Tabell’s Market Letter – January 23, 1987

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 January 23. 1987 .- – -'—-'c-NOTEr-,DUe9totglle-!snoWsti!so-r,!mingtli-e-NorftJj-easft-t.-tgheIines-b-'Iow.-'wel'e-co,,-mposed-OPl1!'or-to-th!!e,—,-.- 50-point rise of January 22. and today's continuing strength. They remain. however. m our Vlew. entirely appropriate in light of that rally. Thursday's New York Times featured a headline in the Business Section. noting that A Preplexing Rally Has Wall Street Jittery. Probably as good a way as any to place the current stock market in perspective is to attempt to explore some of the reasons for that jltteriness and perplexity. An initial observation would be ,that such feelings are perflectly normal at the outset of any long advance. This is a truism that many investors are prone to forget. Were one to search through financial news headlines around. say. late August. 1982. a fair number simdar in tone to the one quoted above could probably be found. Even the technician. accustomed to reversal behavior. is aware that such behavior has often been followed by a test of previous lows. One of the best signs of a bottom is the extent to Which one feels nervous shortly after it's occurance. One cure for the jitters is to remind oneself that it seldom pays to fight the tape. Any rudimentary historical analysis of market behavior will reveal that unusual strength. most of the time. tends to beget further strength. There is. moreover. little doubt. as we pointed out last week. that the strength demonstrated in 1987 is of the sort generally characterizing market bottoms. This remains true for all three of the indicators we discussed last week; percentage advance. breadth. and volume. It is the behavior of breadth on the recent rally that has been by far the most extraordinary. At Its high on January 20. our daily Breadth Index had recovered a full 80 of the ground it had lost OVer a seven-month period from April. Weekly breadth was at new highs. Also attesting to the broadness of the advance was the behavior of secondary and tertiary stocks, issues which had been relative non-participants in most of the rallying phases that 1–li——-01!lc'…- m – – – v …….. uit'C'is thi;O;;;eadth behavior which differentiates the current market from one that has been cited by some analysts. the rise into January. 1973. which ultimately turned out to be an important market top. That rise did. indeed. feature a dynamic advance and record volume. just as has the most recent instance. The early-1973 market was. however. notable for its total lack of breadth. with a two-year divergence showing no signs of reversal on the day that the Dow made its high. We have tried. as best we can. to suggest that 1987's behavior so far is likely to be a harbinger of better things to come. and that it is wise to wrestle with the natural tendency toward nervousness at reversals. There are, however. a few valid reasons for perplexity which are worth noting. First. of course. is the fact. noted last week. that a breadth divergence still exists. It would take very little market strength to erase it. but'increasing scepticism would not be improper given a continued failure to erase that divergence. Likewise. recent figures for daily new highs have been somewhat disappointing. Further improvement in this area would also be a sign of a healthy advance. Perhaps the best reason for perplexity. however. is the background out of which the current advance has emerged. We have noted that It has. in many ways. been comparable to August. 1982 and July. 1984. Periods of dullness preceded the lows in both at of these instances. However. 1982 took place after a recognizable major bear market and 1984's rise followed what was. at least. an intermediate decline. The current rally by contrast. comes following a market that was. admittedly. dull. but not all that bad. We have regularly characterized the last three quarters of 1986 as a trading range possessing a slight upward bias. The year's close of 1985.95 was. after all. some 350 pOints above the level of a year ago. It was also around the mid-point of the year's trading range. Unlike it's predecessors. the strength of January. 1987 did not arise out of a recognizable correctIon. This is reflected in the patterns of individual stocks. A great many of the upside breakouts that have taken place so far—andthey are. indeed. taking place in large numbers—are- continuation patterns. periods of a few months of backmg and filling after sharp advances in 1984-86. Such patterns tend to produce smaller rises than the major advances WhlCh generally follow the long-term bases following major individual-stock bear markets. The Dow. it must be remembered. has advanced some 170 since August. 1982. It is hardly surprislng. therefore. to find such long-term bases consplcuoUS by their abscence. As long as this remains so. it is probably proper to retain a degree of healthy sceptiCIsm regarding the current rise. Such a attitude. however. should not be an excuse for failure to participate. ANTHONY W. TABELL DELAFIELD. HARVEY. TABELL INC. AWTbh Dow Jones Industrials 2165.49 S P 500 276.43 Cumulative Index 3465.78 NO statement or expression 01 opmlon or any other matter herem contained IS or IS to be deemed to be directly or Indirectly, an oller or the solicltahoo of an oller to buy or self any security referred toor mentlonel The matter IS presented merely for the convenience of the subSCriber While we believe the sources of our mformatlon to be reliable, we m no way represent or guarantee the accuracy thereof nor of the statements made herem Any action to be taken by the subscflber should be based on his own mves\!gatlon and mlormatlon Delafield, Harvey, Tabelf Inc, as a corporation and ItS officers or employees, may now have Of may later take, poSitions or trades In respect to any securities mentlonelln thiS or any future Issue, and such pOSl\lon may be different from any VieNS nOwor hereafter e)(pressed m thiS or any other Issue Delafield, Harvey Tabefl Inc which IS reg1slerelwlth the SEC as an Investment adVisor, may give advice to ItS Investment adVISOry and othe' cuSlOmers mdependently 01 any statements made 1fl thiS or In any other Issue Further mformatlonon any secuflty mentioned herem IS available on reQuest