Tabell’s Market Letter – September 27, 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) 9249660 September 27, 1985 It is occasionally necessary. In the course of market analysis, to adjust some f81rly standard ,;-compu!tion , A long;!iJ!1' ieJ.l-BJ1dcolleagueof….ours..took';.u&o..totask- for- this-408 few .,-y-ears-ago, when – – the oils were leading .. the-;-marketon -tlle'upside and we attempted'to prove internal weakness by recon- structing the S & P 500 with oil issues excluded, Our friend sent us a graph of a straight line and in- formed us that this was the S & P 500 with everything excluded. Nonetheless, we maintain that such adjustments can. in some cases. be useful. The necesslty arose pin this week as General Foods became the object of takeover rumors and managed to tack on 27 t poins in the first four days of last week. It Just so happens that GF is one of only 30 stocks in the Dow and, due to its high price, one of the most-heavily weighted components in that index. We therefore felt compelled to go back to the July 19 high and reconstruct a 29-stock Dow excluding it — an easy process following Dow-Jones own computation methods. This process shows the DJIA, which actually closed at 1312. 05 on Wednesday some 14 points above its Friday low, to have posted a new Wednesday bottom at 1284.99, almost eight points below its most recent bottom of last Friday. This should not, actually, be all that surprising. The S & P 500, which contains General Foods as a much smaller relative component, reached approxlmately 180 before rallying yesterday, versus the previous low, on September 17, of 181. 36. All of this does nothing more than underscore the fact that the market has not been behaving very well, something that could have been determined by forgetting market averages entirely and look- ing at the breadth figures for the past few weeks. As our readers know, we have computed a normal relationship between breadth and the Dow going back over some 35 years. Thus, there should exist, given the Dow change, a normal number of advancing and declining issues on any given day. For the 22 trading days from August 21 through yesterday, the number of advancing stocks has been below normal on 19 of them t and the number of declining issues has been greater than the normal figure more than half the time. We think this process of demonstrating fairly significant market weakness is a worthwhile I The persistence of such weakness, indeed, indicates that the corrective process -;Fbenisto its1r.illastk!firEM–lr— Thursday. The Dow, adjusted for also fairly target of 1275. With a corrective phase well underway, it becomes necessary to ask ourselves whether the pre- conditions for a bottom are in fact present. Within certain limits, it is our belief that they are. Those limits arise out of our continuing belief that the present process remains within the framework of an on- going bull market. Weakness, we are perfectly willing to admit, has been sufficient to provide what may be the first link in a chain of evidence suggesting irreparable damage to the bull market. We are going to operate, however, on the premise that the current drop does not constitute the initial stage of a major –cycle decline. Given that premise, a rally bottom could be expected to be accompanied by a moderately oversold rather than a deeply oversold condition. We are, we think, certainly approaching such a condition as of this week. We saw, for example, an expansion of new lows to figures in the 40-80 range on five recent tradIng days. This is the sort of level reached, for example I in late December last year, a point from which a fairly significant rally took place in January-February. It is a level at which a fair number of minor declines have managed to bottom in the past. The 10-day total of advances minus de- clines reached -3720 on September 17. ThIS is, on an historical basis, certainly not a low figure, but it is one which has managed to turn a fair number of short-term drops including quite a few recent ones. Thls sort of quasi-oversold condition may well turn out to be sufficient in the light of the way bottoms have lately tended to form. Full-scale selling cllmaxes have become almost historical CUriOSI- ties. The last demonstrable one occurred on Silver Thursday. back in 1980. Even major bottoms, August, 1982 being a prime example , have tended to mur after a protracted period of exhaustion. Such may well be the case in the current instance. If thIS is the case, we are probably, at the moment I closer to an effective low in terms of level rather than time. The seasonally-poor month of September is close to beIng over, but the aftermath of thepresent declining phase could well turn out to be a protracted period of sideways drift rather than any notable immediate rally. Such a sideways drift could well continue for another couple of months, until the normal year-end rally tendency manifests itself. Dow Jones Industrials (9/26/85) S & P Composite (9/26/85) Cumulative Index (9/26/85) 1320.79 181. 29 2385.18 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. AWTrs NO statcment or epresslon of Opinion or any other matter herem contaulOd IS or IS to be deemed to be directly or mdlrectly, an oller or the soliCitation of an offer to buy or sell any security reterred toor menhonod The matter IS presented merely forthe convenrence of the subscriber While we behevethe sources of oU/lnformallon to be reliable we In no way represent or guarantee tho accuracy ther(X)1 nor of the statemonts mado herem Any acllon to be taken bv the subscflber should be based on hiS own rnvesllgatlon and mformallon Delafield, Harvey, Taboll Inc, as a corporahOn and liS OfflcefS Of employees may now have, or may laler lake, poSItrons or trades In respect to any securities mentioned rn thiS or any future Issue, and such position may be dltlerent from anyvlcws now or hereafter opressed In thiS or any other Issue Delafield Harvey Tabell Inc which IS registered with the SEC as an Investment adVisor, may Qlvoadvlco to ItS Iflvps\menl adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further Information on any security mentioned herem Is available On request