Tabell’s Market Letter – April 08, 1988

r , .. 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 (609) 987-2300 April 8, 1988 After the Dow had backed off to a low of 1978 at the end of March, a 60-point rally on Wednesday …………brought the–averageback ..to-'.-8-,point … where ..it- was .. flirting with….the previous recovery -high of-2 08 1.0;-07 —— It is now almost six months since the October 19 low, and, as far as the general market is concerned, there exist still 8 number of uncertainties, some of which we have been discussing in recent issues. Regardless of the general market, however, a half-year is long enough for differing individual ..point-and-flgure chart patterns to have unfolded. Four typicsl cases are discussed below One sort of pattern is conspicuous by its almost total absence at the moment. The chart above left is a one-point unit chart on Hershey Foods. typical of the consumer issues which led the last bull market. Its base formed over no fewer than four major cycles—note the successively lower lows in 1962, 1966, 1970, and, finally, 1974. From that date an uptrend began, breaking the stock out of the entire pattern at 20 in 1981. It hardly declined at all in the 1982 bear market and, when that market turned upward, the breakout was confirmed. The high eventually reached, adjusting for subsequent — splits, –streng-t- was h- of . 227. . .t-he- b uTllh…i.ms aBrkoertt..offrocmh-aAr tugpusitc–t;u–r1e98e2xi;st'scahusaerddlaylmoasttallantlondvaeySfotlrfftwiToIitreraasdo.enss.tbckFSitros-tDreathke'o-u'zt-oI—-1 multi-cycle bases, and, in the majority of cases, carried them to all readable upside objectives. Secondly, the October, 1987 collapse was broad enough to include almost all stocks so that, in general. new patterns have had to form in less than a half-year. An example of the most common sort of pattern today is Ford. above right on a two-point-unit basis. The stock fell from 56 to 32 last fall, and all downside objectives were reached at that point. A small base was traced out, with an upside breakout early this year. That base. however. is no wider than the original top. and it is hard to forecast anythmg more than a testing of the 1987 highs. Although fundamentally the same sort of pattern. the two-point chart for InternatIonal Paper presents a more bullish configuration. The 1987 base is considerably broader than that shown by Ford. and. It is possible to read, from that pattern, objectives well above the stock's previous high. Such a reading is reinforced by the fact that the base is considerably larger than the previous top. A significant mInority of stocks now show such a pattern. and it is possible that more will do so as further broadening takes place. Unfortunately. a fair number of stocks have developed patterns like that of IBM. display above right. After its low at 102 in OctOber. it has never been able to move above the 122 area, and the lateral formation seems to suggest dIstribution rather than accumulation. With the Dow close to new highs. IBM remains only a few points above its October bottom. This exercise is an attempt to show that individual stocks are beginning to show widely differing characteristics. Given an uncertain general market outlook. it may be possible to achieve both upside potential and downside protection by restricting holdings to those issues which have formed the most positive patterns in post-October trading. ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. AWTebh Dow Jones Industrials (12 00) 2060.51 S P 500 (12'00) 266.70 Cumulative Index (4/7/88) 3658.40 No statement or expresSIOn of opinion Of any other matter herein contained IS, or IS to be deemed to be, directly or Indirectly, an offer Oftha soliCitatIOn of an offer to buy or sell any security referred to or mentioned The matler IS presented merely for the convenience of the subscnber While we believe the sources of our Informahon to be reliable, we tn no way represent or guarantee the accuracy thereof nor of the statements made herein Any action to be talo..en by the subscriber should be based on hiS own investigation and Information Delafield, Harvey, Tabelllnc, as a corporation and liS officers or employees, may now have, or may laler lake, positions or trades In respecllo any secuntles mentioned In thiS or any future Issue, and such pOSllion may be different from any views now or hereafter expressed In thiS or any other Issue Delafield Harvey, labelllnc, which IS registered With the SEC as an Investmenl adVisor, may give advice to ItS Investment adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further Information on any security mentioned herein IS available on request