Tabell’s Market Letter – September 30, 1983

Tabell’s Market Letter – September 30, 1983

Tabell's Market Letter - September 30, 1983
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIVISION OF' MeMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE September 30, 1983 ' T-hreeweeks -Hgo.we-.Jloted-inthis,spacethattl\e.,.D.seIIled.,1l!.B-eex-J'utiIlg the mirrQ! imagf on its trading pattern of early Au.rt– That pattern'saw the Average post a new low at 1163.-06 -August T 8, decisively under the 1180-1250 trading range, which had held since June. It spent a week below the old range and promptly moved back into it. The mirror Image has now been largely completed. Monday's new high of 1260.77 was followed by a 20-point three-day retracement. Meanwhile, further to compound the confusion, the staid Utilities continued to move ahead to new peaks through mid-week, while the Transportation Index underwent a minor blood bath, shedding some 24 points from its high of last week. On the surface, the general market picture appears to be, to say the least, confused. Paradoxically, despite all the seemingly meaningless fluctuation, the market picture may have been shaping up more clearly, perhaps, than has been the case for some time. Before turning a microscope on the current status it is well to remember the broader perspective. We are in a bull market that is barely 13 months old whIch is, in turn. part of a cycle which should last approximately 48 months and spend some 50 to 80 of its total lifespan advancing. From a cycle point of view, therefore, it is hardly surprising to see the market post new peaks. Indeed, it should be expected to do so at various intervali throughout the remainder of 1983, probably through most of 1984, and possIbly into 1985 as well. We have spent the last two issues of this letter pointing out that ihere exists a potential breadth divergence, and we have indicated that we thmk it prudent to assume that this divergence will not be subsequently corrected. However, as we examined in detail last week, even under divergence conditions. it would be logical to expect the market to continue to post new highs from six months to two years. Thus, there is absolutely nothing in the existing breadth condition that conflicts with what cycle theory is telling us about the prospect for new stock-market peaks. What, then, is the divergence telling us It is telling us, a reading of history would seem to indi- cate, two things. First, the subsequent peaks, which we indeed expect, may not be significantly differ- ent than the hIghs recently attained. (In this regard, it must be noted that, with the Dow now around I–t—ce–of—–WO-poinnly 8. We wld–t-her-efor-S-rDtr-egar-d-a,.iigre of 1 400-as..being..signifi–.- cantly different from 1250.) Secondly, breadth divergence conditions have tended to create periods of uncertainty during which the market was vulnerable to moderately severe and fairly protracted intermedi- ate-term declines. The downswings of 1960 and 1965, for example, took place under divergence condi- tions. These were, however, intermediate-term corrections, not bear markets. At the risk of boring our readers with overly elementary facts, we think it worthwhile to recall that there exist two basic elements to successful portfolio management — market timing and stock selection. At various times, the importance of one or the other of these two factors overshadows the other. For the past year market timing was in one senSe absolutely vital — Le., the decision had to be made to remain fully invested in common stocks. Once that decision had been made it was best to ignore timing alto- gether. One of the pitfalls into which many advisors stumbled last Fall and early this year was the attempt to be overly clever about calling short-term turns at a time when the market was essentially doing very little but going straight up. During the last year, moreover, while some stocks obviously significantly outperformed others, the advance was essentially broad. The vast majority of common stocks participated in the rise from August, 1982 through June, 1983, and it was difficult over this period of time to choose stocks which did not offer at least satisfactory investment performance. Present indications are, however, that we are entering a period in which stock selection will assume renewed importance. The confusing behavior of the averages, together with markedly PDQr breadth and a number of other indicators, are suggesting that the bull market has entered a more mature stage. Char- acteristically in such a stage, a large number of issues do not participate in the continued upswing and indeed move counter to the major trend. We have already seen this sort of performance in a host of secondary Over-the-Counter issues, some of which have moved down as much as 50 at a time when gen- eral market indicators have been posting new peaks. . We expect, moreover, the continuance of the sort of' environment in which stock selection remains — …. the major factor in investment success, and we would therefore concentrate on it rather than trying to be overly clever about timing the market. Were the averages to move higher, say to the 1400 level on the Dow mentioned above, it is possible, depending upon market conditions at the time, that we might wish to revise this view and advocate a fundamental timing decision. i.e., the reduction of exposure to common stocks. For the time being, however, we feel that a basic investment stance should be one involving a full commitment to equities. Those equities, however, should be carefully selected with a view to funda- mental cheapness and a technical position which combines upside potential with a minimum of downside risk. AWTrs Dow-Jones Industrials (12 00 p. m. ) S & P Composite (1200 p.m.) Cumulative Index (9/29/83) 1233.03 166.38 2025.44 ANTHONY IV. TAB ELL DELAFIELD, HARVEY, TABELL . No statement or expression of opr,uon Of any orher motter herein conOIned IS, or IS fa be deemed fa be, directly or mdrrectly, on offer or the soilCitohon of on offer 10 buy or sell any security referred to or mentioned The motter IS pmsen1ed merely for lhe convemenct of the subscrIber While 'f'Je belIeve the sovrces of our InformalIOn to be reliable, we In no woy represent or guarantee Ihe aec.uracy thereof nor of the s'olements mude herem Pony oellOn to be to(!n by the subSCriber should be based on h,s own InvestigatIon and mformatlon Jonney Montgomery Stott, Inc., oS 0 corporotlon, ond lis offlc.ers or employees, moy now hove, or moy 10Ter loke, POSITIons or trodes In respect to ony securITIes mentioned In thIS or ony fulure Issue, ond such pOltlon moy be dIfferent from ony v,ews now or hereoher el'pressed In thIS or any other Inue Jonney Montgomery 5cott, Inc, whlc.h IS regIstered WIth the SEC os on Investment adVIsor, may gIve odvlce- to .ts Investment adVISOry and othel c.ustomers Independently of any slotemenl mode In thIS or In any other Issue Further Informotlon on ony seoJrlty mentIoned here' IS ovolloble on request

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