Tabell’s Market Letter – September 06, 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 1- . September 6, 1985 – – w-e- — .SeH-cannib8J.ismfS -art-exerCIse -occasIOnally practlcedr-by mosCmarket-J.etter wnters and –in- tend .to indulge in it ourselves this week. ThIS letter will be a review of two recently-publIshed issues of thIS letter. Re aders may conSIder themselves warned In case they wish to crumple the piece at this stage and aim it at the nearest waste basket. Those still wIth us will recall we produced last week a rather lengthy disquisition on the tend- ency of the stock market to declIne during the month of September. It IS. 85 we pointed out, certainly not a umform tendency but a September decline has. indeed, occurred in 36 of the past 59 years. We noted last week that there 1S no way of saying with certainty that this 59-year record is not a random phenomenon. Statistical testing (which we apphed in this case) told us only the probability of such a record's occurrIng purely by chance. That probability is approXImately one in one hundred. This suggests, in other words, the strong likelIhood of a correlation between a given month's being the ninth on the Gregorian calendar and that month's seemg a declining stock market. ThIS constitutes correlation. and It can be used as an illustration of a baSIC statistical principal — one that is not Irrelevant to the practIce of technical market analysIs. That prinicpal is that cor- relation does not imply causatlOn. It was brought to our attentlOn many years ago by the gentleman who fIrst taught us elementary statistics and who, an academic hImself, was fond of CIting an ob- served high degree of correlation between college professors1 salaries and U. S. beer consumption. He could, actually, have picked a somewhat better example. It is. admittedly, highly unlikely that the simple raising of professorIal stipends could. in itself, dIrectly influence the consumption of malt bever- ages. Nonetheless. it is certainly reasonable to suspect that the two series are mutually correlated with some other economic time series. gross national product. perhaps. or, more hkely disposable personal Income. Thus, the example is not really as implaUSIble as it seems on the surface. Nor is the appar- ently evident correlation between the month of September and declImng stock markets. Now It is quite true that a causal relationship between the calendar and the stock market is dif- ficult to believe. Nonetheless, it is at least conceivable that there exists some other phenomena likely I —-..to occur during the month of September WhICh encourages sellers of stock, although, to be honest, we . nllve-notnirrSrS to what it might -.Portfolio-wtm1ow-dremrrg''—-o1ocurs—;n-September-bu-t-,—I also takes place in the other three quarters. The September quarter, due to vacations, tends to be a seasonally low one for corporate profIts. but this known fact. one would think, should already be built into market expectations. Even so. It is credible that there exists. somewhere out there among the forces that relate behavior to the seasons. something which could make September a more likely month for a stock-market decline than other months of the year. It is thus. probably, a wise decision, to take the September seasonal record into account. to some degree, in planning portfolIo strategy. What we are saying. of course. IS that a key element In such a decision must be plausibility — which brings us to the subJect of another recent market letter. the one we wrote three weeks ago on the tendency of the success of the New York Mets to produce stock-market weakness. We cannot resist in this instance commenting on a certain irony. This letter has been published for almost 40 years. and the bulk of its content has constituted an attempt at serious stock-market an- alysis. It is probabl.e. however. that no letter in our 40 years of publication has produced as much comment as this one WhICh was cl0n-a. frankly, in fun. One newspaper, indeed, chose to carry a syn- OpSIS, not only on the front page, but in an eIght-column banner across the top of the front page, a treatment which the strud New York Timu's last used for the first moon landmg. We are certainly not unhappy about the wide notice taken of our feeble attempts at drollery, although we suppose a moral exists here also. The letter was essentially an attempt to use whatever skills we have developed in 30 years of writing, to make a correlation between two wicfely disparate phenomena sound plausIble. There do, unfortunately, exist occasional attempts. done seriously rather than humorously, to use the same sorts of skills to assert correlatlOns between other phenomena. What these attempts uniformly lack. of course, are serious and unbiased tests of real signIficance. No such tests were applied. of course. in the Mets letter but. even had we taken the trouble to nvent' a complex formula to force a correlation — something not impossible with sophistIcated number- crunching — it would have been meamngless. We are back again to the test of plausIbility, a test we have previously applied and found wanting in the case of the unusual purely-statislical record posses- sed by the infamous Super-Bowl Indicator. — – — – – – – What we are sa)ring .of course, is that based on such tests. there exists valid reason for paYlng attention to the month of September as a market factor and very little non-recreational reason for por- ing over New-York-Mets box scores. That distinctIon is quite clear in this case — less clear, perhaps, than it IS in published discussions of other market indicators. AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. Dow-Jones Industrials (12 00 p. m.) S & P Composite (12 00 p.m.) Cumulative Index (9/5/85) 1331. 09 187.76 2583.18 No statement Of epresSlon 01 opmlOfl Of any other ma1ter herem COfltalned IS, or IS to be deemed to be, directly or lfI(lIrectly, an oHer or the solicitation of an offer 10 buyor sen any security referred 10 or menlloned The matter IS presented merely lor the convenience of the subScriber While we believe the sourcesol our Informa\!on to be reliable, we In no way represent or guarantee the accuracy thereof norol Ihe statements made herein Any action to be taen by the subSCriber should be baseO on hiS own Investigation and lnformalton Delalleld, Harvey, Tabetl Inc, as a corporation and I\S officers or employees, may now have, or may laler lak.e, pOslllons or trades in respect to any securities mentioned In thIS or any future issue and such pOSition may be dlflerenl from any views now or heleafter expressed In thiS or any other Issue Delafield, Harvey Tabell Inc whiCh Is rC9lstered With the SEC as an Investment adVisor, may give adVice to Its Investment adVISOry and other customers Independently 01 any statements made In Ihls or In any other Issue FUrther Information on any security mentioned herein IS aVailable on request