Tabell’s Market Letter – January 16, 1987

Tabell’s Market Letter – January 16, 1987

Tabell's Market Letter - January 16, 1987
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U'& IBUELL'S Ia1iI&R(EU' L(EU'''U'(ER 600 ALEXANDER ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 January 16, 1987 For years now. our colleagues have chided us for managing to be out of town at important — —–OmiirKel.9urning -P-Oi,llts Weere- able to–addtothisrecord lastweekby -takingashort,skiing..,……,– vacation just as the market initiated its runaway 1987 – rally. However, Hi last week's letter, our colleague, Bob Simpkins, was able to comment on the significance of the upside explosion. It is only necessary for us, therefore, to expand on those comments and to take a further look at the continued strength which was a feature of 1987's second week. If we gained anything at all by missing the fireworks, it was that we were required to undergo a minimal amount of blather about the Dow's upside penetration of 2000, That this phenomenon managed to occur last week is doubly ironic. since reaching 2000 is about the only acheivement of no technical significance which has taken place in the past fortnight. Last week's market, as will be seen, was truly of major-league dimensions insofar as short-term strength is concerned. However, the fuss over a number which happens to end in three zeroes managed to obscure some of the comment that this short-term strength deserved. Many aspects of 1987 to date are worthy of note and one which is difficult to quantify should probably be mentioned first. That is that market action to date seems to be typical of what can be called the Itnew-style market bottom in that it erupted suddenly and unexpectedly following a market characterized by lassitude and dullness. The same pattern, essentially, prevailed in August, 1982 and July, 1984. By contrast, major market drops prior to 1982 had tended to bottom with selling climaxes—sharp plunges, on heavy volume followed immediately by equally sharp upside reversals. We have long stated that the former should be the case in a market dominated by professional managers under pressure to perform, and if January, 1987 proves to mark a low of some importance, it will constitute yet another proof of this hypothesis. Through Wednesday of this week, the rally of 1987 had occupied nine trading days, and we attempted during the week to repeat a study which we undertook shortly after the 1982 bottom. 1–J JTJllaXQ9 consistedoLseekip,g out the strongest 50-periods of nine trading.Jlliy.-,;sm,-',te,!,r-ms'-I of DJIA advance, bread-ih advance, and volume expansion. Without going into details,- let it be said that, historically. periods following such cases have tended to show above-average strength and have been followed by declines in only a small minority of cases. The study is, of course. reinforced by Thursday's additional extraordinary strength which, in terms of the Dow. extended the rise to ten consecutive trading days. The Dow-Jones Industrials had advanced 7.33 in the nine days ended Wednesday, a figure that has been exceeded by only 19 periods in the post-1949 era. Interestingly, the nine days leading to the December 2 high of 1955 produced a slightly larger advance, and the nine days following the August, 1982 low. of course, set the record for periods of that length with a 14.36 rally. The July. 1984 advance was 10.7, but, eVen so, the current instance remains impressive. It is in terms of breadth that the recent upswing really stands out, ranking fifth in the modern era by showing an average of 58.89 of all issues traded advancing on a daily basis. August, 1982 is again the leader in this category with 61.67, but the current case is not that far off. The interesting thing is that this broad rally occurred following seven months of sub-par breadth action, a feature which we will be discussing below. Volume figures produced by the current market are somewhat suspect, since we are measuring against the two low-volume, holiday markets following Christmas and New Year's. Even so, the rise in volume as the rally got underway has to be counted as one of the leaders of recent years. We noted above that markets following the sort of strength demonstrated in this year tend overwhelmingly to be strong ones. It is, however, difficult to formulate an upside target. The small base formed during the second half of 1986 suggests nothing more than a target in the mid-2100's, hardly a startling advance from this level. Also, our daily breadth index as noted-in last week's letter, has penetrated an importantdowntrelid -lin-Cbuthas fiot yet — achieved a new peak above that of April 21 although it has recovered more than 3/4 of the loss shown during that time. The other quarter of the lost ground would have to be recovered before we could say that the divergence initiated last April had been definitely obliterated. Justice Holmes noted that Certainty generally is illusion and repose is not the destiny of man. The market's limited upside objectives and the possibility of a continuing breadth divergence continue to inject an element of uncertainty as far as the current market is concerned. It can, however, be demonstrated, as we have tried to do above, that strength, akin to that of the last two weeks has tended to beget further strength. The current investment policy, therefore, should be geared to recognize that probability. Cumulative Index Dow Jones Industrial S & P 500 3446.41 2072.69 246.46 ANTHONY W. TABELL DELAFIELD, HARVE Y, TABELL IN C. No statement or expression of opinion or any other matter herein contained IS or IS to be deemed to be directly or Indirectly an offer or Ihe soliCitation of an offer to buy or sell any secunty referred toor mantlOned The matter IS presented merely forthe convenrence 0/ the subscriber While we believe the sources of our in/ormation to be reliable we In no way represent or guarantee the accuracy thereof nor olthe statements made herein Any action to be taken by the subSCriber should be based on hiS own Investigation and Informallon Delafield Harvey Tabell Inc as a corporation and Its otfrcers or employnes, may now have or may tater take, pOSitions or trades In respect to any securities mentioned In thiS or any future ISsue nd such posl\lon my be dlflemn\trorn any views now or hereaftcr e)(pressed In thIS or any other Issue Delafield Harvey Tabell Inc, which IS registered With the SEC as an Inestment adlsor may give adVice to lis Investment adVisory and othe' customers Independently of any statements made In thiS or In any other Issue Further information on any security mentioned herein I available on reQuest

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