Tabell’s Market Letter – July 19, 1985

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) 924-9660 July 19, 1985 On Wednesday of this week. the Dow-Jones Industrial Average posted B. new closmg record high of 1357.97. Wlth inflation at 8 low level and mterest rates appearing to want to work lower 11–'there–8 Slo1fe–a-syilchlhg-of !–assets' fromb6nQs- to'stocks-raklng–place–.. CO,u'1ea.wiltfij.n-tliiS'–o'– market environment 18 the contmued dommance by the institutIonal investor overshadowing an uncertain individual investor. Confirming this impressive actIOn of the market averages has been the continued strength in market breadth statistics. The chart below shows the DJIA from the August, 1982 low to date. together with two daily breadth indexes which are computed based on the number of advancing and declining issues for each day. We have had breadth statistlcs available to us for total issues traded on the New York Stock Exchange on a daily basis for over 60 years. Historically, Interpretation of thIS indicator has sug- gested that if succeSSlve new hlghs on the Dow were not confIrmed by new highs m the breadth index. lower stock prices were mdicated. An obYloUS example of this type of divergence occurred from June, 1983 through January, 1984, and is shown on the chart above with appropriate trend lines drawn. On the other hand, when breadth continues to outperform the Dow over time, a bull-market condition continues to exist. Such is the case today. The action of the breadth indicator of total Issues traded from the August, 1982 low to date has been extremely informative. From this low. each rally in the Dow to a new high through June. 1983 was fOllowed shortly by a confIrming new high m market breadth. Subsequently. new highs in the Dow were not confirmed by the new highs in the breadth index and the market corrected itself 15.59 to the August. 1984 low of 1086.57. Since that time, each new hlgh in the Dow has been followed by 8 new hlgh in breadth. In fact, thIS week, the cumulative NYSE advance/decline total lssue breadth index confirmed the recent high in the Dow. and in so doing reached 8 level exceeding its June, 1983 hIgh, As comforting as thls seems, and it is, it should be pointed out the total issue index has been distorted because of the recent strong performance of the preferred stock sector withIn the total issue index. Preferred stocks represent approximately 25 of total issues traded daily. During the late 1960 1s. the NYSE began reportmg daily breadth statistics of total Issues traded anCl, also of common stocks. The technician was now able to construct a breadth index of only common stocks as shown above. For the past few years. the total Issues breadth Index has outperformed the com- mon stock breadth index by a relatively constant margin. Both mdices moved in concert and any measured differences were msigniflcant. ThIS was true until the Fall of 1982. As can be seen by inspectIng the two breadth indexes, the inclusion of preferred stocks in the total issue breadth index has provIded an upward bias to this serIes. ThIS we must logically assume is because of the strength in the overall interest-sensitive sector of the market. Even while laggmg, the common-stock breadth index is currently close to posting a new hIgh for the year, albeit clearly well below its hlgh of June, 1983, The condition of the maturmg bull market IS indeed healthy. Overall breadth figures remain positive, the major stock-market indices are at record hIghs with no inwcation of negative dlvergence conditions existing. There is good reason for the market to contmue to sustain itself. We should only respect its age. ROBERT J, SIMPKINS, JR. DELAFIELD, HARVEY, TABELL INC. Dow-Jones Industrials (1200 p.m.) S & P ComposIte (1200 p,m,) Cumulative Index (7118185) 1354,84 194,46 2636,10 No statement or xpresslOn of opinion or any other matter heren) contained IS or IS to be deemed to be dlrec1lyor mdlfeClly, an oHer or the soliCitation of an offer to buy or sell any security referred to or mentioned The matter IS presented merely for the convenience of the subscriber While we beUeve\he sources 01 our information to be reliable we Ir1 no way represent or guarantee the accuracy thereof nor of the statements made herein Any action to be talen by the subSCriber should be based on hiS own investigation and information Delafield, Harvey, labell Inc, as a cOlporatlon and Its officers or employees may now have or may later lake, pOSitions or trades In respect to any secunlles mentioned In thiS Of any future Issue and such POSition may be dlifp.rent 1rom any views now or Mlealter explessed In thiS or any other Issue Delafield, Harvey, labelt Inc which IS regIstered With the SEC as an Investment adVisor may gIVe advice to ItS Investment adVISory and other customers Independently 01 anv statements made In thiS or In any other Issue Further informatIOn on any secuflty mentioned herem IS available on request