Tabell’s Market Letter – December 31, 1987

TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (6091 987-2300 December 31. 1987 For some years now, we–'have studied the familiar seasonal tendency of -the stock market to stage a year-end rally, and it has been the custom of this letter to point out some of the conclusions that can be derived from a study of this phenomenon. Since 1897, when the Dow Jones Industrial Average was first computed a rally. however small. has begun in December and continued into the new year in 88 of 90 cases, the two exceptions occurring in the mid 1970's. The following facts about the year-end rally may be noted. 1. The year-end rally often has been of great magnitude, occasionally continuing through the entire subsequent year without a 5 correction being recorded. This was the case in 1985. It has frequently continued, with only minor interruptions, for as long as six months into the new year. In many cases, with 1987 being the most recent, the rally continued into February, March or beyond. However, on other occasions, it has been of only a few day's duration. reaching a top extremely early, as was the case in 1983-4 when the rally peaked on January 6, which turned out to be the high for the year. In the bear-market years of 1960, 1970, 1973, 1974, 1981, and 1982, the rally reached a peak by the first week in January, and, as noted above, the 1976 and 1977 year-end rallies failed entirely to carry into January. 2. There has been a persistent tendency for the rally to begin early in years when the market has been up, and late in years when the market has been down. In recent upward yeats, 1967, 1975. 1979, 1980, and 1985 are examples, the rally commenced from early December. In recent downward years, 1962, 1966, 1969, 1977, and 1981, the rally began late in the year. 1986 was an exception, an upward year where the year-end rally started on December 31. This year's year-end rally probably started on December 4, and, strange as it may seem, 1987 is, indeed, technically, an up year. 3. The important thingto watch-in connection with the maI!-ket action in the- early months of the new year is the December low. This low has been broken in 52 years out of the past 87. However. in 30 of these 52 cases, it was broken in January and February. For example in 1970, 1973, 1977, 1978, 1981, and 1982, the December low was broken in early January. Since 1937, it has never been broken later than mid-March with four exceptions 1965. 1974, 1981, and, of course, 1987. Thus. if the market is able to hold above its December low for the first 2 1/2 months of the year, chances become good that this low will not be penetrated. 4. In years when the December low has been broken, the SUbsequent trend has been downwards two-thirds of the time. 1962, 1966, 1969, 1973, 1974. 1977, and to some degree, 1984, are typical cases. 1965, 1978, 1980, and, most recently, 1982 are exceptions. 5. The magnitude of the rally is an important clue as to the year's market trend. For example. an advance of 10 or more from the December low has been followed by an upward or neutral market in 39 of the 45 years that such an advance has occurred. An advance of less than 10 or more from the December low before an identifiable correction takes place has been followed by a downward market in 30 of the 42 years. In 1985, 1986, and 1987, the year-end rally was well in excess of 10. In 1962, 1970, 1973, and 1977, as examples, it was less than this figure. 6. The length of time in which the rally continues into the new year is important. For example, in 27 years, the rally continued into March or later. In 23 of these 27 years, the eventual trend was upward. In 1964, 1972, 1975, 1976, 1985, and 1986, the year-end rally continued into March and in 1961, 1967, 1971, and 1980, into February. This year, interestingly, the market had already, on December 23, advanced 13.5 from its December low of 1766.74 on December 4. Thus, if the rally continues into January, the greater-than-10 advance will be a bullish indication. Continuance of the rally into February-March will. on the historical record, be furtner cause for optimism. AWTebh Dow Jones Industrials (12/30/87) S & P 500 (12/30/87) Cumulative Index 02/29/87) 1950.10 247.70 3059.52 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. WE WISH YOU ALL A HAPPY AND PROSPEROUS NEW YEAR! No statement Of expression of opinion or any other matter herein contained IS, or IS to be deemed to be, directly or Indirectly, an offer or the solicitation of an offer to buy orsell any security referred to or menhoned The matter IS presented merely for the convenience of the subscnber While we believe the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements made herein Any acllon to be taken by the subscriber should be based on hiS own Investlgallon and mformal1on Delafield, Harvey, Tabelllnc, as a corporation and ItS officers or employees, may now have, or may later take, poSitIons or trades In respect to any seCUrities mentioned In thiS Of any future Issue, and such poSlllOn may be – – , -dlfferentlrom any views now or hereafter expressed In this or any other Issue Oelalleld, Harvey, Tabelllnc, which IS registered with the SEC as an Investment advisor, may give adVice 10 ItS Investment advISOry and other customers Independently of any statements made In Ihls or In any other Issue Further mformatlon on any secunty mentioned hereIn IS available on request