Viewing Month: September 1988

Tabell’s Market Letter – September 02, 1988

Tabell’s Market Letter – September 02, 1988

Tabell's Market Letter - September 02, 1988
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U'Li\ IiHE LO. S RIEU' LIEU'''U'1E1Rl 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC 1609J 987-2300 September 2, 1988 Random thoughts in a desultory market. On-eontrary…..gpinion-0nefhe.., more- venerable 'WallS treet notIOns sug gests' t hat t he- pl'oper – – – mindset for the successful investor involves holding a contrary opinion. This admonition is based on the observed tendency of markets to carry current fads to extremes, thus producing booms followed by inevitable busts. Therefore the theory that one should attempt to cultivate an opinion opposite to that of the majorIty of market partIcipants. This hypotheSIS has often been oversimplified and transformed into the dictum that the majority is always wrong.. Indeed, preclsely the opposite is true. The majorIty is right most of the time. Garfield Drew, who used odd-lot tradIng as a proxy for uninformed majority opinion, regularly protested the misinterpretahon of his data which stated that the odd-lot trader was usually wrong. He was wrong, Drew wrote, only at turning points—SllCh as when, havIng been a heavy seller in a falling market, he continued selling after the market turned up. Market partlcipants have changed roles since Drew's heyday, and the majority of investors are now profeSSIOnals. Levels of professionally held cash are known to be high, and there are those who, 1n the name of contrary opinion, would derive encouragement from this fact. We are less optimistic. There will occur, at some stage, a major turnIng pOInt, and it will be accompanied by maXImum pessimIsm and consequent large holdings of cash. However, there is nothing to stop the current climate of skepticism from continuing for a protracted period. It is dIfficult to tell, therefore, when, and more importantly, where than turning point will be. On the Mysterious East An example of the diffIculties in antiClpatmg at just what point a trend has carried to extremes may be found in the Japanese stock market. It has been patently obvious for some years now that that market has been wildly overvalued in relation to the world in general and the United States in particular. Its response to this obvious fact has been to continue rising and becoming more overvalued. most recently by moving well above its August high early this year. In the past couple of weeks, Tokyo has moved down fairly sharply, leading to speculation as -'—4to—whet-her4h-elon-g-heraided—coHa-pse–maybe–underwOddlynou-gh7'there Rppearnolitne'—I agreement among U. S. observers as to what a Japanese bear market would mean to us. One theory holds that, since the Japanese market constitutes 40 of world market value. a Tokyo collapse would be exported to other markets as was the U.S. crash in 1929, and Japan's weakness was cited as one reason for Thursday's 29-point drop in the Dow. It has conversely been suggested that money leaving Japan might well graVItate to the U.S. market and that falling Japanese stock prices would, therefore, be bullish for Wall Street. On Shelter A market that has been rIsing even longer than Japan's, indeed for some 50 years now. is the U. S. real estate market. This fact is noted in an article in the August 22 issue of Barron's. entitled liThe Coming Collapse of Home Prices. The article is a provocative attempt to employ contrary thinking, and we would place it in the category of recommended reading. We can hardly do otherWIse since we made many of the same arguments in this space a few years ago. Following our comments at that time, housing prices promptly doubled. providmg yet another object lesson on being too early m anticipating the end of a trend. It will be interesting to see whether the present article's timing is any better. On Inflation The anti-real-estate argument suggests that it should do less well in a perIOd of relatively low inflation. However, the stock market's current worry seems to be renewed mt1ation. Another widely heard excuse for Thursday's decline was the somewhat pixilated reasoning that unemployment figures (not then released) would be down, leading the Federal Reserve to further credit tightening and, therefore, to higher interest rates. The same reasoning explained Friday's rally after unemployment actually rose, thus. presumably, eliminating the prospect of Greenspan's running amok. Our own feeling IS that the Inflationary spectre, which seems to be terrorizing market participants at the moment may be somewhat ephemeral. For example, antlcipated inflatIon, one would think. would have produced some strength in gold, the classic inflation hedge. No such tendency has been evident. The apparent bottoming of the dollar in foreign-exchange markets is. likewise, something other than a harbinger of renewed inflation. It is, indeed, arguable that the real underlying pressures on the U.S. economy may, in fact, be detlationary. This would help explain why everybody'S favorite bugaboo of the past few years, the budget Government deficit. has been accompanied by relatively stable prices rather than the rising ones classical economics would tell us to expect. If one is looking for a really contrary opinion, the economic benefits of the deficit might be a good starting point. AWTebh Dow Jones Industrials 0200) S & P 500 (1200) Cumulative Index (9/1/88) 2032.00 261.65 3782.75 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. No statement or expression of opinion or any other matter herein contained IS, or IS to be deemed to be, directly or indirectly, an ofter orthe soliCitation of an ofter to buy Of sell any security referred 10 or mentioned The matter IS presenled merely for Ihe convenience of the subscnber While we believe the sources 01 our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor oj the statements made herein Any action to be taken by the subSCriber should be based on hiS own investigation and information Delafield, HaNey, TabeUlnc, as a corporallOn and Its officers or employees, may now have, Or may taler take, posilions or trades In respect to any securles mentioned In thiS or any future Issue, and such poSition may be different from any views now or hereaffer expressed In thiS Or any other Issue Delafield, HaNey, Tabel1lnc , which IS registered With the SEC as an Investment adVisor, may give adVIce to (ts rnvestment adviSOry and other customers Independently of any statements made rn thiS or If! any other ISsue Further Informatron on any seCUrity mentIoned herein IS available on request

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Tabell’s Market Letter – September 09, 1988

Tabell’s Market Letter – September 09, 1988

Tabell's Market Letter - September 09, 1988
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I T Lii.\(sUELL' S Iil1iILii.\R lET LIETTIER 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 – I—-easonal tendencles in-the stock market can. in ourcviSeptbeembsheorw9n, 1to98e8xist. and are probably important enough to be taken into account in the formulation of investment strategy. They are. however. tendencies rather than certainties. as recent experience may well demonstrate. The seasonal pattern most familiar to investors, since it tends to be most widely discussed in the media, is the summer rally, and regular readers are familiar with our annual letter which examines action during July and August in some detail, concluding that there is some basis for expecting a rise in these months. Those basing their expectations on a 1988 summer rally, however, were sorely disappointed. The most recent short-term move in the Dow has been a 7.84 downswing, which began at the post-crash high of 2158.61 on July 5, and ended at 1989.33 on August 23. Both July and August were down months, the former dechne a small one, but the latter a fairly significant 4.56 fall. For the two-month-period, the Dow was down a bit over 5. Our letters have remarked on the recent Infrequency of, at least, the first half of the summer rally, and this year produced the fifth of seven Julys which have been down market months. This leads us into a dlScussion of a seasonal pattern not, as far as we are aware, widely remarked outside this letter, but one whose existence can be pronounced with a great deal more statistical certainty than is the case with the summer rally. That pattern is the September decline. Let us review the record in an attempt to demonstrate the likelihood of such an event and, perhaps, along the way, offer some insight into the concept of statistical sIgnificance. To begin with, it is always possible that any observed stock-market phenomenon occurs as the result of pure chance. (There are those who would seriously contend that the October 19 1-II—-ia;;ccr;afsih'Orw1(assucah random eVent.) All we can do to document the likelihood of a given market as a aechne inthe moittIlOrseptemoer-JiStoaemonstrate fiat thenumoer of——I–I past such actions is great enough to make it highly unlikely that they are random occurrences. Such a demonstration may be formulated as follows. There have been, since the Dow Jones Industrial Average was first computed through last month, exactly 1100 market months. Of those market Iponths, the Dow was up 625 times and down 475 times. In other words, any given market month has a probability of 56.82 of being up. The mean change for those 1100 months is 0.54, although as all investors are aware, the variation around that change is a huge one. Now let us consider the month of September. There have occurred, over the period in question, 91 Septembers. Only 37 of those 91 Septembers, fewer than 41, have been up months. The mean change has been a decline of 1.32. It does not require a Ph.D. in mathematics to observe that this record—41 up-months versus 57 and a mean change of -1.32 versus .54—seems to be a great deal different than that of the market as a whole. Now it remains, of course, possible that the above result could have occurred by chance, and it needs to be determined just how likely that chance occurrence may be. An analogous i1keilhood involves the blind drawing of a sample of 91 marbles from a jar containing 625 white marbles and 475 black ones. The question is what is the probability of drawing such a sample containing 37 or fewer white marbles. As we and other techniClans have noted, there exists a statistical test to determine such a probability. It is called the Chi-square test, into the details of which we have no mtention of venturing. Suffice it to say that Chi-square, in this particular instance, is 9.68, indlCating that the probability of the above event occurring by chance is considerably less than 1 chance in 100, and indeed approaches 1 in 1000. We can see, in other words, that there exists a highly probable relationship between the month's being the ninth one of the year and'the Dow Jones Industrial Average'sbeingdown—- – – – – Probability, it will be recalled, is less than certainty, and there have. indeed, as noted above, occurred 37 up Septembers. Indeed, the market is, at this moment, slightly above Its August 31 close of 2031.65. We do, however, feel that the September decline is a tendency of likely significance and one worth taking into account when making investment decisions. AWTebh Dow Jones Industrials (12 00) S & P 500 (1200) Cumulative Index (919188) 2049.96 263.91 3847.71 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL INC. No statement or expression 01 opinion or any other maner herein contained IS, or IS to be deemed to be, directly or indirectly, an offer orthe sohcltatlon of an offer to buy or sell any secunty referred to or mentioned Tne matter IS presented merely lor the convenience of the subSCriber While we beheve the sources of our Informallon 10 be rehable, we In no way represent 0' guarantee the aCCuracy Inereof nor of the stalemenls made nereln Any action to be laken by the subscnber should be based on hiS own Investlgabon and Informallon Delafield, Harvey, Tabelllnc, as a corporation and lIs officers or employees, may now have, or may later take, posItions or trades In respect 10 any securities mentioned In thiS or any future Issue, and such position may be different from any views now or nereafter expressed In thiS or any other Issue Delafield, Harvey, Tabelllnc, which IS registered with the SEC as an mvestment adVisor, may gIVe adVice to Its Investment adVISOry and other customers mdependently 01 any statements made In thiS or In any other Issue Further Information on any seCUrity menlloned herein IS available on request

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Tabell’s Market Letter – September 16, 1988

Tabell’s Market Letter – September 16, 1988

Tabell's Market Letter - September 16, 1988
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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 September 16, 1988 A summer rally has failed to materialize as the stock market seemed to have spent STeconomy-waB–slowing-dnwnSO-theFeaei'1il-Rifii-ifP—-l would not push interest rates higher. It appears that the slowdown may, in fact, have happened, and it will now be argued that the real problem ahead is recession. It has been over a year since the anniversary of the stock market's all-hme high on the Dow Jones IndustrIal Average at 2722.42 on August 25, 1987. The unprecedented 500-point decline on October 19 of last year is still remembered but, perhaps, in a more vague, less threatenlng way. The current climate, reflectIng a certain dullness and lack of interest, does not appear to be hostile. To help demonstrate thIS, it is useful to again re-examine the performance of the market smce the October 19 collapse with two prior climax bear markets in the Fall of 1929 and the Sprmg of 1962. The chart below compares the first 300 tradmg days of the 1929 and 1962 markets together with the performance from October, 1987 through yesterday. The two previous downswings are adjusted to a base of 2722.42, the August 25, 1987 high for the DJIA. The base dates used were the actual high date of the 1929 bull market and a secondary Dow high in March, 1962. DOW JONES INDUSTRIAL AVERAGE BASE SEP 3 1929(-0-) BASE HqCH 15 1962(–J BRSE PUG 25 1997,-.-I'o;C' We have previously examined a number of sImilarities among the three examples. Each started with an initial decline, each market recovered somewhat and then embarked upon its fInal, selhng-climax plunge, and each selhng-chmax was completed in a relatively short period of time. What is dlfferent is that the 1929 and 1962 dechnes subsequently penetrated their climax lows. As the chart above shows. this has not been the case of the 1987 decline. Where are we now The aftermath of all three dechnes has been dIfferent. The current market action places us right in the middle of the 1929 declinir, the bearish case, and the 1962 decline, which reflected a bullish mfluence. The stock market, after the 36.13 decline in August – October, 1987 recovered 24.15 to a h'gh of 2158.61 in the Dow on July 5 of this year. Since the f,rst of this year, the market has been contained in a 300-point trading range, between, roughly, 2150 and 1850. As this letter has recently pointed out, thIS consolidation or rebasing period could continue for some time Into the future. Not necessarlly a hostile environment, but one to which the investment community, which is used to Instant grahfication, IS unfamiliar. ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (12 00) 2093.71 S & P 500 (1200) 268.38 Cumulative Index (9/15/88) 3879.72 No statement or expression 01 opInion or any other matter herein contained IS, or IS to be deemed to be, directly or indirectly, an offeror the soliCitation of an offer to buy or sell any securrty relerred to or mentioned The matter IS presented merely for the convenience of the subscnber Whlle we beheve the sources of our mformallOn to be reliable, we 10 no way represent or guarantee the aCCuracy thereof nor olthe statements made herein Any action to be taken by the subscriber should be based on hiS own investigation and Information Delafield, HalVey, Tabelllnc, as a corporation and Its officers or employees, may now have, or may laler take, pOSitIons or trades In respect to any securities menlloned In thiS or any future Issue, and such posillon may be different from any views now or hereafter expressed In thiS or any other Issue Delafield, HalVey, Tabelllnc, which IS registered With the SEC as an Inveslmentadvlsor, may give advice to ItS Investment advIsory and other customers Independently of any statements made In thiS or In any other Issue Further mformatlon on any secunty mentioned herein IS available on request

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Tabell’s Market Letter – September 23, 1988

Tabell’s Market Letter – September 23, 1988

Tabell's Market Letter - September 23, 1988
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TABELL'S MARKET LETTER 600 ALEXANDER ROAD. eN 5209. PRINCETON, NEW JERSEY 08543-5209 MEMBER NEW YORK STOCK EXCHANGE. INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC (609) 987-2300 September 23. 1988 The investment community continues to suffer from those post-October, 1987 blues. Decreased trading volume. decreased volatility. and a new-issue market that is all but non-existent has made 1—t—'lnanv'lnvestolN!re,luet1ont10'return-tothe-stockmaTketnditisnoS\lrl'ri.silg.—————-1— The type of markets we had been accustomed to prior to October. 1987 might best be demonstrated by the announcement of the Boesky revelations in November, 1986. You remember those days—DJIA down 40 points on volume of 185 million shares only to regain the ground lost the next trading session. Most recently. however. the announcement of the Milken indictment was treated as a non-event by the stock market—even last Friday's triple witching hour reflected a general lack of interest—suggesting continued dullness may have to be endured. There is. of course. the other side to all of this doom and gloom. The 300-point consolidation that has contained the DJIA since the first of the year may continue. together with low volume. but, as this letter has pointed out in the past, low volume. albeit bad for the brokerage community, is not necessarily bad for the stock market. Within this framework, continued rotation of leadership has been apparent and some interesting groups are emerging as potential new market leaders. To help show this, we have updated a monthly average of S ' P groups that either constitute an inflation hedge or would be a disinflation beneficiary and have created two separate indices. Inflation hedge groups would include, among others, metals, gold, steel, and the entire energy sector. Disinflation beneficiary groups would include airlines, drugs, foods. and the interest-sensitive sector—banks, insurance. and utilities. STRNDReo t PooRS 500 INFLATION HEDGE VS DISINFLATION BENEFICIARY RATIO The chart above shows the monthly close of the S ' P 500 and the ratio of the inflation hedge index to the disinflation index from January. 1972 through August. 1988. If the inflation hedge index is advancing more than the disinflation beneficiary index, the ratio line is going up (1972-1980). Clearly. it can be shown from the chart above that the inflation hedge sector has underperformed those groups which are disinflationary beneficiaries since the start of the bull market. August. 1982. But it is possible to go back even further than this date. to identify the beginning of this significant Change in the market environment. The ratio reached its high at the end of 1980 coincident with the high in the S ' P 500. This date. by hindsight. signaled the peak of the ratio of inflation hedge stocks relative to those stocks that are beneficiaries of disinflation. It was during the subsequent correction in the market to the August, 1982 low that the inflationary hedge index tUrned down. This' occurred While the disinflationary beneficiary index continued' to move ahead in the face of a 15 decline in the S ' P 500. The final confirmation of this significant internal change came when the market rallied dramatically in August, 1982. but failed to include the inflation hedge sector. More recently. from the ratio peak of November. 1980. the inflation hedge sector has declined with minor interruptions. approximately 55 through July. 1986. The disinflation beneficiary index. on the other hand. has increased 176 over the same period. Where are we now in terms of this ratio As we can see from the chart, since the ratio low established In July. 1986. the inflation hedge index has performed relatively better than the disinflation beneficiary index. However, short-term improvement in the disinflation sector may be slgnaling a possible shift between indices. Next week we will examine individual S III P Groups in order to identify these changes occurring within the broad trading range that has contained the Dow Jones Industrial Average. ROBERT J. SIMPKINS. JR. DELAFIELD, HARVEY. TAB ELL INC. Dow Jones Industrials (1200) 2084.10 S ' P 500 (1200) Cumulative Index (9/22/88) 268.36 3883.16 RJS ebh No statement or expression of opinIOn or any other maner herein contained IS, or IS to be deemed to be, dlrectty or Indirectly, an offer or the sohcltallon of an offer to buy or sell any secUrity referred to or mentioned The matter IS presented merely for the convenience of the subSCriber While we beheve the sources of our Information to be rehable, 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 Investlgallon and Information 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 or any future Issue, and such pOSition may be different from any views now or hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabell Inc, whICh IS registered With the SEC as an Investment adVIsor, may 91ve adVICe to Its Investment adVISOry and other cus10mers Irldependently of any statements made In thiS or In any other Issue Further InformaMn on any security mentioned herein IS available on request

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Tabell’s Market Letter – September 30, 1988

Tabell’s Market Letter – September 30, 1988

Tabell's Market Letter - September 30, 1988
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TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 085435209 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9872300 September 30, 1988 The stock market awoke Thursday from its recent doldrums to advance over 30 points on increased .. volume . This-isits-highest.levelinalmost-twomonthsapproachirrg-the'uppe-limltof-tl1-eJUUPOiJrt'–I trading .range that has contamed the Dow Jones Industrial Average since the first of the year. Cymcs would argue the reason for the advance is institutional investors adJ'usting stock portfolios—window dressing—just before the end of the third quarter. Economists are suggesting there is evidence that the economic growth is slowing and prospects for interest rates and inflation are improving. As market technIcians, this letter has spent the better part of the last few months examining this trading range, which has evolved on low volume. improving arket bread.t, and group rotational leadership. Within this framework, the recent strength in the interest-sensItive sector of the stock market may be of significance. In order to study this. we have utilized a traditional technical series—market breadth—in a slightly different manner. – C.Ur.ULQTlVE 'lrSl PREt.PED sTIlet. 6PEHrH 140( LUMU…ATlV 'l'l'SE eo\\o SHlCl. BP ,0 !JJlq oq!U CL PLOTlED 11O!JGj SE 29 19 lR 8 JR 8 JR fIN 61 J 89 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 middle 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 upper third 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. A classical breadth divergence can be pointed out on the chart above where 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, 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 dechne. By hindsight, we toalso know a breadth divergence occurred prior 1 theOctober. 1987 correction; i.e., breadth reached a high in March of 1987 while the DJIA went on to further highs which were not confirmed by breadth. Currently, although breadth action is improving for the short term. the common stock breadth index is still well below its high achieved on March 17 of this year. On the other hand, it is interesting to note that the preferred stock breadth index is approaching new highs for this same time period. Whether or not the market continues to consolidate in the 300-point trading range. it is apparent the interest-sensitive sector of the market. representing a major component of the stock market, has been relatively out-performing the market and should be monitored to reflect the continued improvement in the sector. If the market were to break out of the trading range on the upside, however. improved market breadth would be needed to signal a change from the narrow, selective leadership of this advance to a more broad-based participation. ROBERT J. SIMPKINS, JR. DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (12 00) 2133.89 S & P 500 (12 00) 274.62 Cumulative Index (9129188) 3905.97 No statement or expression 01 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 offerlo buy or sell any security referred to or mentioned The matter IS presented merely lor the convenience of the subscriber While we beheve 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 Iwestlgabon and information Delafield, Harvey, Tabellinc. as a corporation and Its offICers or employees, may now have, or may later lake, posllions or trades In respect to any secunfles mentioned In thiS or any future Issua, and svch position may be dlHerent from any views now or hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabelltnc. which IS registered With the SEC as an Investment advisor, may give advice to Its Investment adVISOry and other customers mdependently of any statements made in thiS or In any other Issue Further Information on any security mentioned herein IS available on request

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