Tabell’s Market Letter – September 26, 1986

TABELL'S MARKET LETTER 600 ALEXANDER ROAD, PRI NCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9872300 September 26, 1986 — —- – -Tlleaction.of the- market over-the–past two'vieelSwas ,remiriiscenCof-apUr'-clidrilnnighfer'- –. who has just taken an 8-count and managed to get to his feet and finish the round. The performance IS satisfactory, but affords one little confIdence as regards the future. In the concluding paragraph of last week's letter, we noted that the most bullish factor up to that time had been that the Dow had managed to hold the lows of the trading range which had contained it Close Intra-Day Low since last Spring. In previous letters, we have voiced the opinion that interpretation of that trading range is AprIl 7 1735.51 1712.52 crucial. It consists either of a distributional top or May 19 consolidation in preparation for an advance. The table July 29-30 1758.18 1766.87 1746.53 1741.56 at the right gives the successive lows which have defined Sept. 12 1758.72 1733.55 the range in April, May, July and September, plus two Sept. 19 1762.65 1747.61 subsequent September figures, which have, so far, Sept. 25 1768.56 1753.80 contributed to a succesful test. While the April 7th low is a bit lower than the following ones, they tend to show an identical pattern, with the closing figures centering around 1760 and the intra-day lows around 1740. As noted above, though, recent action, although it can be said to constitute a successful test, has hardly been impressive. Following the volume selloff ending on September 12th, the Dow moved ahead some 20 points on two successive days on which there occurred more declining stocks than advancing ones. It slid backward to the September 19th retest noted in the table, and then put on its 30-point advance of this Monday, Which, however, saw sub-par breadth and the lowest volume of the month. Two more modest rises followed, after which the average gave up the whole thing in yesterday's 35-point drop. We have couched the above discussion in terms of the.1l-o convenienc.-tWecouldlw-y'e just as well used the S&P 500-. – lndee-d, its pattern is fess encouraging than the Dow, since, on September 12th, it managed to reach both closing and, If anything, intra-days lows sIgnIficantly below its May and July figures. Breadth action, meanwhile, remains abysmal, with daily breadth havmg moved to new lows on September 19th. And yet the market hangs in there. We have noted before that practically the sole bullish element that can be cited in action over the summer has been its ability to exhibit rotation of leadership, with new advancing groups emerging to take up the slack as former leaders fall by the wayside. At tImes, it seems, this rotation proceeds at an almost incredibly rapid pace. In order to observe this, it is necessary to look no further than the action of the other two Dow Jones Averages, the Transports and Utilitites. Bouyed by a strong bond market, Utility action over the summer astounded most analysts, as successive new peaks were posted, culminating in an all-time high at 219.15 at the end of August. In just nine days, as of September 12th, the staid old indicator then managed to drop 9.3 on a closing basis, a fall worse than that of the Industrials. Suddenly, 'the most probable pattern for the Utilities appears to be a head-and-shoulders top, in which a decline to 196 would indicate still lower levels. In contrast, the action of the Transports has been driving Dow-theory buffs crazy throughout the summer. Its peak was on March 27th at 828.39, and each of the successive market upswings has produced a lower high. By early August, the Average was down almost 15 and appeared headed lower. However, in just a couple of months, while Industrial action was bad and getting worse, the Transports moved to a four-month hIgh this Tuesday. This high, moreover, looks suspiciously like an upside breakout from a base formation that could take the Transportation Average above its March peaks. If the reader gathers from the above that the market is one of. cross-currents, .he.is correct. Our basic view, however, remains as expressed in recent letters. We think that the market pattern presents signifIcant downside risk, and we would prefer to await evidence of further strengthening before adapting anything other than a defensive position. AWTmmr ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials 1770.25 S & P 500 232.26 Cumulative Index (September 25, 1986) 3043.79 NO statement or epresslon 01 opmlon or any other matter herem contamed IS or IS to be deemed to be, directly Of mdlrectly, an offer or the soliCitation of an olfer to buyor sell any security relerred to Of menlloned The mattor IS presented merely lor the convenience of the subSCriber While we believe the sources olour mlormatlon tobe reliable we In no way represent or guarantee the accuracy thereof nor 01 the Statements made herem Any action to be laken by the subscriber should be based on his own Investigation and mformatlon Delafield, Harvey, label! Inc, as a corporation and its officers or employees may now have or may later lake posllions or trades In respect to any secunlles mentioned In thiS or any future Issue, and such position may be dilierent from e.ny views nowor heleaiter epressed In thiS or any other Issue Delaheld Harvey, Tabell Inc which IS registered with the SEC as an Investment adVisor, may give advice to Its Investment adVISOry and othc customers Independently 01 any statements made In thiS or In any other Issue Fur1her Inlormatlonon any security mentioned herein IS available on reQuest