Tabell’s Market Letter – June 17, 1988

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 June 17, 1988 …..- r-I —-'I'-his-week's…majormarketev.entwlls1988'stourth .repet.ition of.the oc,,!,nc.eofta.n-epwi';e-!.!'- hIgh for the Dow Jones Industrial Average. Exuberance regarding 'this news is I ., best restrained, since the immediate aftermath of the three previous occurrences was that the market immediately turned around and went back down. It is probably worthwhile looking at what has occurred since last October in some detail, and the following table may be useful as background. It applies a 5 filter to each DJIA close since Meltdown Monday. 11 – —–l-a.t.e——- October 19 19B7 October 21 1987 October 26 1987 NovelTlber 2 1987 lecelTlbe r 4 1987 JanlJar 7 1988 JanlJar 20 1988 March 18 1988 March 30 1988 Ap T' 11 12 1988 May 23 1988 June 15 1988 Dow-JotlE'S AI,IE'rC'e ——-1738.74 2027.85 1793.93 2014.09 1766.74 2051.8 Q 187'9.14 2087.37 1978.12 2110.08 1941.48 2131.40 Percent -C-h-a-n-'1.p.- 0.00 16.63 -11.54 12.27 -12.28 16.14 -8.42 11.08 -5.21 6.67 -7.99 9.78 tIJnlber Of Days Th1S SWlns ———- -C-UR..IU-l-a-t-lv–e 00 22 3 5 10 23 33 2 55 9 64 41 10 8 113 8 121 29 150 16 166 Action from October 19th through December 4th essentially consisted of the market's ,a down from the shock set in motion by the crash, much as a pendulum winds down after being to one extreme or the other. After ten highly volatile davs through November 2nd, the Dow ,, then I–f—.res()l.v., ed. itself.intoa23day,…12declineto1766. 7oj. on 4th nf .1, .t ILiB now apparent that this was an initial successful test of the October 19th low. The rest of the table shows what has happened since. Four rallies, each achieving a new high, have taken place — December 4th – January 7th, January 20th – March 18th, March 30th – April 12th and May 23rd – June 15th. So far, each of these advances has terminated with 2 – 3 successive days on which a new peak was scored followed by a noticeable pullback. There are a number of ways we can view this history. One is in terms of market breadth, a statistic not normally useful at bottoms, but one which may have some relevance in the current instance. The most important factor to be noted is that our daily breadth index reached its high on March 17th, the next-to-last day of the second of the four upswings. Two subsequent highs — in April and this week — have seen a failure on the part of breadth to confirm. We hasten to note that we do not think it proper to interpret this phenomenon in the same way one would at a market top. We do not, in other words, see it as presaging a major decline. This weak breadth action can, however, be cited as inconsistent with the hypothesis of a major bottom. Such bottoms in the past have regularly produced new breadth highs on most short-term upswings — often well in advance of the Dow itself. For whatever it IS worth, the downward-sloping cumulative breadth line seems to be the product of increasingly severe declines rather than weaker advances. The four advancing phases since December 4th have produced, respectively, 6,109, 7,591, 2,297 and 4,816 net advances. There is little pattern here but, by contrast, the three declining episodes brought forth 1,306 net declines in January, 2,540 in March and 5,026 in April – May. In volume terms, the four rising periods were similar, averaging between 178 and 186 million shares traded. The declines have shown lessening volume. 165 million average shares in January vis-a-vis 154 million in April and May. It is not clear, of course, to what extent these figures are distorted by dividend captures, but in any case, they provide little in the way of sustenance for either the bullishor bearish argument. .- – – There is little in these numbers to change our basic opinion that the market glass may be viewed as either half-empty or half-full, depending on one's own optimism quotient. However, to the extent this sort of backing and filling continues, it would tend to pull us in the direction of optimism. Successive new highs, even with no follow-through, cannot, it seems to us, be viewed as beariSh. The more that relatively flat trading continues, the more stocks will build bases sufficient to penetrate the overhead supply, and the more existing bases will be broadened. This process may continue for some time, but it could eventually lead to a reasonably decent rally, enough of a rally to provide, minimally, a test of the previous highs. More precise definition as to timing and as to how all this fits into the long-term picture must, it seems to us, await the accumulation of further evidence. AWTlt Dow Jones Industrials 0200) S & P 500 (1200) Cumulative Index (6116/88) 2096.02 270.45 3861.42 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. No statement or expressIOn of opinion or any other matter herein contatned IS, or IS to be deemed to be, directly or indirectly, an offer Of the sohcltahon of an offer to buy or sell any security referred to or mentIOned 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 action to be taken by the subSCriber should be based on hiS own investigation and information Delafield, Harvey, Tabetllnc , as a corporation and ItS officers or emptoyees, may now have, or may later take, pOSitIons or trades In respect to any secUrities mentioned In thiS or any future Issue, and such positIon may be drfferent from any VieWS now or hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabetllnc, which IS regIstered WIth the SEC as an Ilwestment adVisor, may give advice to ItS mveslment adVISOry and other customers Independentty of any statements made In this or In any other Issue Further Information on any security mentioned herein IS available on request