# 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