Tabell’s Market Letter – February 07, 1986

'1TJ.iU.1!l1E D.. D.. ' S J.iU.1Rl&E'1T D..1E'1T'U'lElRl 600 ALEXANDER ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 February 7, 1986 Readers of this letter are, by this time, well aware of our general feeling regarding the current stock market. We recognize, along with most of the rest of the financial community, that the Dow -…. ——- ,has doubledover 3-l/2 years- and –that-the -cuJ!-I!ent..,cycle J Ht .1east .,in terms–9f conventional interpretation . has reacheds mature-phase. Despite this, 'we have recommended a continuedpositive attitude toward common stocks, pointing out that the sort of deterioration which the conventional wisdom would expect at this stage has simply not materialized. We will try, this week, to illustrate this point graphically using the point-and-figure charts which we regard as the most useful historical summary of price action. The chart at left above, an historical artifact, is a shining example of the sort of pattern which is conspicious by its absence today. On a 5-point-unit basis J it traces the history of Xerox in the early 1970's, with the last posting being in November, 1973. No chart expertise is required to see —-thatthe .. distributiona1p-attern…between–150–and—lO.!..is–m-assivehe-stocktof- course,–was …at-46—a—-year later and below 28 at its 1982 low. Many stocks today—Borden is an exarnple–appear fully exploited, but what is totally absent, as its chart shows, is any sort of distributional top. Such a formation would require time. (The Xerox top took over a year to build). Furthermore, a typical occurrence in recent markets has been for potential distributional patterns to turn into continuation bases. PillSbury, during late 1985, formed a pattern which could have been interpreted as a triple top. The recent upside breakout casts doubt on this and now suggests a further extension of the upside move. Rather than massive top formations, a large number of stocks today possess patterns something like that of Alcoa, shown at left. Its major feature is a recent upside breakout from a massive accumulation base between 30 and 39, suggesting that the stock could be in the early stages of an important upward move. This sort of formation is typical of a large number of basic-industry stocks. Top formations are currently, it must be admitted, not totally absent, but where they exist, 8S in the energy sector. the patterns are similar to that of Amoco at right. The stock did, indeed, form a top at 70-60 and the downside objective is 48. However, It has already declined from 70 to a low of 53 1/8 and is approaching an area of strong support from its 1982-1983 trading suggesting that the bulk of downside action has already been seen. The fact that most individual patterns today can be typified by one of the four latter examples rather than by the sort of pattern Xerox and so many other stocks exhibited 15 years ago suggests that no serious market weakness is imminent until distributional patterns build further. Dow-Jones Industrials (1200 p.m.) 1592.43 S & P Composite (1200 p.m.) 209.33 Cumulative Index (2/6/86) 2764.16 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. AWTke No statement or epresslon 01 opinIon or any other mailer herem contaIned IS or IS to be deemed to be, directly or Indirectly, an offer or the soliCitation 01 an offer 10 buy or sell any security referred 10 or mentioned The mailer IS presented merely for the convenience of the subscriber While we believe the sources of our information to be reliable, we In no way represent or guarantee the accuracy thereof nor 0/ Ihe statements made herem Any action to be laken by the subscnber should be based on hiS own Invesllgatlon and Information Oela/leld, Harvey, Tabell Inc, as a corporation and Its ofheers or employees, may now have, or may later take, poSitions or trades In respect to any securities menlloned In thiS or any future Issue, and such pOSition may be different from any views now or hereaHer expressed In thiS or any other Issue Delafield Harvey label! Inc which IS registered With the SEC as an IOvestmen\ adVisor, may give advice to Its mvestment adVISOry and other customers mdependently of any statements made mlhlS or In any other Issue Further information on any security mentioned herein IS available on reQuest i