Tabell’s Market Letter – September 20, 1985

V Lii.\BHE8.8.'S Iil1lI 1Rl &;;EV D.EVVCEOO 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC (609) 9249660 September 20, 1985 By no measure has the stock market, since mid-July, acted well, but there has been, within 1- thattme-, significan!.. dispariy..2etwe'l the action..9f thew…m2t \Vy foll\V(L ll!.arket. …nct ice,, ,Ir,–I the Dow-Jones IndustrIals and tile S '& P 500-' -. ' – ' – – . — -. — ' .. – – u. –'-.- – .- At Tuesday's close, the Dow found itself down a relatively minor 4.5, an amount which has been topped on no fewer than six occasions since the bull market began in August, 1982. The S & P, by contrast, was down 7.3 for the worst percentage decline since the long intermediateterm drop of November, 1983-June, 1984. The reason for this disparity can be readily ascertained by looking at the components and computation methods of the two averages. The Dow contains two stocks (Union Carbide and Gen- eral Foods), that are up almost 10 from their close on the day the Dow made its high. Since the DJIA is effectively price weighted, these stocks rank second and tenth in terms of weight within the average itself. The top 50 stocks in the capital-weighted S & P account for 40 of the weight of that aVer- age. The best performing stock in that group (DigItal Equipment) was, at mid-week, up only 5 from the S & P's peak date. Almost half of the largest 50 components were down 7 or more, with 11 double-digit percentage declines. – .. I l' I I, 1115 This has produced differing technical patterns for the two averages, which are shown above in their point-and-figure configurations, the five-point-unit chart of the Dow on the left and the one-point chart of the S & P on the right. The Dow pattern shows a protracted trading range between 1325 and 1290 which occurred durmg June. It has currently managed to hold above this level, while the S & P has broken below its comparaNe range between 191 and 186. The latter, however, at recent lows, has moved into a strong support area between 184 and 177, represented by trading during February and March. The corresponding level for the Dow is between 1300 and 1245, and it could well push further into that area. As the charts show, conservative downside targets are 1275 for the DJIA and 179 for the 500. The former would, in the case of the Dow, involve breaking the June low, but we would not regard this as serious since it would only bring it into line with most other indices. The deeper downside targets, 1220 and 174, respectively, breaking the March lows, appear to us as less realistic immediate possibilitIes. We would, rather, expect the February-March support levels to hold for the time being. The danger, of course, would be further protracted back. ing and filling in both averages at or just below -current levels. Such action could produce rather dangerous head-and-shoulders configurations. However, such patterns would fake time to develop. AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. Dow-Jones Industrials (12 00 p. m.) S & P Composite (12 00 p. m.) Cumulative Index (9/19/85 1308.24 183.99 2403.25 .. No statement 01 eprcss!on 01 opinion or any other maHer herein contamed IS, or IS to be deemed \0 be dlreclly or Indirectly, an oller arthe soliCitation of an offer to buY or sell any security referred 10 or mentioned The matter IS presented merely for the convenience of the subscnber While we believe the sources of our information to be reliable, we In no way represent or guarantee the accuracy thereof nor ollhe statements made herein Any action to be laken by the subscriber should be based on hiS own investigation and information Delafield, Harvey Tabell Inc, as a corporation and ItS officers or employees, may now have, or may later take, posl110ns or trades In respect to any secUrities mentioned In this or any future Issue, and such pOSition may be dillment from any views now or hereafter eypressed In thiS or any other Issue Delafield, Harvey, Tabell Inc which IS registered With the SEC as an Investment adVisor, may give adVice to lIS Investment adVISOry and other customers Independently of any statements made In thiS or In any other ISSue Further InformallOnon any security mentioned herein Is available on reQuest