Tabell’s Market Letter – July 25, 1986

Tabell’s Market Letter – July 25, 1986

Tabell's Market Letter - July 25, 1986
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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 25, 1986 We suggested in this space two weeks ago that the downside objectives of the top formed just prior ,-.tp.,1heshap ,J.uly.1.1h.b.eemedtocepterarqutl(t th.1.J70;J.Z6 Oar.ea ,B yJ!11yHjh, theind exhad reached that area, with a 1768.70 close, and has, so far at least, attempted to hold that low, -rising to 1798.37 on Wednesday, before pulling back in Thursday's trading. Continued action of this sort would be constructive. The Dow presently finds itself testing two fairly important previous bottoms, one at 1758.18, on May 19th, and the other at 1735.51, on April 7th. Continued ability to hold above these benchmarks would have to be construed as a positive sign .. It is. ironically. often difficult to poinpoint something so simple as a downside penetration. Both prior lows were made on spikes. where the average dropped to 8 new bottom and then rebounded sharply. Thus a short-term, one-or-two-day penetration of the figures mentioned above should not be immediately regarded as bearish evidence. Meanwhile. as the daily Wall Street Journal market chart quite clearly shows, the relative action of the widely followed DJIA lies precisely in the middle between its siblings, the Transport and Utility Averages. The Industrials have posted three bottoms at approximately similar levels as outlined above. For the Transport Index. the same three bottoms reveal a sharp downtrend, whereas, since May at least, the Utility Average has shown no disposition to correct and finds itself, as of mid-week, at a new bull-market high. None of this, of course, is really anything more than further evidence of the phenomenon we have been remarking on all along. Since March, the market has tended show a far less pronounced overall uptrend and to become less broad, i.e. to produce more and more widely disparate price movements by individual stocks. As downside targets were being reached, some mOderately positive signals were being flashed by a number of short-intermediate term indicators that in the past have demonstrated fair predictive accuracy. Coincident with the low of July 15, the 10-day advance-declIne total, one of the most widely followed short-term oscillators, reached -3,140. This could hardly be considered deep oversold territory amounting, as it does, to 15.8 of total issues traded. A deep oversold condition for this indicator, generally attained at major market bottoms, would be around 25, or, given the 2,000 plus -I-''6sues-t-hat–'-l1opmally—t.pa.Ge–Elaily-40EJa.YTll-PeUn-El…the,,-5TOOO.Llevelhe–leveh;at-tained..–however,can-'-be-,…–I considered as a normal oversold one for a neutral market, something which. for the time being at least, we are assuming this one to be. The same sort of action, suggesting a moderately deep. but not extreme, oversold condition, was being shown by the short-term trading index, the familiar advance/decline-up volume/down volume ratio, invented by Richard Arms and available on all quotation machines. This indicator is massaged by many technicians in many ways. We have found that the combination of a close above 2.00, coupled. within a three-week period. by a ten-day average moving above 1.25, has had some use as an indicator of short-term bottoms. Such an occurance took place early this month when the index closed at 2.81 on July 7th and its 10-day average spent July 15 – July 18 above the 1.25 level. This was the 27th occurance of this particular conjugation since 1964. Measuring market change two months afterward reveals 18 advances and 8 declines on the 26 prior occurances. The average for the 18 advances was 6.5 with the largest being 13. The 8 declines averaged 3.7, the largest being slightly over 8. The overall average for all occurances was a 3.4 gain. If this indicator turns out to be correct in presaging a rally over the next two months it would, of course, be consistent with the sort of scenario outlined in last week's letter, which suggests that, eVen if the market is in fact topping out, a test of the previous high at 1909 on the Dow would be a minimal expectation. Such a test would also be consistent with the normal summer-rally tendency. What might follow. of course, remains undetermined. MeanWhile, as action grows more diverse, the problem of individual stock selection has become increasingly difficult. We noted a fortnight ago a basic paradox of the current market. Those stocks which have produced excellent advances and might therefore be thought to be technically vulnerable do not. by and large. have tops. Those stocks which have topped—and there are an increasing number of these—do not seem, for the most part, to be particularly extended. The policy of sticking with winners, in other words. has paid off. However, it becomes more and more difficult to become excited about a market where-new leadership consistently fails to'present itself – – If the above discourse suggests that the market is awash with crosscurrents, it is indeed intended to do so. We do not think. as we have indicated before, that the nature of the process in Which we are now engaged is totally clear, and we think additional evidence will accumulate in the trading pattern to be built up over the remainder of the summer. We prefer to await that evidence, however, before suggesting major changes in investment policy. AWTvfl ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL, INC. Dow Jones Industrials 1809.48 S & P 500 239.27 Cumulative Index (July 24, 1986) 3058.41 NO statement or eDf(!SSlon of opInion or any other melller herein contained IS or IS to be deemed to be dlrectlvor indirectly an ofler or the soliCitation of an oller to buy or sell any security referred to or mentioned The malter IS presented merely for the convenience of the subscnoor While we believe lhe sources 01 our information to be relmble, we In noway represent or guarantee the accuracy thereof nor of Ihe slatement made herein Any aCllon to be taen by the subSCriber should be based on his own investigation and Informal Ion Delafield, Harvey, labelt Inc, as a corporation and ItS ollicers or employees may now have or may later take positions or trades In respect 10 any securilies menlloned In thiS or any future Issue and SUCh POSition may be different Irom any Views now or hereafter expressed In thiS or any other Issue Delafield Harvey Tabel! Inc which IS registered WIth the SECas an Inveslment adVisor may give adVice to ItS Investment adVisory and other customers Independentty 01 any statements made In thiS or In any other Issue Further Information on any security mentIoned herem IS available on request

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