Tabell’s Market Letter – October 08, 1982

–c— – – – —,-., TABELL'S MARKET LETTER 909 STATE ROAD. PRINCETON .N. EW JERSEY 081540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE INC MEMBER AMERICAN STOCK EXCHAI\fQE I—-i r t …… -p'.,…… t.'r—- —————0–c– -october.8';7I9-g2,o,-c.'.'.—.-.–;,.c.-. . .—.,..—-I One of the oldest Wall Street adages is Don't fight the tape. Since last August, disbelievers in this maxim have been compiling a record comparable to the opponents of Joe Louis in his prime. Those who were awaiting further extension of the correction which ended on September 30, having taken the market down a shade over 4 over a two-week period, were greeted this week by a 37-point rise on Wednesday, which took the Dow to a new bull-market high, followed by another session of record upside volume on Thursday, further extending the gain. We admit that we succumbed to the temptation ourselves, albeit mildly; in our last two letters, and wound up getting knocked clear out of the ring. We had been noting the existence of a top formation on the Dow, suggesting a downside objective as low as 870. This, of course, was never even approached. The point is that the formation in question, interpreted in vacuo, did indeed exist. What the week's events prove is that a powerful major trend can and often does override a short-term contratrend pro- Jection. It is possibly useful at this stage to expand just a bit on some of the statistics documented in this space last week. It now becomes obvious that what can be considered the take-off rally of this particular bull market began coincidentally with the low on August 12. We elaborated a week ago on the historical length of such take-off rallies. If such a rally is defined as ending with the first 5or-great er correction, the last two instances, in 1974 and 1978, continued for 14 weeks. This record would imply that a 5 correction might take place as early as this November. We pointed out, however, that the six previous bull markets had featured take-off rallies of 30-83 weeks in duration. If we are willing to ignore the more recent experience, therefore, it is perfectly logical to project that the market will continue to rise, without a correction of as much as 5, until sometime between February of next year and early 1984. Investors are therefore advised to reread the first sentence of this letter. – \Vhyt-may-wellbe..askecL.-should.n nf th;. betakinll .place Thursday's lead Wall Street Journal story assayed an explanation with the headline Stocks Surge Anew on Favorable Reports ,01 !tates and Earnings. Well now. Interest rates are indeed declining, and bond markets were almost as ebullient as the stock market. We are old enough to remember, however that the dean, of Wall Street security analysts, once wrote a book devoted to the theory that stock earnings should be capitalized at twice the current yield on high-grade bonds. According to this particular piece of wisdom, if the level of the Dow is to be tied to interest rates, it is currently worth about 330. As far as earnings are concerned, the Journal did cite the case of two large companies reporting higher third 1juarter results. It did not note that earnings for the Dow for the first six months are down almost exactly 50 from a year earlier, and, overall, not much third-quarter, or indeed even fourth-quarter, improvement is expected. It is nice to believe that the stock market behaves in response to such things as earnings rund rates/ In truth, it moves in response to the availability of funds, coupled with investor perception of these fundamental factors. A recent incident probably tells a great deal more about the reason for the stock narket's be- havior than all of the financial community's conventional analysis. A friend of ours ventured, this week, to the local bank to withdraw his All Savers Certificate. He waited in line for half an hour. The point is that, with some 8 billion of these instruments maturing this month, potential stock-market funds were indeed available. Investor perception regarding the market's future, fueled in large part, no doubt, by the publicity attending the August rally, caused some portion of these funds to find its way into equities rather than other instruments. Now this reasoning, we will be the first to admit, is pure theory and we canll')t document it. It is nonetheless perfectly logical, given the end result which showed up on the ticker tape this week. Yet another Wall Street cliche is the impertinent answer to the question Why did the market go up. It is, More buyers than sellers. This is yet another way of citing the two factors mentioned above, availability of .funds and investors' willingness… to-v-commit those funds, 1 plus a third .factor, un- willingness by sellers to supply stock except at higher prices. The historical record cited above suggests that such factors, once having emerged, tend to persist for protracted periods of time. We know of no reason why this should not be true in the present instance. AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Dow-Jones Industrials (1200 p.m.) 971.85 S & P Composite (1200 p.m.) 129.63 Cumulative Index (10/7/82 1289.81 or 'fNo stofement Or expreUlon of opinion Or any other 10 buy Of sell any secunty referred 10 or mentioned matter herem The molt Cp ontol ned td IS, bd d b d to he eeme to e, Ireetty or mdHeclly, on offer or the SolICllotlon of on offer lion to be bosed on re hiS l loble own ' , we nve s I l n lg no w allan o J re nd nrfeasreaIt;nguJae CheJr,sr issene;emllrneoYr or of Ie the convenience of the subSCriber WhIle we believe statements mdde herein Any adlon to be taken the sources of OUf Informa by the ubscrlber should be lihpoSitions or trades In respect to any seCUrities mentioned In HilS or an futur thiS or any other Issue Janney Montgomery Scott Inc which s reglsie d tlhSSch' 0S50 corporation, an Its officers or such positron moy be different employees, may from any views now now have, or may (ater toke, or hereafter expressed In customers Independently of any sotements made 'In tl1;5 or rn ny othe ressu'l F ,as an. rnvestment adVisor may give adVice to lIs Investment advl!'oty and Othel r I u er rn ormO,lon on any securrty mentioned herern IS ovorlable on request