Tabell’s Market Letter – November 12, 1982

TABELL'S MARKET LETTER , 909 STATE ROAD. PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCI( EXCHANGe, INC MEMBER AMERICAN STOCK EXCHANGE i , '' .- , November,.,12,…1982 . .. We alludelllast week, to the fact that most investors, incor'ectly-in our Vlew, feel essentially un- comfortable with the current market due to the sharp upward adjustment in prices that has manifested itself over the past three months, Thus concern was being expressed this week about recent volatile intraday swings and the fact that no new high had been made since the last closing peak of 1069.45 was posted on the Dow on November 3. When one backs up a bit, the triviality of this concern becomes ap- parent. The market has gone all of seven trading days so far without the achievement of a new high and has posted a correction of a staggering 2.63. Now even the most fragmentary observation will re- veal that past bull lIarkets, even in their most dynamic phases, have gone considerably longer than seven trading days without a new high being posted and have been punctuated by corrections of consid- erably greater magnitude. We think it pointless to worry, therefore, about the ever-so-slight indications that the market is encountering a shade more difficulty in achieving upside progress than has been the case from August to date. Meanwhile, let us use the hiatus to examine what the market has, in fact, been doing over the past several months in terms of the semi-esoteric discipline of trend analysis. This analysis operates on an assumption, in contravention to one beloved by academicians, that the market is in fact imperfect in an economic sense — that it does not adjust instantaneously to new information, but instead is acted upon by forces which move in the direction of such an adjustment over time. It is, of course, never possible to know precisely the exact nature of these forces. The best one can do in an imperfect world is to produce estimates. It is, for example, a known fact that between August 12, 1982 and November 3, 1982 the Dow Jores Industrial Average moved from 776.92 to 1065.49. A line can be mathematically computed so as to be as close as possible to all of the closing Dow figures within that period. That line starts at 828.83 in mid- August and rises at a rate of 3.48 lloints per day. ILis also.possible to measure how much the actual figures have devated from this line.- This gauge is pro 'by something called the standard error of the estimate, and it is, in fact, 27 points. In normal cases, 95 of the actual observations will vary by no more than twice this figure in either direction from the line itself. It is thus possible to view action between August and November as an upward sloping channel some 108 points (4 times 27 points) wide. What we have so far is nothing more than an accurate description of what took place over a given period. It is of interest, however, to know whether what has since transpired remains consistent with that description. We can test this by projecting the channel out in time to the present day. Doing this, we find that, as of today, its outer limits are approximately 1000 and 1108. It is thus possible to make the statement that current market action remains consistent with the assumption that this trend, If the trend is projected further outward in time,it produces some pretty startling figures. Its central value in two weeks will be 1082, in a month, 1121, in six months, 1470 and in a year, 1888. These somewhat euphoric numbers suggest that the true force currently operating on the market possesses somewhat less of an upward bias than the current projection indicates. This is probably true. It is our practice to recompute the upward trend each time a new high is achieved. Usually, as this is done, the computed upward slope becomes less, and the standard error increases, thus providing less optimistic projections. It is possible, however, to achieve useful estimates of the forces acting on the market by using this method. It is also worth mentioning, while on the subject, the longer, super-cycle trend to which we have referred in the past and which has been in effect since the mid-1960's. This trend can be expressed as an extremely wide channel of about 350 points on the Dow with a current central value of 885 and outer limits of 1078 and 722. Since the mid-1960's, the Dow has been largely contained within this channel and indeed remains' in it, although currently flirting with the upper limit. IT) order to say with a great deal of certaintythat. that. trend ,was .no .longerin ,effect,a . good , deal of . further, strength .would,be .required'. Indeed, the Dow presently would have to move above the 1200 level. Between 1080 and 1200, there exists a gray zone. (For those familiar with statistics, this is the area above the computed regression line by between two and three times the standard error.) The trend would also be called into Question were the Dow to trade in this zone for a protracted period of time, in this instace, bemg as much as a year. Since this is' a not-impossible eventuality, considering the early stages of the upswing, it is a factor which will have to be watched. AWTrs ANTHONY W. TAB ELL DELAFIELD, HARVEY, TAB ELL Dow Jones Industrials (1200 p.m.) 1051. 88 S & P Composite (1200 p.m.) 141. 08 Cumulative Index (11/11/82) 1505.36 No statement or expreS10n of opinion or Clny other matter herein onlOlned IS, or IS to be deemed to be, directly or indirectly, on offer or the soliCitation of an offer to buy or Sl!ti any security referred to or mentioned The mOiler IS presented merely for the convenience of the subSCriber Whdelle believe the sources of our informa- tion to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mude herein Any action to be taken by the subSCriber should be based on hIS own Investlgallon and Information Janney Montgomery Scott, Inc, as a corporollon, and Its officers or employees, may now have, or may later take, poslhons or trades In respect to any secvrltles mentioned In thiS or any future Issue, and such pOSItIOn may be different from any vIews now or hereafter eJ(pressed In thiS or any other Issue Janney Montgomery Scali, Inc, which IS registered wilh the SEC as on Investment adVisor, may give adVice to Its Investment advls.ory and olhel customers Independently of any statements made In thiS or In any other Issue Further information on ony secuflty mentioned herein IS available on request