Tabell’s Market Letter – April 27, 1984

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 April 27, 1984 . . . It ..ossible (althoug-,,-we',9ul'Ln()t.wgnJ .t().phthi('. distinctiol.1QQ..JJu'Ltp.!i'l1id5! techmcal analysIs mto two general approaches .. The first of these is the historical approach. This discipline maintains that, if a study of the historical record reveals that the market has behaved in a certain way'in the past, it will be highly likely to do so in any current similar instance, An example, appropriate to today's market, would be the statement that major bull markets in this cen- tury have had an average length of some two and a half years, and that it is, therefore, unlikely that the recent bull market topped out after 15 months. The second school may be characterized as the indicator approach, which says, in effect, that certain sorts of behavior tend to precede up or down markets and that occurrence of such behavior should engender optimism or pessimism as the case may be. An example, also valid for the current market, would be to say that poor breadth action has been displayed for the last 10 months and that such behavior has tended to precede bear markets. It is always necessary to synthesize the two approaches, It is futile, for instance, to remain obdurate about an historical scenario when indicators of what is currently happening stub- bornly refuse to confirm that scenario. This letter, it must be admitted, has recently leaned on the approach of placing the current market in its historical context, but it is certainly necessary to remain convinced that current indicator action is consistent with that historical context. Among the historical patterns we have been citing in this space are the following Major cycles, since 1896, have averaged just under four years in length and have spent, on average, some 60 of their lifespan in advancing. It is therefore logical to suppose that the major high for this cycle, rather than having occurred last November, is likely to occur at some time in the future. most probably sometime around early 1985. A second historical analogy is the election-year pattern (which. in recent years, has tended to coincide with the four-year cycle, although this has not always been the case). This – – .pattern-suggemnlfe-likelihoou-of-flatness-or-modEirate-weakrressili.-th'e–r;i'Stha1fortne year, a forecast which has been confirmed so far. followed by strength in the second half. We have, for example. pointed out that. in 17 of the 21 elections years in this century, the average price for December has been higher than the average price for June. A shorter-term historical pattern is the tendency, albeit ever so slight. for market weakness in May-June followed by the stronger tendency toward the well-advertised summer rally. A synthesis of all these patterns of historical behavior tends to suggest a market in which short- term weakness might continue, possibly over the next six weeks to two months. but where that weakness should be followed minimally by a test of previous highs. It should be noted that none of the above historical theses contravene the likelihood that, on the move from 776 to 1287. the Dow had already accomplished the major proportion of its ultimate rise. The question is whether the indicator approach. the observation of current market behavior. fits in with the above market scenario. Market breadth, as we noted above, has been poor for 10 months, and a breadth divergence has existed since either June or September. (This is the sort of fine point over which technicians like to quibble.) Much of this weak breadth action is the product of the abysmal behavior of secondary, particularly OTC, stocks which have been in their own private bear market ever since last June. To determine whether such behavior is consistent with the historical framework. it is necessary, however. to look at lead times. The breadth divergence. indeed, exists, and it is highly unlikely that it will be erased before the end of the cycle. It may, however, be dated back only to last summer and the average lead time of divergences over market tops since Worl(l War II has been 16 months, with three cases of two years or more on record. As good a measure as any of secondary stock activity is the speculation ratio, or the ratio of S & P Low-Price to High-Grade indices. This, of course, peaked in June. but, in most cases. the ratio peak has led market highs 'by 1332 months. There exists a myth that bull markets end in a flurry of speculative-stock activity. a statement which was true in 1968 and 1976, but has been false in most other bull markets including. contrary to popular impression. 1929. In short, the behavior of most market momentum indicators for the past 10 months has been abysmal, and it is not our intent to obscure this fact. Such behavior is. nonetheless, in our view. consistent with the historical scenario we have outlined above. –.I J AWTrs ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL INC. Dow-Jones Industrials (12 00 p. m.) 1170.96 S & P Composite (12 00 p. m. ) 160.44 Cumulative Index (4/26/84) 1955,56 NO statement or oxpresslon of opinion or anyolhet mailer herem contained IS, or IS 10 be deemed to be, directly or Indirectly. an oHer or the sol1cltatlon of an oller to buy or sell any secunty referred to or mentioned The matter IS presented merely lor the convenience of the subscriber While we believe the sources of our information to be reHable, we In no way represent or guarantee the accuracy theroof nor of the statements made herein Any action to be taen by the subscriber should be based on hiS own investigation and information Delafield, Harvey, label! tnc, as a corporallon and lis officers or employees, may now have, or may taler lake, positions or trades In respect to any securities mentioned In this or any future Issue, and such pOSition may be dlfferenllrom any views nowor hereafter expressed In this or any other Issue Delafield, Harvey 1aOOl1 Inc, which IS registered With the SEC as an Inveslment adVisor, may give advice to Its Investment adVISOry and other customers Independently at any statements made In thiS or In any other Issue Further Information on any security mentioned herein IS avallable on reQuest