Tabell’s Market Letter – July 30, 1982

TABELL'S MARKET LETTER 909 STATe ROAD, PRiNCETON. NEW .JERSEY 08540 DIVISION OF MEMBER NEW VORl(. STOCK EXCHANGe, INC. '-'EMBER AMERICAN STOCK EXCHANQE – I.,…….. –…,.L-'.,….; The' month ofiily lias featured7notlier 'One -o'f'tlfose-rounJdu-ltyrip3s0-,whi1c9h82have-been.uf-l.,Uf.'tratinll;.–lr investors for the better part of the past year. In terms of the Dow Jones Industrial A'verage aftr testing the bear-market low (788.62 on June 18) at a level of 796.99 on July 2, the market, ';'as able to stage a modestly respectable rally reaching a closing peak of 833.43 on July 20. Since that time, in six consecutive trading sessions of losses, just about the entire gain has been given up with the average having reached an intra-day low of 801. 46 on Thursday. This action is, in our view, moderately disturbing for the short term but not necessarily all that important insofar as our longer term view of the market is concerned. That view can be re- stated quite simply. It is and has been that we expect a major cyclical low to be posted sometime prior to the end of 1982, probably no later than early this Fall. There have been three major attempts so far to score such a low in September, 1981, March, 1982, and June, 1982. All three of these attempts were, at roughly the same level, just under 800. We do not look for any future low to penetrate significantly below that level, although such a low could well be modestly lower. Our view of the September-to-date process, then, is that it constitutes a base formation — not a pre- lude to disaster. At the same time it must be noted that at no time since last September has the market present- ed any evidence of scoring a terminal bottom nor has it demonstrated any worthwhile rallying tend- ency. As noted above, the aborted July advance is simply another one of a series of failures on the part of the market to demonstrate any sort of significant upside breadth or vigor. Indeed, the latest burnout can conceivably be viewed as an indication that the final downward probe in the on- going base-formation process may be delayed until September or October. This pn.ihHit,, is underscored by the fact that the reversal occurred in July, traditionally a We have noted in the pa that, of the 12 calendar months, onl Sept- ember and December appear to have highl. ;, ne . ''' latter upward. The tendency toward a rally during the Summer is, however, at least, moderately pronounced. Of 56 Julys since 1926, the market, as measured by the Dow, hfs advanced in 36 and declined in 20. The average change for the 56 Julys has been 1.88 which is the largest average change for any of the 12 months. The month's past history of showing an advance 64 of the time is second only to the record of December. It is also possible, unfortunately, to draw some tentative conclusions from the failure of the expected July rally to materialize in 1982. A good July has, in the past, tended to be a fairly decent harbinger of things to come. There have, for example, been 15 cases since 1926 when July showed an advance of 5 or greater. In 12 of the 15 years that such was the case, the Dow subse- quently posted an advance from the July close through the December close. Indeed, in only one case, 1937, did a strong July rally lead to a significantly weaker market. In that year a 9.62 advance in July was followed by a 35 collapse over the rest of the year. With that exception, the worst subsequent performance was a decline of just over 6. The average change in the Dow for the final five months of those 15 has been 4.35, three times as great as the 1. 63 average for all five-month periodS starting in August, 1926. On the other hand, a July failure such as the one we have, this year, experienced, tends to augur considerably less well as far as the rest of the year is concerned. There have been 26 years in the past 56 where the July advance was 2 or less or where July posted a decline. Subsequent five-month action shows an only slightly-better-than-even record, the market having advanced in these cases 14 times and declined 12 times. This is a fairly disappointing performance conSidering the fact that, overall, the market has shown 35 advances and 21 declines over the final five months anof the .year. The average performance for the 21 five-month periods following a weak July has been a miniscule advance of 08 versus average advance for-56 years'Of1736;- – – ,– – – – Another way of looking at the same numbers above is to say that, of 21 instances where the market declined between the end of July and the end of December in the past 56 years, only three, or 14, were proceeded by a July advance of 5 or greater, while 12, or 57, were preceded by a weak advance, such as the one that occurred this year. Now, as we noted above, we are not here forecasting significantly lower levels. As we have been suggesting, cycle theory strongly suggests that, even if the December close is lower than today's, the market, at that stage, will already have bottomed. It is difficult, however, to view July's action as being other than disappointing in a near-term sense. AWT rs Dow-Jones Industrials (1200 p.m.) S II P Composite (1200 p.m.) Cumulative Index (7/29/82) 813.17 107.63 1076.61 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL No staTemenT or expressIon of opinion or any other malter here'n contOlned IS, or 15 10 be deemed 10 be, directly or Indlrlc'ly, on offer or the SOI'C,lollon of on offer 10 buy or seH ony security referred 10 or metltloned The moiler 1 presented merely for Ihe convenience of the subSCriber WhIle we believe Ihe sources of our .tlformolion 10 be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mode herein Any action 10 be loen by the subSCriber should be based on hiS own rnvestlgohon and rnformot,on Janney Montgomery Scott, Inc, as a corporatIon, and ,Is offIcers or tmployees, may now hove, or may laler loke, pos1tlon or Ifode In respllct loony seeu(l!l(!S menlloned In In,s or any future Issue, ond such position moy be different from ony ….,ews now or nereolter exprl'ssed In thiS or ony otner Issue Jonney Montgomery Seoll, Inc. , wnlen IS registered wltn the SEC as on Investment adVisor, moy give adVice to lIS Invelment adVisory and othel CUltomer1 mdependenlly of any statements mode In thiS or many otner ISsue Furtner information on ony security mentioned nereln IS ovolloble on request -,