Tabell’s Market Letter – May 29, 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 – May 29, 1987 – – – –4.'-hose–ef-us… forwhom-, ,…..in-!'Our- youth,;military—-serv-ice-was–compulsory,–quickly learned.-that-C-t-he – armeo forCes-hiiCl'their own way ofdoing things. One such'praclice- was themefhod usecrto move troops from one place to another, fondly recsled as hurry up and wait. This procedure required a unit of troops to fall out on five minutes notice and march, often at double time, to some location where its members could hang around for some three or four hours. This was, of course, followed by another speedy formation and a quick-march to another location. The process could be, and often was, continued ad infinitum. The stock market seems. of late, to have begun to behave in accordance with the hurry-up-and-wait principle. Much of its time appears to be spent drifting idly around a given level until, at some point, an outside impetus, often programmed trading, moves it sharply in one direction or another. Once the outside force is dissipated, the market tends to resume its lackluster drift at some new price level. It can be argued that this sort of spastic motion is also being exhibited on a longer-term basis. Market dullness prevailed for the latter nine months of last year. This drift was both preceded and followed by sharp and dramatic upward moves. An important question being posed to the technician today concerns whether or not yet another period of drift has been initiated. A case can be made for this hypothesis. Some eight weeks have gone by without a new high's being posted, and, during those eight weekS, the Dow has etched out an identifiable trading range, between a low of around 2200 and a high of approximately 2350. The average's high of 2405.54 on April 6, was immediately followed by a drop of 150 points over a six-day span, reaching 2252.98 on April 14. A rebound to 2337.07 a week later was retraced by a 100-point fall to an April 27 closing low of 2230.54. The intra-day bottom on that day was 2180.54. Early this month, ending on May 6, a rise to a closing high of 2342.19 took place and was immediately followed by a drop to 2215.87 on May 20. As this is written, we are once again flirting with the 2300 level. —–norl1el'-toputall of'tlrislmospective,- itInay-lie lrelpfur't'eview-market action-since,–II- the historic low of 776.92 on August 12, 1982. We can, with the benefit of hindsight, trace out three rsllying phases which have brought us to the point at which we find ourselves today. The first such rslly continued through November 29, 1983 and brought the DJIA to 1287.20, a 65.68 advance. Breadth peaked five months before the market, in June, 1983, when secondary issues began their precipitous fsll. The entire advance took place over 329 trading days. The extent of the second advance, from July 1984 to mid-1986, was almost identical if measured to the high on March 27. It moved the average ahead by 67.66 over 423 trading days. The high for market breadth occurred in the early part of the subsequent trading range, on April 21. Finslly, we have the current advance. So far, it has not produced a rise anything like the two earlier ones. The market has risen only 27 since the end of the year and 37 if measured from the low of 1986. It has occupied only 66 trading days so far. We do have the possiblity of a breadth divergence with daily breadth having peaked on March 23, a week before the averages. It can certainly be contended that the advance should resume shortly with a breakthrough to new highs. The advance from year-end has covered nothing near the ground covered by the two previous rsllies and it has, so far, lasted only one-fifth as long. The totsl correction to date, 7.88 between April 6 and May 20, is no more serious than many similar corrections which occured within the context of the two prior uptrends. Another argument in favor of an ongoing upswing is the existence of a breadth high as recently as late March. Such highs, as we have recently noted, tend to precede highs in the averages by many months. If, however, a new high or. at least, an upside breakout above 2350 does not occur shortly, the possibility of a new, intermediate-term market phase would have to be explored. The first upswing in the present bull cycle was corrected by a farny severe decline in the averages (15). That decline was precipitous and, indeed, nowhere during its duration did a rally of more'than 5 take place. The 1984-1986 rally, by contrast, was corrected by only a trading range which, indeed, had a modest upward bias, with each consecutive peak being slightly higher than the previous one. So far, present action looks something like a repeat of that phase, and would begin to look more and more like it if the roughly-2200-to-2350 trading range continues for some period of time. The worst possible course of action at the moment would be a correction of 1983-1984 severity or worse. For reasons outlined above, this appears to be the least likely scenario. Were an immediate break below 2200 to occur, however, it would have to be regarded as at least a possibility. ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL INC. AWTebh Dow Jones Industrials (12 00) 2317.20 S & P 500 (1200) 291.94 Cumulative Index (5/28/87) 3675.84 No statement or expresSion of Opinion or any other matter herein contained IS, or IS to be deemed to be directly or mdlrectly. an offer or the soliCitation 01 an offer 10 buyor sel! any secunty referred toor menlloned The malter IS presented merely for the convenience 01 the subSCriber While we believe the sources of our mformatlon to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements made herem Any action to be taken by the subscnber should be based on his own mvestlgatlon and Information Delafield, Harvey, Tabell Inc, as a corporation and Its officers Of cmployees, may now have, or may later take, posilions or trades In respect to any secuntles mentioned In this or any future Issue, and such position may be dl1lerent from any views now or hereafter c)(pressed In thiS or any other Issue Delafield, Harvey, Tabel! Inc, which IS registered With the SEC as an Investment adVisor, may give advice to Its Investment adVISOry and other cuSlomers Independently of any statements made In thiS or In any other Issue Further information on any security mentioned herein IS available on reQuest