Viewing Month: August 1987

Tabell’s Market Letter – August 07, 1987

Tabell’s Market Letter – August 07, 1987

Tabell's Market Letter - August 07, 1987
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– – – – ,, vlilImIELL'S rMiI&RIEV L IEVTIER – – ————– , 600 ALEXANDER ROAD. PRINCETON. NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC (609) 987-2300 1 – -'-Two aiffere1'it'SCh06lSofttrnu-ght-'-h-averecentlyemeArguegubsatmo7H,gAh1o9s8e7ofour–bret-hrenwho —- comment on the stock market from a fundamental point of view. The first school asserts that the market must, at some point, go down because it is overvalued. Proponents of this theory have recently maintained a stony Silence, as the overvalued market continues to sail merrily along to new alltime highS. The second school of thought says, in effect, that the market, despite its sharp advance, is likely to go higher, since earnings are likely to be up in 1987 and, indeed, probably in 1988 as well. This school has, of course, been more vocal recently. We have repeatedly, oVer the years, examined the above two assertions against the historical record. The second, that rising earnings will pull the stock market higher, is demonstrably false. A better case can be made for the first theorem, but practically it should be applied with extreme caution. Let us set the scene. The S P 500 is now at, roughly, 320. The latest 12-month period for Which we have actual reported earnings ended in the first quarter of this year. The earnings for the Index for that period were 15.17, producing a price/earnings ratio of over 21. Enough improvement will probably occur in the second quarter to bring that figure down to 19. For the year 1987, the consensus earnings estimate for the S P is around 19, whiCh, of course, with a 20 multiple, would support a price of 380, a healthy 20 above current levels. These are, however, heady numbers. Using trailing 12-month figures, the 500 has sold above 18 times earnings on only 29 occasions in the 165 quarters from 1946. It is currently yielding 2.75 which is lower than all but one end-of-quarter return figure for the ,ast 41 years. 1Since p/ e ratios at current levels are relatively rare, it becomes possible to examine the aftermath of their -prior occurrences. Such examlnailon–atflrliiF'Ule tnesls lhm–h…—I been reiterated in this letter for four decades. That is, that earnings do not predict stock prices; stock prices predict earnings. Let us examine a few instances. In June, 1946, the S P sold for almost 22 times Its earnings. This figure was a correct harbinger of future earnings, which rose for 12 consecutive quarters, at the end of which they had almost tripled their 1946 level. While this was going on, the S P 500 had dropped some 29 between 1946 and 1949. For all of 1961 and the first quarter of 1962, the pIe ratio again remained over 20. Again, its forecast, insofar as earnings were concerned, was accurate. Earnings expanded quarter-to-quarter for the next 5 1/2 years. Along the way, however, the stock market advance was interrupted by the December, 1961 – June, 1962 bear market, a 28 decline. For two years, in 1971-2, the pie ratio for the S P remained at a level of around 18 times. Earnings continued to increase and had advanced more than 50 by mid-year, 1974. At that point, of course, the market was on its way to the low point of a 48 decline. . There have, it must be admitted, been certain occasions where high mulitples for the averages continued for long periods of time without a market decline. Multiples above 18 were the rule for the S P between mid-1963 and 1965, and the market advanced throughout that period, not turning downward until early 1966. Such periods, however, have been the exception rather than the rule. The inescapable conclusion seems to be the eminently plausible one, that investors have the ability to forecast earnings over the short term and express the results of that forecast by adjusting the price they are willing to pay for a dollar of earnings or dividend income. The thesis appears to be correct in both directions, since bear market bottoms tend to be reached well before.earnings declines bottom out. The record, we think, does favor the thesis that a high valuation generally leads to market drops. It is, however, difficult to put this into practice since there appears to be no hard-and-fast rule about how long such periods of overvaluation may last. All of which is justification for the practice of technicial analysis, Which, for the moment at least, with the averages soaring to new peaks, shows little in the way of deterioration. It is, thus, possible to remain optimistic regarding the current market outlook, While continuing to recognize that leading indices are, to say the least, fully priced. ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL INC. AWTebh Cumulative Index (8/6/87) Dow Jones Industrials 0200) S P 500 (1200) 4030.74 2592.79 323.11

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Tabell’s Market Letter – August 14, 1987

Tabell’s Market Letter – August 14, 1987

Tabell's Market Letter - August 14, 1987
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– .. – …. -, TABELL'S I j MARKET LETTER I I ..,I – – – -. – – . – J f!/akI( fJnc. 600 ALEXANDER ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIA TlON OF SECURITIES DEALERS, INC (609) 987-2300 August 14. 1987 The market put on another one of its whiz-bang performances last week, posting gams in excess I -f-f-Ort.y-DQW-'Points-oonda-y-..and.Tues..dayan;LJat..r–thrting with the 2700 level on Thursday before mood to-backingoff- a-obit. – T-he prevailing among those of- us–r-eq-uir-ed comrrCerif on -tllis-'sli1hect. seem eo to be one of astonishment. We did not find ourselves all that astonished by the move, but It was certainly unexpected. We noted just two weeks ago that the Dow had just about reached what we regarded as plausible near-term objectives in the low 2500's. There were also possible objectives, which We regarded as less plausible, around the 2600 level. These price targets were left in the dust by the week1s spectacular advancea The rally was called, in many quarters, a record-setting one, especially by those who, ignormg common sense and theIr Sixth-grade arithmetic class, still insist on measuring advances in terms of pointsa In this instance, though, the correct measurement of the rally. in terms of percentages, still yielded results that had seldom, in the past. been equalled. Monday's and Tuesday's advances were each approximately 1.69 and, by themselves, were hardly uniquea Lookmg at longer periods, however. the four tradmg days ended yesterday. for example, shows that 3a84 advance to be somewhat unusual. There have, since 1946, been only 69 cases where the market has moved ahead this much over a four-day perioda Interestingly, this sort of strength has tended to occur for the most part after major market bottoms. The emergence of such dynamics in a market which has been going up for 37 months appears to be far less common a Measuring the rise from May 20, when the Dow closed at 2215a87 after the only recognizable correction of the year, gives us an advance of 21.49 over 59 trading days. Measuring from the end of 1986. shows a 156-day advance of over 40. This was exceeded in only in May 1975. July 1975. March 1983, and April 1986. All of these instances, interestingly, occurred around the mid-point of major advances. and a general truism regarding sharp advances over periods of six to eight months is that they almost never suggest lower prices over the near term. SurprIsmg 8S the current strength may be, it is best to regard it as suggesting a relatively high level of demand rather than market overextension. '-I–'–0n –Ilut a f-ew-Occa-sions-of-late..-we41av-e-foun-G-ou-r-selQs gQin g 9 sked wbe n w.e….1.houghtthe……b.1WJill1 '—l-I market had started. Others, apparently. are being asked the same question, since last week there appeared a host of opinions regarding the exact date of the bull's birthday. The most popular dates appear to be July 25. 1984. August 12. 1982. and finally December 6. 1974. whlch saw the Dow at 577.60. To many of our readers, such controversy may be equivalent to medieval scholastic arguments about the number of angels which can dance on the head of a pin. However, to those of us who believe the market exhibits some degree of periodicity, all this is more than Idle speculation a The three dates mentioned above are all plausible depending on just what bull market we are talking about. In our view we find ourselves at this time in at least three separate bull market cycles—a super-cycle, or secular, bull market that may well have begun in 1974, although it is generally measured from 1982, a cycle bull market which, at this point, probably should be dated from July, 1984 snd finally a rIsing phase within that cycle bull market WhICh we prefer to regard as having started on the first day of 1987. There are problems with this interpretation. It requires, first of all, calling 1982-1984 a completed cycle only 23 months in length. As readers are aware, such cycles have generally required in excess of four years to complete. Still another problem is that we Seem to be in the third maJor advancmg phase that has taken place since 1982. Such a three-phase advance makes the market of the 1980's look uncomfortably like the one of the 1920's. We first noted this similarity a year and a half ago, and we find ourselves, at the moment, being uncomfortable with the number of people now discovering the similarity we mentioned at that time. Regarding the 1920's vs. the 1980's, we think two points need to be made. The first is that we have so far come nowhere near duplicting the 1921-1929 advance in the current instance. In order to do so, the Dow. as we noted 18 months ago. would have to rise to between 4000 and SOOOa The second and most Important factor, however, is the fact that 1929-1932 was totally unexpected. Even the few voices crying in the wilderness in the late twentles did not forsee anything like the magnitude of the decline which eventually ensued. A repetition thereof -is hardly likely at a time when half the world seems to be looking at the 1920's with some degeree of trepidation. We have stated in the past that, human nature not having changed, we do not think something approaching the importance of the 1930's depression should be though impossible. We have also stated our belief that, if such a phenomenon were to occur, it would take an entirely different shape than that of 1929-1932, a shape that would make it unrecognizable until too late. We feel, moreover, that, while the preconditions for such a phenomenon might emerge some time in the future, they cannot be said to be present given the widespread scepticism of 1987. ANTHONY W. TABELL DELAFIELD. HARVEY. TABELL INC. AWT ebh Dow Jones Industrials (1200) 2703.13 S P 500 (1200) 333.98 Cumulallve Index (8/13/87) 4097.17 No statemClnt or erpresslon of opinion or any otller matter Ilereln contained IS or IS to be deemed to be, dlrectty or Indirectly an offer or tile soliCltalion of an offer to buy or set I any security referred to or mentioned Tile matter IS presented merety for the corwenlel1ce of tile subscriber Willie we believe the sources olour information to bereflilbte we In no way represent or guarantee tile accuracy thereot nor 01 the statements made herem Any acllon to be taken by the subscnher should be based on hrs own Investrgatlon and rnformatron Delalreld, Hatvey, Tabell Inc, as a corporillion and ItS officers or employees, may now have or may later take, positions or trades In respect 10 any secufliles mentIOned In tillS or any future Issue, and such pOSition may be different Irom any views nowor heleafler expressed In tillS or any other Issue Delafield Harvey Tabell tnc which IS registered WI til tile SEC as an Investment adVisor, may give adVice to lIS Investment adVISOry and Olhe' customers Independently of any statements made In thiS or In any other Issue Furtller Information On any security mentioned herem IS available on request

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Tabell’s Market Letter – August 21, 1987

Tabell’s Market Letter – August 21, 1987

Tabell's Market Letter - August 21, 1987
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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 August 21, 1987 1— —- or.,the-flft.ythlrdmthisy.er.–t1I-.'O1es …lpgQstrialyerl!g-seJ.wx-9-d'htgJL c1osingThurs-day at 2706.79. This was achieved in spite of 8 45.91 point correction on Tuesday the- seventh largest one-day point declIne in the industrial average. In terms of percentage decline. this 1.70 correction registered was, of course, not historically as significant. Within this framework, the recent performance of the Financial stocks and Utilities stocks has greatly improved, posting impressive gains within recent weeks, suggesting that interest rates may be on their way down and inflation fears temporarily arrested. CUMULRT I vE nSE CGHO'I 5iOC.r fjPEQDTH nmfll CUMULRTIVE NSE PPEFEpo;ED ')TOcr, EPEq!lTH IJOE( The potential significance of this recent strength in the interest-sensitive sector of the stock market can be shown by examining a traditional technical tool—market breadth—in a slightly different manner. The NYSE, for some sixty years, has recorded the advances. declines. and unchanged of all issues traded. More recently. breadth figures have become available for common stocks only. This new series constructed as a breadth index (advances – declines divided by total issues traded) is shown in the upper third of the chart above. As expected. this common stock index behaves in a similar manner to that of the traditional total issues breadth index. By subtracting common stock issues from total issues traded, we are also able to develop a preferred stock breadth index representing over one quarter of the total issues traded. This interest-sensitive index is shown above in the middle of the chart. Both of these breadth indexes are compared to the DJIA in the lower third of the chart from the August, 1982 low to date. It is interesting to point out that the common stock breadth index spent most of the second half of 1983 declining, while the DJIA went on to new highs in October, 1983. This divergence was followed by a correction of 15.39 in the DJIA lasting until July 1984. The preferred stock breadth index during this period, however, went to a new high, reflecting the ongoing strength in the interest-sensitive sector during the general market declme. From the July. 1984 low to date. the DJIA has advanced without major interruption, 149.11. However. as this letter has pointed out in recent weeks. there contmues to exist a divergence in the breadth of the marketme8surement8 partially a8'a-result of the poor relative performance-of the interest-sensitive sector during the second quarter of this year, and partially due to the narrow, selective quality of the leadership. Currently. both breadth indexes discussed above are improving, but they have not posted new highs above their preVIOUS March, 1987 high. Also, the daily raw advance-decline lme has not yet posted new highs WhICh would confirm the ongoing bull market, but it is improving. A move through -these levels would negate the potenbal negative divergence. Representing 8 major component of the stock market. the interest-sensibve sector of the market. usmg this unique breadth index 8S a proxy, should monitor the contmued improvement in the sector in order to determine if market breadth is signaling a change from the narrow, selective leadershIp of the advance, to a more broad-based partIcipation. ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY TABELL RJSebh Dow Jones Industrials (1200) S & P 500 (1200) Cumulative Index (8120187) 2710.78 336.02 4105.38 No slalemenl or a.preSSlon 01 OPinion or any other mailer herein conlalned IS or IS to be deemed to be, directly or indirectly, an oller or Ihe solicitation 01 an offer to buy or sel! any security referred toor mentioned lhe malter IS presented merely lor the convenience of the subSCriber While we believe Ihe sources of our Information 10 be rellabte, we In no way represent or guarantee the accuracy thereof nor 01 the slatements made herein Any action to be taken by Ihe subSCriber Should be based on hiS own Inestlgatlon and Information Oelahetd, Harvey, label! InC as a corporation and ItS ofllcers or employees may now have, or may laler take, POSitions or trades In respecllo any securilies mentioned In thiS or any future Issue, and such POSition may be dltferent from any views nowor he'eatler expressed In Ihls or anv olher Issue Delaheld Harvey labell Inc, which IS registered With the SEC as an Investment adVisor may give adVice to ItS Investment adVISOry and 01he' cUSlomers Independently 01 any slatements made In Ihls 01 In any other ISSue Furlher Informallon on any security mentioned herem IS available on reQuesl

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Tabell’s Market Letter – August 28, 1987

Tabell’s Market Letter – August 28, 1987

Tabell's Market Letter - August 28, 1987
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.. – – . – — ————- sT Lii.\IBHELn..' MLii.\RCIET LIETTIER ,—.- 600 ALEXANDER ROAD. PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9872300 August 28, 1987 I 'P!.rTtutegsdta1yors-awney2et70a0no''tJheJeerl!ln!e-wp'iehipgrhevfioolrl-Sth- We eDeRow's- lJrofJnAetsffgIn. du.sjtVriadlneAsaaeyraagneafTohlluorwsidnagy tbwL)dtnessleSdiy'ea–i-F couple of pullbacks of 20 points or so, but most of us, by now, have reached the pOInt where we can be blase about 20-point losses since. at current levels. they represent less than 1 of the Dow. 1987 has been, to say the least, an interesting year. It comprises, through yesterday. 167 tradIng days. Over that period, the average has moved ahead over 800 points from its 1986 close, which was under 1900. On no fewer than 54 of the 167 trading days, or about one day in three, we have seen newall-time highs scored in the Dow. The longest period during which the market falled to post a new high was a bit over two months, between April 7 and June 15. However, the lowest point achieved during that hiatus was a mere 7.88 below the prior high. Numerous predictions have, lately, been forthcoming suggesting the likelihood of the market's reaching the 3000 level. These strike us as being somewhat less than heroic, 3000 being barely 10 above this week's high. We salute those (we were not among them) who were mentioning 3000 at a time when it was meaningful, such as, for example, almost any time during 1986. Our own feelings regarding the market have, we hope, been made clear in recent issues. We consider the current level of most major averages as vergIng on the dangerous. The S & P 500, as we pointed out early thIS month, is selling in the vicinity of twenty times earnings. We are aware of the prospect for favorable quarter-to-quarter earmngs comparisons for the remainder of 1987 and 1988. Estimates have tended to be scaled down over the past few weeks—lBM is the most recent victim of this process—but let us, for the moment, accept the more optimistic estimates regarding earnings increases. We have noted before that, over the intermediate term, the stock market is a better predictor of earnings growth than the other way around. We think the prospect of better earnings for late 1987 and early 1988 constitutes a highly logical reason for the market's being up 800 points this year. We remain, hoever, somewhwat sceptIcal of projected 1987-88 earnings growth as a ..,.pnoredicto-OLiutule-StQck-priGs. 8stlon .' . – Along with a market that is, to say the least, fully valued on a fundamental baSIS, we continue'to see fairly strong indicatIons of Internal technical weakness. Our daily breadth index last posted a new high on March 23, with the Dow around 2300. It has recovered some two-thirds of the ground lost since its subsequent low In late May, but remaIns, at this wrlting, well away from an imminent confirmation. Indeed, a mini-divergence has now developed, since, through yesterday's close, breadth has remained below its high of August 11, scored with the DJ IA at 2680. Weekly breadth, as has been the case since 1982, acts better than that based on daily figures and could post a new peak at any time, although it is unlikely to do so this week. (There have been hypotheses as to why weekly breadth has been outperfroming the daily measure, but noone, to our knowledge, has come up with a documented cause for this phenomenon.) Having said all of the above, we remain technicians, and no such practitioner can, in our oplmon, fail to be impressed by the dynamism of the 1987 trend so far. One of the oldst adages on Wall Street IS, Don1t fight the tape., and certainly those who tried to fight it during 1987 have been knocked out of the ring and into the cheap seats. The short-term course of the market—although obviously not the very long-term course—will be determined by supply and demand rather than economic factors. The sources of potential stock-market demand have, of course, been well documented. The relabve cheapness of the U. S. market In relation to foreign ones, notably Japan, has, to be sure, probably produced a spate of foreign buying. Mutual fund cash—and, as near as can be documented, cash held by other institutions—has not, so far, been dIssipated, and the money flow Into mutual funds and other intermedlarles conbnues at a high level. Yet another source of demand appeared this week in the short interest figures, espeCIally taking into account the exceptionally high levels of short interest in the blue-chip issues that have led the advance so far. We are reminded of the old adage about the investor who confessed ,to his psychotherapist that, he could not sleep at-night for worrying about the stock market. Sell. advised the therapist, and the Investor asked How muchl1. To the sleeping point. was the answer. Investors at this time particularly. should pursue some sort of self analysis. If one finds hlmself worried about current market levels for the perfectly valid reasons discussed above, we would be loath to argue against the accumulation of some reserves. If this decision is made, however, such an investor will have to be prepared to forego losing patience if recent short-term strength continues unabated, as, indeed. it may well do. ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. AWTebh Dow Jones Industrials 0200) 2654.18 S & P 500 (1200) 329.07 CumulatIve Index (8/27/87) 4097.07 No statement or expression ot opInion or any other matter herein contained IS, or IS to be deemed to be, directly or Indirectly, an offer or the SoliCitation 01 an offer to buy Of sell any security referred tOOl men' tOned The maIler IS pfesented mefely lor the convenience of the subscriber White we betleve the sources 01 our mformatron to be reliable, we m no way represent or guarantee the accuracy thereol nor of the statements made herem Any action to be taken by the subSCfloor shoutd be based on hiS own mves\lga\lon and mformatlon Delafield, Harvey, Tabell Inc as a corporal Ion and lIs officers or employees may now have or may fater take POSitionS or trades In respect to any secufltles mentioned In thiS or any future Issue, and such POSition may be dillerenl from any views nowor heleaUer expressed In thiS or any other Issue Delafield Harvey Tabell Inc which IS registered With the SEC as an Investment adVisor, may give advice to ItS Investment advisory and otho' customers Independently of any statements made In thiS Of In any other Issue Further mformatlon on any security mentioned herem IS available on reQuest

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