Tabell’s Market Letter – August 27, 1982

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE The first wrlting Job afforded the author of thIS letter. long before our lnvolvement In the stock market. was writing about sports. At the hme, there were two recognized schools of sportswriting. known as the Gee-Whiz and the I1What-the-Heck schools. The former, origInated by the late Grantland Rice. tended to trent every sporting cantcst as n memorable clash of titans, forever to be engraved on the pages of hlstory. The latter, dominnnt today, tended to recognIZe that children's games did not. most of the time. mean vel'Y much in the overall scheme of things. The two sChools hnve their counterpnrts In stock mflrkct commentary, and most of the time. the cynical view is the approprlllte one. SInce, in the great majority of cases, what the market does OVer short periods is of httle significance. Occasionally, however, there comes a time when the gee-whiz re- act i on IS To uesn. tiareblylnsno.prwoapirti-natncd, – and see the past fortnight must certmnly be one sort of reachon to what has gone on over of those the past instances. two weeks consti- tues the only attitude that is rationally implausible. It is. of course, possible that recent action consh- tuted only some sort of bear-market rally. Such an interpretation, however. 1S totally inconsistent with the most recent 40 years of stock-market history. Unless we have evolved an entIrely new behavlOr pat- tern, it IS possible only to conclude that the 1980-1982 bear market effectively ended two weeks ago. The vigor and perSIstence of the last two weeksT rally not only puts it in the class with the sort of behavior that has occurred only at major bottoms in the past four decades,butindeed surpasses most prior instances. As of ThursdayTs close, the market had advanced over a ten-day perlOd by some 15. The last advance of greater magnitude for the same time-frame occurred in 1938. We have been accustom- ed to USIng 20 moves for the Averages as threshholds for bull and bear markets. We have had three- quarters of such a move jn the past two weeks. There do exist two instances in modern market history which appear roughly comparable to What has recently. The rallies which began on May 26, 1970 and October 4, 1974 were of vigor on a closing , wiped out about half the gam. October, 1974 was followed by a month of sideways action and a later full-scale test of the previous low. In both instances, however, the highs of the initial rally were comfortably exceeded within a matter of months. If we are to accept the premise that a new market cycle has begun, it is not too early to start thinking about some of the parameters. The average length of a cycle, low to low, is around four years with 50 or more of ItS time spent in an advancing phase, making a major top unlikely much before 1984- 85. As to where that top might take place, we find ourselves reluctant at this stage to hazard a guess. Bull markets have been compared to sex. When they are good they are spectacular, and when they are bad they are still pretty good. The last three have tended to fall into the latter category, running out of steam at around the magic barrIer of 1000 on the Dow Jones Industrial Average. They were, none- theless, periods during which above-average returns could be earned on equity investments, and we ex- pect the current case to be little different. The task for the investor at the moment, it seems to us, is to pOSItIon himself for a rise in equity prices. Projection of how great that rise will be is a task to be deferred for further analysis. A few thoughts on the makeup of individual-stock technical patterns, as compared with similar major-cycle bottoms. appear appropriate. There exists, it seems to us, more diversity among patterns than has been the case at most similar turning points in the past, the pOSSIble exception being the most recent upward cycle which began in March, 1978. This has both positive and negative implications. The pOSItive implications arise from the fact that there exists a cadre of potential leaders with sufficiently mature bases to support an immediate advancing phase. This potential leadership exists in those areas WhICh have shown the. most obvious relative strength over the past year, largely in the consumer non- durable and utilIty sectors. We would expect thIS pattern of leadership to continue at least in the initial stages. A second group of stocks, smaller in number than has been the case at past bottoms, are those lssues,.which.find …themselves thoroughly sold .. out but … with no appreciablebase. formations . Other. than tradIng rallies, we would expect little upside action from these issues in the early phase of the advance. Energy stocks are a typical case in point. Finally there exists a third group where further vulnerability still exists, largely confined at this stage to secondary and tertiary issues. Such a pattern (although the stocks were different) existed four years ago, and the result was a bull market moderated in its upside Intensity by severe intermediate-term shocks as the market progressed, i.e., October, 1978, October, 1979, March, 1980. Whether this sort of action will dupI1cate Itself as the current cycle progresses remains to be seen. AWT rs ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Dow-Jones Industrials (12 00 p.m.) 887.75 S & P Composite (12'00 p.m.) 117.49 Cumulatlve Index (8/26/82) 1192.49 No stalement or expression of opinion or any ather maller herem conta.ned .S, or IS TO be dee'Tled to be, d.rectly or .nd.rec1ly, an offer or the SOliCitation of on offer 10 bl.lY Or sell any secl.lflty referred to or menTIoned The motter 1 presented merely for the convenienCE of the sl.IbSC(1ber While oNe beheve the sources of our m/orma tlon to be reliable, we In no way represent or gl.lQlontec the accuracy thereof nor of the statements mude herem Any action to be taken by the subscriber should be based on his own investigation and mformctlon Janney Montgomery SeOll, Inc, as a corporat.on, and Its offICers or employees, moy now hove, or may laTer take, pOSitions Of trades m respect to any seCU(1t'es menltoned Tn thiS or any fultae !Sue, ond such pos.tlon moy be different from ony views now or hereafter eypressed m thl! or any other lSue Janney Montgomery Scott, Inc, which IS registered With the SEC as an Investmenl adv.sor, may g.ve adVice to Its .nvestment adVisory and othel customen Independently of any statements made In t I or In any oTher lSue Further mformaT.on on any security mentioned herem IS ovailoble on request