Tabell’s Market Letter – May 20, 1983

Tabell’s Market Letter – May 20, 1983

Tabell's Market Letter - May 20, 1983
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF MMBEfl NEW VOl'll( STOCK EXCHANGE, tNC MEMBEfl AMERtCAN STOCK EXCHANGE May 20, 1983 When the history of Wall Street for the past decade or so is finally written it may come to be known for the proliferation of new financial instruments. Taking only equity-related devices, we have witnessed, first. the birth of options followed by interest-rate futures, stock index futures, and fmally options on futurs.—————————- –I InsofAr a's the technican IS concerned. these instruments represent newly available numbers, and it is his job to analyze any and all numbers relating to the stock market. In this connection, we were ask- ed to give a talk last week before the annual seminar of the Market Technicans Association on the rela- tionship of stock-index-futures prices indices to the indices themselves. We will try here to summarize ., some of the conclusions reached. It is easy to theorize where a stock-index-futures contract should sell, given the current Interest- rate structure. Basically, it should sell for a premium over the actual index, depending on expiration date and gradually eroding to zero as expiration approaches. Historical analysis of the data, however, suggests that it does not, in fact, do so. By contrast, index-future prices seem to behave as a senti- ment indicator and, apparently, as an indIcator of uninformed sentiment. They tend, in other words, to sell at excessive premiums at short-term market highs and at low premiums or, often, at discounts at market lows. .-wc———— -.——–,H- 90 OAT PREMIUM INDEX 14 OAT AVERAGE) The above graph shows the S & P 500 over the past year, together with an invention of ours called the 90-day premium index, which is simply an average of the percentage premium or discount on the two nearest futures contracts for- that index, rweighted according to their -time to expiration. The periodsof discount and of excessive premium are shaded. It is interesting to compare the extreme values on this mdex with the short-term peaks and troughs of the S & P 500 itself. Note, for example, the period, August-October, 1982. A few days prior to the August low, index-future premiums moved to discounts and continued to remain at generally low values all the way through the steepest part 01 the rlse. l're- miums did not become excessive until mid-November, coincident with the first short-term top of any signi- ficance in the current bull market. Both the tops and the bottoms of the trading-range swings between November and January tended to be signaled by extreme values for premiums, and the final extreme high value was reached in late Febru- ary, just before the market flattened out prior to its recent rise. Interestingly, just prior to that rise, futures again began selling at a discount. signaling the most recent upward leg. Their current value is now neutral. Whether this relationship will remain, as investors become more used to interest futures, is a point which will remain moot. However, for the time being, at least, the technician would appear to have gained a new short-term indIcator of some value. ANTHONY W. TABELL AWTrs DELAFIELD, HARVEY, TABELL Do' IOneS Industrials (12. 00 pm) 1187.40 S Soplaslten(b!laf. 06nEm py alher matter 16-&Q S5-.tcllned IS, or IS 10 be deemed to be, directly or Indirectly, an offer or the sollCllollon of an offer e ta OVY PJ-slf''y .1ecurifY, jt!(j'!,r1 q.r menlloned The rqqA,,'AICls ..pJfsented merely for the convenience of Ihe subscriber While we believe Ihe sources of our mtormaUmli16IDW61IdIJK;lQiK If\ '&i ….lJl .senl or guoronlee.L1fl'oYl!ec6'r6cy thereof nor of the statemenls mude herem Any action to be taken by the subKt.ber should be based on hiS own Inveshgollon and information Jonney Mohtgomery Scolf, Inc, as a corporation, and Its officers or employees, may now hove, or may loler lake, poslhons or trades In respect 10 any securities mentioned m thIS or any future Issue, and such pos,tlon may be different from any views now at hereafter expressed In this or any other Issue Janney Montgomery Scolt, Inc, which IS registered With the SEC as on Investment adVisor, may give adVice 10 lis Investment adVISory and othel customers Independently of any statements mode In thiS or In any other .ssue Further information on ony security menlloned herein 1 ovollable on request

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