'11'li\flUE LL' S 1i\1il&.\R MIE'11' LIE'11''U'1E1Rl 600 ALEXANDER ROAD. PRINCETON. NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC (609) 987-2300 December 20, 1985 Our regular readers are well aware of the ritual traditionally observed by this letter at each — year-end fiV!-,-r.st deote ne issueto..,;looking backw4., reviewing .thyearjust .. paJ-,,-pJus anypr;…,—,-,, vious relevant history; The following issue then attempts to draw on this background to look ahead and formulate a forecast for the year to come. This week's piece. the first of the customary duo, will therefore be a review of the year 1985. Our task this year is an unusually pleasant one. 1985 was the best stock-market year in the past decade. Or, if you prefer, the fourth best year in the past fifty. It becomes slightly less im- pressive when one takes the early years of the century into account. It is only the fourteenth best year for the Dow-Jones Industrial Average since it was first computed in 1897. However, the market did distinguish itself by consistency. We noted a couple of weeks ago that 1985 will probably be one of the only three instances of a year which passed without a 5 correction. In any case, at its high close so far (1553.10 on December 16),the DJIA was up 28.19 from its December, 1984 close of 1211.57. The most recent better year was 1975, which saw a 38 advance in the Dow. 1954 and 1958 produced 44 and 33 rises respectively. All the other larger advances go back more than 50 years, the latest being 1935. For the record, the biggest-ever full-year advance for the Dow was 82 in 1915. In order truly to lay the groundwork for a forecast, however. it is necessary. as we have been mercilessly reminding our readership, to confine examination not just to 1984 J but the entire pro- cess which began on August 12, 1982. Almost (-every financial commentator has recently made the dis- covery that, since that date, the DJIA has just about doubled. (To be precise, it has advanced from 776.92 to 1553.10, a 99.9 rise.) This is, admittedly, impressive, but, as us old folks are fond of reminding our younger colleagues. The trouble with you kids is you've never seen a real bull market. It This is illustrated by the fact that two of the years which outperformed 1985 were out of the lU50's. For that decade and the previous one, bull-marKet advances of approximately the current magnitude were the rule rather than the exception. Since we are presenting in this letter an historical review, it is perhaps worth taking a truly long-range look. It has been demonstrated here In the past that the period of the 1940's through — 'i;.– the -earlyr960-rs constitutea.-a-stocK-market era one In W1llch-Uie supercyc1etreficj'–was upwardaT-ia—–oI- rate of a bit more than 9. A second such era was entered around 1966, when the Dow first approach- ed 1000, a level it was unable significantly to better until two years ago. That trend was, obiously, flat. With the Dow now at 1500, it is apparent that we are in the middle of a third such epoch, which started either in August, 1982, or, arguably, eight years before, in 1974. Based on the evi- dence so far, adnittedly flimsy for the time period with which we are dealing, bull markets of this new era have a tendency toward magnitudes reminiscent of the 1950's. We have even less evidence for the characteristics of the typical new-era bear market. Based on the 1978-1980 experience, the current breed of bear may be a somewhat mild and less than ferocious creature. A possible reason for this may be the recently demonstrated tendency for large market sec- tors to fluctuate out of syncronization with each other. A most recent obvious example is the Over- the -Counter market. It was the leading participant in the early stages of the current rise,with the OTC Industrial Index moving from 178 to 408 by June, 1983. Over the next year, accompanied by no more than an intermediate-term correction in the listed sector, it had dropped to 250. It was not too far from that level, at 278, just last October. It is now, at around 326, still at a 20 discount from its 1983 high. Quite clearly, the rosy outline of stock-market history we have been discussing in this space so far must read like fiction to investors in smaller stocks. A review of recent stock-market history, therefore, becomes more and more complex as we probe it more deeply. On the simplest level, of course, we are looking at a market, measured by the Dow or the S & P, which has doubled over three and a half years. If history teaches us anything, it is that such markets are vulnerable. On the other hand, there exists a large subset of the stock uni- verse for which the picture is quite different and where the component stocks are still available not too far from two-year lows. We are further, on the evidence, in the early stages of what appears to be a new stock-market environment, one in which the past 20 years or so of historical experience may be somewhat less than . relevant. All these factors must besynthesized in order …to. arrive at a 1986 ——forecast. .. AWTrs Dow-Jones Industrials (1200 p.m.) 1555.39 S & P Composite (1200 p.m.) 210.62 Cumulative Index (12119/85) 2668.46 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. A VERY MERRY CHRISTMAS TO ALL. NO statement or ellpmsslon of OPiniOn or any other matter herein conlalnOO IS Of IS to be deemed to be directly Of Indlreclly, an offer or the sohcllatlon of an oller to buy or sell any security referred to or mentioned The mailer IS presented merely lor the convenience of the subSCriber While we believe the sources of our Informallon to be reliable, we In no way represent or guarantce the accuracy thereof nor ot the statements made herem Any acllon \0 be laken by the subSCriber should be based on hiS own Investigation and Information Delaheld, Harvey, Tabel1 Inc. as a corporatIOn and lIS ollicers Of employees may now have, or may tater take. positions or trades m respect 10 any sccurilies mentioned In thiS or any future Issue, and such pOSition may be Dif/erent trom any views now or hereafter epresscd In thiS Of any other Issue Delalreld Harvey Tabell Inc which Is registered With the SECas an Investment adVisor, may give adVice 10 Its Investment adVISOry and other customers Independently of any stalemants made In thiS or In any other Issue Further InformaUon on any seCurity menhoned herein Is aVBllableon request

TABELL'S MARKET LETTER 600 ALEXANDER ROAD. PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9872300 December 27, 1985 A forecast for 1986 inevitably recalls the cliche about good news and bad news. To give the I ood neWB– first,…,. we -think-t-hat-the-market .–'-next-!-year.is..Jikelytogo firsthigher and…thenlower. – The initial, optimistic part of that forecast is based on the simple fact that I from a technical point of view, it is highly unlikely that the extraordinary upward momentum developed during fall,1985 will dissipate quickly. Market tops generally require a protracted period of time to form and the actual high is generally not made on the initial thrust. Furthermore, higher objectives, in the 1700-1760 range, exist for the Dow,and it would be plausible to expect these targets to be attained on a continuation of the current move into early 1986. Having gotten the good news out of the way, it is necessary to look at the less-than-glad tidings. We think that a cycle top is likely to form sometime during 1986, followed by a full-scale, bear-market correction. Our readers are familiar with the rationale behind this forecast. They know that we are believers in the major-cycle pattern, popularly known as the four-year cycle I and the consequent belief that the rally which continued through last Friday was part of a bull market now 42 months old. It is possible to project the upward phase of this cycle as far out in time as summer-fall, 1986. To extend it further would be straining credulity. This thesis of cycle maturity is reaffirmed by the fact that the bulk of issues which have provided the leadership in the current bull market are at, or approaching, long-term upside targets. The bad news, however, may not be all that bad. In setting out the historical background for our forecast last week, we reiterated the obvious fact that, with the market at an all-time high. some 50 above its previous peak, we find ourselves in a new super-cycle environment entirely different from that which prevailed during the 1960's and 1970's. The bull market so far has demonstrated many of the characteristics of an earlier era. the one during and following World War II. Bear markets of that era were often mild. (1953, for example, saw only a 13, nine-month decline in the Dow.) It is quite possible that the sort of correction we look for in the latter part of 1986 could be a good deal less severe than recent experience would lead us to believe. Whatever the shape of the 1986 1983 High 1984 Low 1985 HIgh market pattern, we think it likely to involve a' shift ,liose details are 'not- yet S -S ' &&PP 500 Consumer -Goods – -116678T.5I7 144.33 205.96 —1'13-c65—-z22783- .,…- – h , , – I totally clear, in market leadership. The S & P Capital Goods 185.30 155.81 211. 90 table at right traces the performance of S & P Oil Composite 163.85 150.40 204.63 five major indices, all adjusted so that NASDAQ OTC Industrials 229.83 140.74 185.65 their 1982 low is equivalent to 100. It demonstrates that consumer -goods, or, more properly, dismfla- tion-hedge issues, despite their supposed lesser volatility. have constituted a good portion of the up- side leadership in the current market. Basic-industry and energy issues generaQyhave tended to under- perform, and smaller stocks, leaders through 1983, topped out at that point and remain well below their highs. It seems to us highly likely that. during the market transition we envison, one or more of these groups, basic-industry, energy, and OTC/high technology. will regain investor favor. This could come to pass in a number of ways. The issues involved could assume leadership during the terminal phase of the present upswing and prove to be relatively defensive during the following correction. Alterna- tively, the emergence of new upside leadership could be deferred until the inevitable start of the next major upward cycle. Thus our 1986 forecast involves a year of transition, a continued bull market followed by a major correction with the process being accompanied by a shift in market leadership. As with any forecast, it is necessary to examine those factors which would invalidate it. Obviously, it would be called into ques- tion by the lack of appearance, durmg 1986, of the loss of breadth and momentum, which, based on cycle analysis, one would expect to emerge. This would suggest the alternative interpretation.of the m6.jor- cycle pattern previously discussed in this space, which would date the bull market from July, 1984 and thus give it considerably longer life. While we do not expect this to happen, We should be prepared for it. This, fortunately, is easy to do. The most plausible forecast, outlined above, calls for continued strength well into 1986. The obvious posture to take advantage od' such strength is that of a fully in- vested position, and it is with such a position that the investor should, in our view, enter the new year. Perhaps-.-more than in most years, however, he should couplethat position with a degree of alertness. The formation of a major top during the forthcoming year. albeit a process which has barely. if at all, begun, remains, we think, a fairly strong likelihood. Dow-Jones Industrials (12 00 p. m.) S & P Composite (1200 p.m.) Cumulative Index (12/26/85) 1536.01 208.87 2668.86 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TAB ELL INC. WE WISH YOU ALL A HAPPY AND PROSPEROUS NEW YEAR No statement or expression 01 opinion or any other matter herem contained IS, or IS to be deemed to be, dlfectlV or Indirectly, an otter or the solicitation ot an oller to buy or sell any security retorred to or mentioned The matter IS presented merely tor the convenience 01 the subSCriber While we believe the sourcesot our Intormahon to be reliable we m no way represent or guaranteo tho accuracy thereot nor ot the statementS made herein Any action to be taken by tho subSCflber should be based on hiS own inveStigation and mtormatlon De\aUeld, Harvey, Tate!! Inc, as a corporatIOn and ItS otllcels or employees may IlOW have, 01 may later take, poSitions or trades m respect to any securl\les mentIOned In Ihls 01 any future Issue, and such POSition may be dl11crent Irom any views nowor hereal1er expressed m thiS or any other Issue Delafield Harvey labeli Inc which IS registered With the SEC as an mvestment adVisor, may give adVice to ItS Investment adVISOry and other customers mdependently of any statements made In thiS or m any other Issue Further mformatlon on any secu/.ty mentioned herem IS available on request