Tabell’s Market Letter – September 10, 1982

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANoe, INC MEMBER AMERICAN STOCK EXCHANGE September 10, 1982 . IS, at b i' ottom, .W ,,!!un.s-Uf-nranrof4.ts-practiioners- a very SImple actIVIty. It consIsts, essent i ally ', , of tr y in gt,o'1'pirioi,nt,;d.,.;',0J,,', patterns of market behavior which, based on the past record, indicate certain probabilities (proba- bilities, remember, not certainties) for future behavior Thus, all of the statistics and verbiage we have been hurling at our readers in the past three editions of this letter can be summarized in one simple sentence — unusual upside activity tends to presage a better market. We think this fact can be amply documented ,and we have attempted to do so, from a number of points of view, ever since the market turned in mid-August. It certainly requires little or no expertise to recognize that upside activity since that time has been, to say the least, unusual. It requires little more than reference to a chart book to recognize that this unusual upside activity took place well into an obvious bear market that began in late 1981-early 1982. It is, further, not a great leap of intellectual effort to identify past similar bear markets, look for signs,during their course of roughly comparable upside activity and to suggest that such action has tended in the past to suggest a market reversal. We have thus reiterated the conclusion that the 1981-1982 bear market effectively ended on August 12, 1982 at 776.92 on the Dow. To many observers, however, the reversal pattern of August, 1982 appears somehow incomp- lete. All the way back to the 1930's, cycle-bull markets have tended to be initiated by explosive bursts to the upside such as the one observed last month. There has also, however, been a tend- ency for that unusual strength to be proJeeded by equally utIusuaI weakness. This, of course, was con- spicuous by its absence this time around, which is why last month's eruption was, at least to some degree, surprising. This raises another point about technicaly , however, a point which hel'ps to explain why we have always found it to be an intensely hallp';'mnO activity. Many aspects of m'lrket iOT',tendto, nn(Qanged over lo,g n' of time. Other ,, tend to chn.e with market ,,. It is of this that p ' tne t, with one of his more difficult tasks. It is, for example, arguable, that the tendency for bear markets to culminate with intense downside pressure is one which has been eroding now for a decade. It is possible to define intense downside actiVity as days on which 70 of issues traded decline or on which the Dow declines by more than 2. During the last two weeks of past cycle bear markets, three such days occured in 1953, four in 1957, six an 1962. and four in 1966. The 1970 bear market saw five such intensive downside days. By contrast. the bear market of 1974. despite the fact that it was the most severe since the 1930's. culminated with only a single day on which the Dow declined more than 2 and with no instances of an unusually high number of declines. Likewise. there took place no such activity during the tail end of the bear market which ended in March. 1978. It is thus less than unprecedented that the biggest daily downside move for the Dow in August was a 1. 58 decline on August 4 and the largest percentage of declining stocks in the two weeks preceding August 12 was 59. We think there is an obvious reason for this changing behavior pattern. and it arises from a change in the nature of the participants in the marketplace. Markets are. of course. a product of the collective action of humans. and another simple reason why technical anaylsis is useful is that humans are subject to emotions and emotional activity tends to repeat itself. In recent years. market activity has come to be dominated more and more by professional investors and less and less by individuals. These professional investors. despite their arguably greater knowledge and skill. remain as subject to emotion as the individual investor who prevailed in the marketplace in the 1930's One emotion which has tended to cause erratic behavior is fear. However. it has been suggested that .in ,the caseof the individual ,investor. the dominant, fear.is fear .0Llosing one's .money. while .in – thn case of the professional, paid to generate excess returns, it is fear of losing one's job. It is this fear of failure to participate on the upside that. in our view, has caused the buying panic to become more and more a feature of market activity over recent years. AWTrs ANTHONY W. TABELL DELAFIELD. HARVEY. TABELL Dow-Jones Industrials (12; 00 p. m.) 912.53 S & P Composite (1200 p.m.) 121.19 Cumulative Index (9/9/82 1230.18 No stalement or expreulon of optrUOn or ony other maHer heleln contained IS, or IS to be deemed to be, directly or indirectly, on offer or the sollcltollon of on offer 10 buy or sell ony secunty referled 10 or mentioned The motter IS presented merely for Ihe convemena; of Ihe subscriber While -He believe the sources of our Informo- hon 10 be reliable, we In no way represent or guarantee Ihe accurocy Ihereof nOf of the stolements mode herein Any action 10 be token by the 5ubcnber should be based on hiS own InveShgohon and InformatiOn Jonney Montgomery Scoll, Inc, as a torporo.on, and lIs offICers or employees, may now have, or may loler toke. pOIIIOnS or trodes In resPect 10 any secuIIHes mentioned In thiS or any future Issue, and such pOSition may be dlfferenl from any views now or hereafter expressed In thiS or any olher Issue Jonney Montgomery Scott, tnc, which IS regIstered With Ihe SEC os an Investment adVisor, may give adVice to lIs Investment adVisory and other customers Independently of any statements mode In Ihls Or In any other ISsue -Funher Informollon on any seCurity mentioned herein IS aVOIlable on request