Tabell’s Market Letter – February 10, 1984

r——-j———————————————————————————————— TABELL'S MARKET LETTER 909 STATE ROAD. PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9249660 February 10. 1984 , The stock market. as measured by the Dow-Jones Industrial Average, continued downard this week – closing ata.l!wof1l52 .7 on.Thurs'!!lY ,,,,This. sharp decline. oLappr9ximately 134p-oint–.fr,o,m .the. Janu;. ary 6th high of 1286.64 represents a 10.41 decline to date.- This corrctiorl'has occurrecl. in theshert time span of 25 trading days currently reflecting a relahvely sharp. oversold condition. One of the technical tools we have used to measure the long-term oversold condition of the market is the Short Term Trading Index (TRIN). This index is a correlation of the ratio of advances to declines to the ratio of advancing volume to declining volume. In other words, whether changes in the relationship of advances and declines are taking place faster or slower than changes in the general volume movement of the market. The ratio is computed as follows (advances/declines) /(advancing volume/declining volume). The chart on the reverse page shows a ten-day moving average of the Short Term Trading Index of the New York Stock Exchange from May. 1964 to date. As can be seen from the chart, the ten-day moving average tends to smooth the wild daily gyrations of the TRIN. Historically, when the ten-day average of the TRIN reaches a figure of 1. 5, indicated by the dotted line, a major buy signal is indi- cated. There have been five such signals since May, 1964. They occured on October, 1966, May, 1970, December, 1974, March, 1980, and August, 1982. Underlined in the exhibit below, the average gain from these five signals was in excess of 25 before a minor correction of 5 occurred. Obviously, the market in some of these instances. after a minor correction of at least 5. resumed its upward movement the most recent example, August, 1982 has advanced from a total of 65.68. OATES OF SINGLt DAY STTI ) 2.5 DATE STTI OJIA JUN 24 1965 2.82 857.76 OCT 3 1966 2.99 757.96 MAR 14 1968 3.16 830.91 MAY 4 1970 3.50 714.56 MAY 26 1970 2.64 631.16 I..,.-If….-'MSAERP 28 1974 27-1974 22.5841 854.35 -621.95 sua SEQUENT LOW DATE LENGTH CHG JUN 28 1965 2 2.00 OCT 7 1966 4 1.80 MAR 21 1966 5 0.70 MAY 26 1970 16 11.67 MAY 26 1970 0 0.00 MAT 29 1974 OCT 4 IJ74 42 5 6.90 6'.01- NEXT RALLY DJIA LENGTH tCHG 840.59 157 18.4 744.32 145 22.2 825.13 73 11.9 631.16 18 14.1 631.1, 18 14.1 795.37 8 8.1 584.56 – 6 n7z-,,,—I- NOV 18 1974 OEC 2 1974 AUG 19 1976 UCT 14 1976 OCT 31 1978 MAY 7 1979 OCT 9 1979 MAR 24 1980 OEC 8 1980 AUG 24 1981 JAN 5 1982 AU 4 1982 OCT 25 1982 FEB 8 1.84 4.25 2.74 2.59 2.06 2.55 3.06 3.17 3.93 2.86 3.67 4.10 2.69 4.45 2.78 624.92 603.0L 983.80 935.92 7.2.45 833.42 857.59 755.44 933.70 900.11 865.30 803.46 995.13 1156.30 OEC 6 1974 DEC 6 1.74 AUG 26 1976 NOV 10 1976 NOY 14 1978 JUN 1 1979 NOY 7 1979 MAR 27 1980 DEC 11 19O SEP 25 1981 MAR 8 1982 AUG 12 1982 NOY 23 1382 AYERAGE 13 4 5 18 10 18 21 3 3 23 43 6 21 13 7.57 4.22 2.38 1.27 0.91 1.47 7.10 0.71 2.70 8.45 8.07 3.30 0.42 3.88 577.60 577.6D 960.44 924.04 785.25 821.21 796.61 759.9 908.45 824.01 795.41 776.92 990.9 68 36.2 68 36.2 17 5.7 35 8.7 50 9.5 88 9.3 67 13.5 123 28.2 16 10.6 9 6., 43 9.3 58 37.1 9 6.7 53 16.1 On Wednesday, daily TRIN closed at 2.78. Although not as conclusive as the above statistics, in- spection of single days when climax selling is in eVIdence, i.e., a high TRIN. provides us with some interesting observations on the behavior of the market. Our colleague, Kenneth Tower developed the above exhbit which shows every instance since May, 1964 when the TRIN closed above 2.50 together with the performance of the market after these levels were reached. To date, there have been 21 such obser- vations. These are marked on the chart on the reverse page at the time they occurred on the DJIA. From these high TRIN levels the market reached a subsequent low. The date, length, and percentage change of these corrections are recorded. This is then followed by a rally measuring the length and ex- tenLof the market until a 5 correction occurs. What conclusions can be drawn from this exercise It becomes clear that the TRIN can reach high levels in both bull and bear markets. However, rallies from major-market lows .. like those mentioned earlier J tend to outperform the other signals. The average decline of the 20 observations after high, single-day TRIN occur is 3.88 occurring in an average time of 13 trading days. By applying these figures to our current market, the following scenario could be developed. Assuming we are in a correct- ion phase within a major bull market, it would be logical from the above evidence to expect a short-term rally from this oversold condition to begin shortly. ThIS rally should occur within two weeks and with- in 4 of current levels. Again, using the above exhibit, an average 16 rally could carry the averages from current levels probably into overhead supply in the high 1200 area or even into new high territory, completing the rally some time in early spring. It will be interesting, indeed, to see if and how this scenario develops. RJS rs ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY, TAB ELL INC. Dow-Jones Industrials (1200 p.m.) S & P Composite (1200 p.m.) Cumulative Index (2/9/84) 1159.76 156.14 1937.69 No slatement or cxprSlon of Opinion or any other matter herem conlamed IS, or IS to be deemed to be, directly or Indirectly, an offer or the solicitation of an offer to buy Of sell any security releHed 10 or menhoned The maltcr IS presented merely for Inc convenience of the subSCriber White we believe the sources 01 our Informatton to be reliable, we 10 no way represent or guarantee the accuracy thereof nOf of the statements made herem Any acllon 10 be tlken by the subscriber should be based on hiS own Investigation and Information Delafield, Harvey, Tabelt Inc. as a corporatIOn and Its officers or employees, may now have or may later take poSlllons or \fades Ifl respect to any secunt1es mentioned In thIS or any future Issue, and such pOSIUon may be different from any ViewS now or hereafter ewpressed In thiS or any other Issue Delafield, Harvey labelt Inc which IS registered With the SEC as an invostmentadvlsor, may give advice 10 lIS Investment adVISOry and other customers Independently of any slalf'ments made In thiS or In any other Issue Further information on any security mentioned herein IS available on request ,,