Tabell’s Market Letter – January 07, 1983

// TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW VORk STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE I I January 7, 1983 Being second-generation technicians, we possess, we hope, some appreciation of the history of our – profeSSiori- -.That';;history'is, in-fact .-ratherlorig one ,tnenrst7recl.'-fdedinsrance -of 'the'-use -of -techni — cal analysIs being the charting of the price of tulip bulbs in Holland during the 1630's. Many technical devices. the Dow Theory for example, go back to the turn of the century and there exists ample evidence of the applicatIOn of technical work to American securities prices during the early years of this century. Many of the early texts on the subject dating back to that period are still extant, and they make interesting reading today. Most advocate a rather simplistic approach to the problems of stock-price forecasting. They outline a process of accumulatior, of charted data from the daily stock-price tables, followed by an attempt to draw meaningful conclusions from the pictures that thus unfold. One theme that appears rather early in this extensive literature is a paramount concern regarding long periods of sideways price movement. such periods being variously described as congestion areas J Htrading ranges, and, later,' as bases and tlops. The theory, in its simplest form states that a move out of such a range in one direction or another, tendsto lead to a more extended move in the direction of that breakout . It never was quite that simple, although many of the classic texts read as if their writers felt they had stumbled upon revealed wisdom. Furthermore, with the advent of tools such as the computer and the wide-spread aprlication of numerical analysis to the study of time series, technical analysis has become infinitely more complicated. In our view, however, the early writers were indeed on to something. It would be as senseless to dismiss their work as mere historical artifact as it would be to suggest that the planets no longer revolve around the sun because the equipment Copernicus used to discover this principle is now obsolete. All of which brings us to the present case. The Dow Jones Industrials reached a bull-market high of 1065.49 on November 3, subsequently declined to 990.99 on November 23, rose to 1056.94 on December – -7-,-d-ropped-t0-998. 25 011 Deeembe,nd-reacheda-peak-1l70,-55-on-December-27-hursday's-c10se saw a new high posted by a minor fraction, and this gain is being modestly extended at this writing. What we have here, in short, is a trading range of precisely the sort beloved by the ancients, and we do not think it old-fashioned to state that this trading range constitutes the most salient factor in technical analysis of the current stock market. The problem at the moment is exactly thesame as the one faced by the early chartists, i. e., whether or not this week's action constitutes a true breakout from that range. We think a good case can be made that such is the case. For one thing, the short amount of time which has elapsed since the August lows strongly suggests that we remain in the relatively early stages of what should be a long upward cycle. If this is the case, the lateral trading range of the past two months should logically be viewed as a consolidation area, necessary after the steepness of the Au,ust-November. rise and simply part of an eventual orderly progression toward higher prices. Furthermore, the formation seems to have more of the characteristics of a base than a top. The low around 990 has been thrice tested and a good deal more work appears to have taken place around the bottom of the range than around its upper levels. The market's internal action during the trading range, moreover, suffers only by comparison with that during the sharp rise which proceeded it. Breadth action over the two months has remained consistently positive, with a fair number of advancing stocks even on poor days. The result is that breadth indicators during the period have declined hardly at all. Thursday's 1450 advancing stocks indeed brought most breadth indices to new highs, coincident with the new high posted by the Dow. This lack of divergence between breadth and the averages is the classic manifestation of a bull market underway. Thursday's rally, moreover, was strong enough to oroduce many of the classic symptoms of a takeoff rally, such rallies being especially reliable indicators of higher prices when they occur, as this one did, within the context of ongoing bull markets. As we noted above, technical analysis is a great deal more complicated than' simply reacting to' — breakouts from trading ranges, and there remains the possibility that the present one will turn out to be false. Nonetheless, for the myriad of reasons we have been citing in this space since last summer, we think that the current odds favor continued higher equity prices. AWTrs ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL Dow-Jones Industrials (12 00 p.m.) 1075.15 S & P Composite (1200 p.m.) 145.60 Cumulative Index (1/6/83) 1577.39 No statement or expression of opinion or any other motter herein contOlned IS, or IS to be deemed to be, dHeClly or lMdHectly, on offer or Ihe 50lu;llollon of an offer 10 buy or sell any seCUrity referred 10 or mentioned The molter IS presented merely for the conveOlence of the subscriber While we belteve the sources of our mformalion to be rellcble, we In no way represent or guarantee the accuracy thereof nor of the slolements mude herein Any action to be token by the subsc(lber should be bosed on h own mvestlgollon and information Janney Montgomery Scoll, Inc, os CI corporahon, and Is officers or employees, moy now hove, or moy loter toke. positions or trodes In respect 10 any seCUrities mentioned In thts or any future I55UI!, cnd such pOSitron may be different from any views no …. or hereafter expressed In thiS or ony other Issue Janney Montgomery Scott, Inc, which IS registered With the SEC os on Investment adVisor, moy give adVice to Its Investment advbory and othel CtJstomers Independently of any Slatement mode In thl or In any other Issue Further informatIOn on any &ecurlty mentioned herein IS aVailable on request