7 million shares for the year 1950 to 282.7 million shares for the year 1976. As a percentage of NYSE volume it doubled over the period. Now this MWSE volume partially consists of trading in non-NYSE listed stocks, but it can be used as a rough proxy for growth in off-board trading. Using this proxy, we have constr- ucted an adjusted short-interest ratio, which we intend further to refine, going back to 1945, using an estimator for composite volume prior to 1976 and actual composite VOlume figures, which have been available, since that time. Under this approach, the current short-interest ratio is reduced from 2.00 to 1. 72. It must be admitted that, even with the adjustment, this is a relatively high figure. As is the case with the unadjusted figure, it constitutes the highest level reached since 1970. It has been exceeded only 34 times since 1945, and many of these are, as is the case with the adjusted ratio, clustered around major ,bottoms. There are, however., an appreciably greater number of random occurrences. Also, such signals tend to occur earlier in a downswing, often before the low has been made. The essential conclusion seems to be that, while the current level of short interest is unquestionably historically high, it should be treated with a bit more skepticism than the simple unadjusted- ratio would suggest. We intend to explore this issue further in future letters. . AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL Dow-Jones Industrials (1200 p.m.) 837.23 S & P Composite (1200 p.m.) 114.70 Cumulative Index (2/11/82) 1063.10 ,. No stalement or eKpreslon of opInion or Clny other molter hercln ontolned IS, or IS to be deemed 10 be, directly or indirectly, on offer or Ihe SOIiCllollon of on offer to buy or sell ony security referred 10 or mentioned The moiler IS presented merely for the convcfliencc of the subscriber. While '0 b!!lleve Ihe souroos of our Informa tlon to be reliable, we In no way represent or guarantee tho accuracy thereof nor of the 5tctements mude herem Any action to be taken by the subscriber should bl! based on hiS own mveshgatlon and Informallon Janney Montgomery Scott, Inc, as a corporation, and lIs officers or employees, may now have, or may lalcr toke, POSitions or trades In respect to any seCUrities menhoned In thiS or any future Issue, and such posilion may be different from any Views now or hereafter expressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Investment adVisor, may give adVICe to Its Investment adVisory and oth!!! !;UltomerS Independently of any statements made In thiS or In any other Issue Further information on any security mentioned herein IS available on request

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Tabell’s Market Letter – February 19, 1982

Tabell’s Market Letter – February 19, 1982

Tabell's Market Letter - February 19, 1982
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– – – – – – – – – – – – – – – – – —– – — TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW .JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANOE, INC MEMBER AMERICAN STOCK EXCHANGe February 19. 1982 A stock market which acts poorly is bad enough. Those of us who have been around for awhile -are'inured–t .-taily'-protracteQ-per!oqs'drinCwhicn–tb.m1frKet'supSide.–actioii'is ksomewnatlessCtl1aIi'7 – -' exciting. Presently. to make matters worse, however, the market is beginning to take on some of the aspects of bad melodrama. – Some three weeks ago. it will be recalled. we had The Great Upside Explosion. in which the Dow rallied some 21 points on 67 million shares of volume on January 28, followed by a further six-point advance on 73 million shares the next day. That was it. The market dropped 20 points the next Mon- day. did nothing for a week. and promptly turned once more due southeast. That particular decline was interrupted this week by another probable non-event to which those whose optimism is unrestrained may refer as The Test. These latest theatrics started on Tuesday. following the three-day holiday this week, with the Dow opening down some eight points at 825.06 — within a point of the September low of 824.01. There can hardly be an investor. at this point. who is unaware of the importance of that now-five-month-lld bottom. In the first hour of trading the market moved significantly below the September figure and remained there most of the day, but. in the last couple of hours. it managed to post an eight-point rally and thus avoid closing below the magic figure. The follow-through to this one was as non-existent as it had been in January. The market spent almost all of Wednesday trading below its Tuesday close. A rally attempt on Thursday was, by and large, erased in the afternoon. The first two days of this momentous action took place on the usual 40-some-odd million shares of volume which have tended to characterize the torpid trading pace of 1982 thus far. Nonetheless. however marginally, the test of the September lows is. as of this writing, still successful. At the risk of stupefying our readers with figures. we offer the following table which documents recent low figures for a number of averages. The first two columns show the level and date of the September low. For most averages, this was September 25 on a closing basis and the following day. September 28, on an intra-day basis. Shown in the next two columns are the level and date of the most ..— recentlow -.T-he;.datev-a-F-ies.a.considerably,-.dependinghieh-indicatorones!iookin-g-'-Sr-'–I ages made new lows on February 16 and 17. Others. as shown in the table, posted their recent lows a week or two earlier. The low for the Dow Jones Utilities is back in mid-January. Shown in the final tID columns is the mid-October low, enerally posted on October 26. September Most Recent Mid-October Average Low Date Low Date Low Date DJIA – Close 82'4.01 9725781 827.63 2/17/82 830.96 10726781 – Intra-Day 807.46 9/28181 817.26 2116182 823.63 10/26/81 DJ Trans. – Close 335.48 9125/81 337.28 1/26182 366.17 10/26/81 – Intra-Day 326.18 9/28/81 334.60 1/25/82 362.71 10/26181 DJ Utilities – Close 101.28 9128/81 103.61 1113/82 103.08 10/16181 S & P 500 – Close 112.77 9125181 113.68 2/9/82 118.18 10/26/81 – Intra-Day 110.19 9/28/81 112.06 2/16/82 116.81 10/26/81 S & P 400 – Close 125.93 9125/81 126.71 2/9/82 132.00 10/26/81 – Intra-Day 123.09 9/28/81 127.83 2116/82 130.45 10/26/81 NYSE Composite-Close 64.96 9/25181 65.71 2/17/82 68.58 10126/81 – Intra-Day 63.76 9/28181 65.70 2/16/82 68.25 10/26181 NYSE Ind.- Close 73.52 9125/81 74.28 2/17/82 77.86 10126/81 NYSE Fin.- Close 67.77 919/81 69.86 2/17/82 72.47 10/2818t AMEX Mkt Value – Close 276.76 9/25/81 271.68 2/16/82 305.64 10/21/81 – Intra-Day 266.40 9/28/81 269.87 2/16/82 302.95 10/22181 Viewed in this fashion, the pattern for the various averages becomes quite similar. For everyone of the indicators, except the Dow Utilities. the low of last October was penetrated in recent trading. However, for all but one, the magic September figure remains inviolate, the sole exception being the American Stock Exchange Market Value Index which may be demonstrating the downside leadership it spent two years showing on the upside. The above figures may come in handy for future reference, either in documenting formation of a bottom or for noting the ultimate penetration of each threshhold as the market moves lower. ' We have not included in the table, since it is not properly an average, the action of market breadth, which is at least of moderate interest. Most breadth indices had moved below their September lows prior to the aborted rally of January. They continued in this direction by moving again to new lows in this week's trading. As we have pointed out in recent issues of this letter, this sort of breadth action is precisely the opposite of what one would expect during the formation of a major-cycle bottom. As readers may have gathered from the above, we are inclined to view the market's two most recent attempts to display strength as something less than decisive. It remains. of course. possible that the September low will hold, and we hope we are open-minded enough' to be convinced of this case if bull- ish evidence accumulates. We do not, however, see such evidence as having accumulated in the past three weeks. ANTHONY W. TABELL Dow-Jones Industrials (1200 p.m.) 828.77 DELAFIELD. HARVEY, TAB ELL S & P Composite (1200 p.m.) 113.78 Cumulative Index (2/18182) 1059.79 No statement or expreSSion of OPiniOn or any other motter herein contained IS, or IS to be deemed to be, directly or Indirectly, on offer or the sol,cltal,on of on offer to buy or sell any ecurlty referred 10 or menhoned The molter IS presented merely for the conventence of the subsCriber While oNe believe the sources of our informa- tion to be reliable, we ,n no way represent or guarantee the accuracy thereof nor of the statements ml.lde herein Any action to be token by the subSCriber should be based on hiS own investigatIon ond information Janney Montgomery Scott, Inc, os a corporation, and Its officers or employees, may now have, or may later toke, positions or trades In respect to any seCUrities mentioned In thiS or any future Issue, and such POSItion may be different from any views now or herealter expressed In thiS or any olher Issue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Investment adVisor, may give adVice to Its Investment adVisory and othel cUstomers Independently of any statements mode In thiS or In any olher Issue Further information on any security mentioned herein IS avaIlable on request

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Tabell’s Market Letter – February 26, 1982

Tabell’s Market Letter – February 26, 1982

Tabell's Market Letter - February 26, 1982
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 081540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANQe February 26, 1982 -.–.. We -Jge ll!t …W!gJtS c0!lJ.ril.!tio!ltQ the markI!g–gp.tertainlJle1J..Q.C!-nvn1ion!.lYprovjqed – bY – l .- technical market letfers by'displaying a lengthy'set of figures detailing-the-September.lows compared-. with the then lows-to-date for nine different market indicators, on both a closing and an intra-day basis. The bulk of that table can now be consigned to history since, as most investors are aware, almost all major market indicators finally chalked up new lows in market weakness on Monday and Tuesday of this week, thus ending a five-month perIod over which the bottoms of last September had prevailed. There were, as usual, some exceptions to the rule and they are perhaps worth noting. The Dow Jones UtilitiES contininued their pattern of outperforming the rest of the market. remaining all last week above their February 18 close of 104.71, which, in turn, was significantly above the September low of 101.28. The New York Stock Exchange Financial Index followed approximately the same pattern and remains at this writing well above its September bottom, and, although the Dow Jones Transportation average and the New York Stock Exchange Composite Index both posted new lows on a closing basis, they remained above their intra-day lows of last Fall. All the other indicators mentioned found themselves, at the beginning of this week. in new low territory. The pattern of this market, however, has been a lack of follow-through to whatever chances to transpire. Thus, the rather extraordinary, high-volume strength of late January lasted for just two days and fizzled completely. As we noted last week. the market spent Tuesday and Wednesday a week ago putting on what looked like a successful test of the September lows. That test failed to remain successful much beyond this Mondayls opening bell. Likewise, conventional technical analysis might have anticipated a sharp market collapse following the decisive penetration of the lows early this week. Instead, Wednesday saw a solid if unspectacular up day, with an almost-14-point advance in the Dow, followed by further, albeit desultory, strength early Thursday. It would. it seems to us, require Pollyanna personified to assert the claim that the current stock market is acting well. and, indeed, those who seek out positive indicators give the strong impressIon of drowning men grasping for straws. It must be admitted, however. that there remain a few straws floating around to be grasped. One such is the level of short interest, discussed in this space a fort- night ago. Another statistic which has been widely cited as providing, grounds for optimism 1ha,;;sbeen the acbon of New rOi'k'''Slock'X'Cliangenew lows especlany-wBen the hIstory for tnat numoe'Fls compared with last September. Back last Fall, the Dow peaked in June at 1006 and began acontraseasonal pattern of trending downward. By August 24, the average had been trimmed 100 points to 911, and, for the first time during the year, more than 100 issues, on that day, reached new 52-week lows. Subsequently, through last September, when the recently-penetrated lows in the averages were scored, the 25 intervening trading days saw only four days on which the number of new lows dropped below 100 and the figure gradually built to a crescendo, reacing 311 on September 23, 497 on September 25, and 590 on September 28. The recent decline has been much less concentrated. The first day of more than 100 new lows since September was January 12, the Dow having then dropped to 847.70 from its December high of 892.69. Since that time, there have been 32 trading days, but there have been 20 of them on which fewer than 100 new lows were posted, and the highest figure to date is a rather modest 205 on February 23. This sort of action can be construed as bullish, especially by those who feel that the market may be displaying rotating leadership as it makes a bottom. Under this theory a group of issues made their lows last September, followed by a smaller group completing corrections this month. The ultimate denouement, it is argued, will be that the market will run out of issues with corrections to complete and thus will eventually start upward again. We do not find ourselves terribly impressed with this reasoning. For one thing, as we have amply documented, it is simply not the way in which major cycle bottoms are normally formed. Likewise we think an examination of the action of individual issues tends to suggest that the high-to-date of 205 new lows may not be a terribly long-lasting record. It is possible, for example, to take the issues in the Standard and Poors 500 as a reasonably rep- resentative sample and examine their close on February 23 versus that of September 25, 1981. 261 of the 500 issues, more than half. were the same, or lower on February 23 than they had been last September. Presumably, all of those 261 issues are fairly reasonable candidates for new 52-week low status on any further market weakness which might develop .-Another 45 issues were, on Tuesday, within 5 of their lows for September. and 65 more were between five and ten percent above those lows. Since we are dealing here with a group consisting of some one-third of all listed common issues, it is certainly not hard to see the number of new lows building to further peaks. We are. in sum, rather inclined to view Monday and Tuesday's market weakness as indicative and the subsequent strength as being. to date. without significance. Our feeling continues to be that the ultimate cycle bottom is likely to form atlevels appreciably lower than those of September-February. AWTrs Dow-Jones Industrials (1200 p.m.) 821. 92 S & P Composite (1200 p.m.) 112.87 Cumulative Index (2/25/82) 1060.99 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL No statement or eXpreSSion of opinion or any other motler herein contolned IS, or IS to be deemed to be, directly or Indlrectl!., on offer or the ol,cllo\lon of on oHer to buy or sell ony security referred to or mentIOned The matter IS presented Merely for the convenience of the subscriber Whl e we believe the sources of our Informo tlOn to be reliable, we In no way represenl or guarontee the accuracy thereof nor of the statements mode herein Any action to be token by the subKrlber should be bosed on hiS own investigation and Informahon Jonney Montgomery Scoll, Inc, os a corporation, and Its offICers or e'Tlployees, may now hove, or may loter toke, pOSlllons or Imdes In respect to ony securities mentioned In HilS or any future Issue, and such POSition may be ddferent from any views no ….. or hereafter epreued in thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Inveslment adVISor, may give odvlCe to lIs 1Ilvestmenl odvlwry and olhel customers Independently of any statements mode III Ihls or In any other Issue Further mformotlon on any security mentioned herein IS ovolloble on request

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