Tabell’s Market Letter – July 18, 1986

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) 987-2300 July 18. 1986 The most significant fact about the current stock market is that it made a new high on July 2nd. —-Thatt8.tementi8,ofcourseliberately-'aimedatprovXmtionHere…Lwe-have-a -markethich h a r – – – – …. –.!!' – ,..– undergones 6IT-point down day, was. at mid-week. down almost 150 points from that Bforementioned -high. and we are babbling about new highs two and 8 half weeks ago. Yet we reiterate the fact that the eleventrading-day-old high constitutes at the moment a more useful fact for determining investment policy (as opposed to a forecast) than the decline which followed it. Let UB step back a bit and review what has happened. First of all. the market has declined 7.35 between July 2nd and July 15th. There. That should make us feel better already. We have still. of course, not gotten over the culture shock of having the DJIA as high as it is. 150 points, of course, seems like disaster. 7.35 sounds like the minor decline that it. in fact, is. Furthermore, it gives us a historical benchmark. If we go back forty-four years. to April 1942, we find the recent drop was the 48th of equal or greater magnitude in those 44 years. It seems, perhaps. a more important occurance than it is. since it follows the third longest period, 490 days since July 24. 1984, without such a decline. (The three longer periods were October, 1962 – May, 1965, November, 1943 – February, 1946, and September, 1953 September. 1955). We return to the importance of that July 2nd high. Of the forty-seven similar highs that preceded it. thirty began from what we now know by hindsight to have been new highs within the context of bull markets. something we can all agree was the case on July 2nd. Of those thirty. ten constituted the final new highs in the bull-market of which they were components. Following the other twenty. the bull market in question went on to new peaks. Given the length of the current advance, it is probably unwise to translate this into two-to-one odds in favor of an ongoing upswing. but the statistic should, at least. be comforting. Let us, however. assume the W..oe'lcenariLBruLassume……that…J.nly-2nd.-1986 ……turnsout to..be,ttlhe, bull-market high. What sort of market action may be expected over the next few months The following table, while somewhat arcane, attempts to provide answers to this question. It gives the 10 dates over the past forty-four years when a 7.35 decline marked the start of a cycle bear market. It then shows the last date following the bull market high on which the Dow remained within 2. 5. 7 and 10 of its peak. The figures in parentheses are the number of trading days following the high. For perspective, in current terms. down 2 is equivalent to 1871, 5 to 1814, 7 to 1776, and 10 to 1718. BULL MARKBT HIGH LAS T Z DAT B WIT H I N A G I V B N 'II 0 F HIGH 5 7 10 May 29. 1946 Jun 15. 1948 Jan 5. 1953 Apr 6. 1956 Dec 13. 1961 Feb 9. 1966 Dec 3. 1968 Jan 11. 1973 Sep 21. 1976 Apr 27. 1981 Jun 17. 1946 (12) Nov 1. 1948 (lOll Mar 25. 1953 (55) Jul 26. 1957 (328) Mar 19. 1962 (65) Feb 17. 1966 (6) May 16. 1969 (109) Jan 12. 1973 (ll Jan 3. 1977 (7ll Jun 23. 1981 (40) Aug 15. 1946 (54) Nov 4. 1948 (103) Apr 2, 1953 (66) Aug 9. 1957 (338) Apr 6. 1962 (79) Apr 26. 1966 (52) May 29, 1969 (128) Jan 26. 1973 (10) Mar 17, 1977 (123) Jun 30, 1981 (45) Aug 23. 1946 (60) Feb 3. 1949 (172) Aug 18. 1953 (158) Sep 3. 1957 (354) Apr 25. 1962 (91) May 2. 1966 (56) Jun 9. 1969 (124) Oct 29. 1973 (20ll Apr 18. 1977 (144) Aug 6. 1981 (7ll Aug 26. 1946 (61) May 19. 1949 (264) Sep 9. 1953 (173) Sep 19. 1957 (366) May 8. 1962 (100) Jun 24. 1966 (94) Jun 18. 1969 (131) Nov 1. 1973 (204) Jul 25. 1977 (21ll Aug 20. 1981 (8ll What the figures show, in effect, is that, in seven of the ten bear markets. the Dow returned to within 2 of its high over periods ranging from two to fourteen months. In nine cases it had returned to within 5 of that high within similar periods. and in all cases shown. a recovery to within 7 of the bull market high ultimately took place. The fastest-breaking bull market was 1973-1974, which fell from 1051.70 in January to 869.13 in June. It had recovered by October, however, to 987.06. By contrast the top between April 1956 and the Bummer of 1957 took over a year to form. – Now none of the above is intended to suggest blind optimism in the face of the market deterioration which we have been pointing out over the last two months. What it does suggest is that. even allowing for the most peSSimistic possible view of that action, that it is the immediate precursor of a cycle bear market. extensive further deterioration will have to take place before such a bear market is likely to take us significantly below current levels. History suggests. in other words, that the two-week-old new high which we mentioned at the beginning of this letter constitutes an argument against precipitous action. AWTvfi ANTHONY W. TABBLL DELAFIELD. HARVEY. TABELL. INC. Dow Jones Industrials 1768.14 S l P 500 234.52 Cumulative Index (July 17, 1986) 3068.56 NO statement or C/preSslon of opinion or any olher mAtler herein contained IS or IS 10 be deemed to be directly or indirectly. an offer or the soliCitation 01 an alier 10 buy Of sell any secuflty referred loor mentioned The mailer IS presented merely lor the convenience of the subSCriber While we believe the sources of our mlormatlon to be reliable, we In no way represent or guarantee the accuracy thereof nor 01 the statements made herein Any action 10 be taken by the subscriber should be based on hiS own Invesltgatlon and Information Delafield, Harvey TaOOIl Inc, as a coroorallon and ItS oU,cers or employees may now h.!ve or may later take pOSitions or trades U1 respect 10 any secunlles mentioned In thiS or any future Issue, and such POSition may be different from anv views nowor hereafler epressed In thiS or any other Issue Delafield Harvey Tabell Inc which IS registered with the SEC as an Invesmenl adVisor may give adVice 10 liS investment adVisory and olher customers mdependentlv of any sl alemenls made In thiS or In anv other Issue Further information on any securltv mentioned herein Is available on reQuest