Tabell’s Market Letter – October 01, 1982

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON NEW JERSEY 08540 DIVISION OF' MEMBER NEW YORK STOCK eXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE hniriilg; ',', or'ali 4. ii over 7 ;'i day it may;- th, dig once more into history to try to assess the downside possIbIlities. to.- be' useful We begm with the assumption. extensively adumbrated in previous issues of this letter, that August 12. 1982 saw the start of a new bull market. One of the almost universal characteristics that we Can altach to bull markets is the presence of a lengthy and extensive take-off rally. The percentage advance of this rally and its length in weeks for each of the eight previous bull marKets'is shown in the talble at right. In all cases except 1978-1981, the initial advance lasted a great deal longer and carried considerably further than the current one has to date. Thus, if we assume that such a rally began in midAugust, it would have a good deal further to go before correction 1949-1953 1953-1956 1957-1961 1962-1966 1966-1968 1970-1973 1974-1976 1978-1981 INITIAL RALLY Advance 41. 3 60.0 59.3 30.3 22.2 42.1 36.2 16.8 Length in Weeks 57 66 83 31 30 42 14 14 (a correction is, throughout this discussion,defined as 5 or greater) takes place. Here. however, it becomes necessary to introduce a complexity. Not all take-off rallies shown in the above table have started from the absolute low point of the previous bear market. In five of the eight cases. there has existed a volatile basing period during which a significant portion of the initial BASING PERIOD advance from the low was retraced. The rele- Advance vant statistics appear in the table at left. T.p.ngth in Days Retraced While three past' bull markets took off immedia- 1949-1953 1953-1956 tiftri !e before taeoff, -d 1957-1961 38 80 two retraced the entire move. Based on current 1962-1966 83 72 technical patterns, we think a full retracement. 1966-1968 28 148 i.e., a testing of the low of 776.92, is a highly 1970-1973 29 57 unlikely eventuality at this stage. A correction 1974-1976 44 108 on the order of those which took place in 1957, 1978-1981 – 1962, or 1970. however, has to be regarded as, at least. a possibility. What argues against this is the timing factor. 34 trading days have elapsed since August 12. Two of the previous basing periods were shorter than this, and two others not much longer. Only the 1962 double-bottom formation. which lasted from June 26 through August 23 of that year at.d involved a swing from 535 to 616 and back to 558 on the Dow was considerably longer. Another statistic regarding corrections in bull markets is perhaps relevant. The length of the typical initial rally elaborated above shows that substantial corrections do not tend to take place until an upswing is fairly well advanced. Furthermore. as we have suggested in the past, they do not tend to be very large until the bull market has ultimately run its course. The table below shows the total number of 5 or greater CORRECTIONS AFTER BASE FORMATION corrections in each pre- Number Largest Decline Average Decline l\v,I'f'—iLi'jB,n,ID,h, vious bull market, to- 194!f-1953 6 13.5 7.9 – 44 gether with average 1953-1956 4 10.0 6.8 11 length in days and 1957-1961 4 12.6 10.5 38 the average percent- 1962-1966 3 10.5 7.5 28 age decline. Again, -with the–..exception….of 1966-1968 4 19701973—-4 9.9 -13.4 8.0 …- …… 9;2 – 29 50 1- 1978-1981.such 1974-1976 6 10.2 6.3 23 corrections have 1978-1981 11 16.0 8 4 21 historically been relatively mild and relatively rare. All of this argues against excessive stubbornness in waiting for further downside activity in the present instance. There does indeed exist a top on the Dow-Jones Industrial Average, broadened since we first mentioned it last week, which suggests a downside objective of 870. This would be a retracement of 40 of the initial advance and argues that a basing period would, in fact. be a feature of this parti- cular market bottom. Conversely. however, from a bullish point of view, it would also suggest that the characteristically long take-off rally has not yet started, and such a rally, beginning from just under current levels would, based on the historical record, be dynamic indeed. Dow-Jones Industrials (12 00 p. m.) 897.53 S & P Composite (12.00 p.m.) 120.57 Cumulative Index 9/30/82 1232.14 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL No statement or exprealOI1 of opinion or ony other motter herein contained IS, or .s 10 be deemed to be, directly or indirectly, on offer or the ol,c,tatlon of on offer to buy or lell ony security referred to or mentioned The matter IS prelented merely for the convernenco of the subSCriber While e believe the sources of our Informa- lion to be reliable, we In no way represent or guarantee the accuracy thereof nOt of the llatements mude herein Any Ocllon 10 be taken by the subscnber should be based on hIS awn investigation and Iniormahon Janney Montgomery SCali, Inc, as a corporation, ond .Is off.cers or employees, may now have, or may later take, POSitions or trades In respect to any SeWfilles mentioned lI'I thiS or ony future Issue, and such pOSII'On may be different from any views now or hereafter expressed In lh,s or any other Issue Janney Montgomery SCalI, Inc, which IS registered wllh the SEC as an Investment adVisor, may gIve adVice to Its lI'Ivestment adVISOry and other customers Independently of any stalements made In Ih,s or In any other Issue furl her information on any security meniloned herein IS available on request