Tabell’s Market Letter – December 02, 1988

1 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 1609) 9872300 December 2. 1988 One of the basic tenets of technical analysis is that trends persist—ln other words that, at any given time. markets . aremost .Hkely…..to-,-con ti!tu '!-to Ldojusl….w.bat..-1by …haye ….most……recently…..,been -\ doing. Inevitably, of course, there is a turning point for every trend, and technicians spend 8 great deal of energy In attempts to identify those turning points. The point IS that reversals are relatively rare events, and trend continuances constitute the norm. Such is the case at the moment where there exists little evidence to suggest that equity markets are likely to begin doing anything significantly different from what they have been doing throughout 1988, i.e. nothing. Date ——— Dec 4 87 Jan 7 88 Jan 20 88 Apr 12 88 May 23 88 Jul 5 88 Aug 23 88 Oct 21 88 Nov 16 88 Nov 30 88 DJ Average ——– 1766.74 2051.89 1879.14 2110.08 1941. 48 2158.61 1989.33 2183.50 2038.58 2114.51 P e r c e n t Ch a n g e This Swing ———- From Hi From Lo ——- ——- – — 16.14 — -8.42 – 12.29 2.84 – -7.99 – 3.32 11.18 2.30 – -7.84 – 2.46 9.76 1.15 – -6.64 – 2.48 3.72 — Number Of Days This Swing Cumulative ———- ———00 22 22 9 31 57 88 29 117 29 146 35 181 42 223 18 241 9 250 The table above teUs the dreary story. On January 7, the fourth trading day of the year, the Dow was at 2051.89, within a couple of percentage points of where it is today, and above its low of two weeks ago. That January high culminated a 16 advance from the early December test of the crash lows. The entire year has. therefore, consIsted of seven interme(hate-term b swings, three up 1 and. four dow.n ,a,er.agtngjusLover9Wn…ex.tent,and……bitover 30-tJ!adingdaysi'-;'J1;ju'ratio,n,….,.I There exists a hny ray of sunshine in the fact that this trading range appears to have a shght upward bias. Each of the three major highs so far, April, .July, and October, has exceeded the previous one by around 2, and each of the lows, May, July. and—assuming it holds—November 16, has likewise been slightly better than its predecessor. Projecting this environment through December, one might expect a high some 2 above October, say 2225, as a possible target for a year-end rally We would hesitate to make such a prediction on extrapolation alone, but there is nothing in the present evidence which seriously contradicts it. The downside objective for the Dow was reached at the October low, and, although there currently exists no ba.se to suggest an immediate upward move, one could form fairly quickly, particularly were a pull-back testing the mid-November bottom to occur. As we suggested above, the technioian is condemned these days, to scratching for reversal evidence, and finding none. Such evidence is certainly not to be found in looking at volume, which appears to be in a sort of a bear market of its own. In any case, a 50-day smooth of daily NYSE volume peaked at around 218 million shares in October and again in December, 1987. The figure dropped from there to 175 million in February and, Rfter a short rally, to 161 million in June. August saw a rise back to 176 million but, as of Tuesday, the average posted a new low at 147 million shares. Looked at another way, total Volume for the month of November was 2.8 billion shares. the first month under 3 billion in two years and the lowest monthly aggregate since August, 1986. Of course, as we have always noted in discussions of volume. the real way to look at it on a long-term basis is in terms of shares listed. The turnover ratio is the percentage of total listed shares which trade in any given period. Measured in terms of months. that number dropped under 4 in November for the first hme since September, 1985. The November ratio. estimated at 3.7 compares to 6-plus levels achieved repeatedly in 1987. A long-term view of the turnover raho is an interesting story. Its record value was 15.5 in 1928, and, over 14 years, It declined to under 112 of 1 in 1942. By 1946,-it had-soared to 2-1'12, I , and then in 1946-1949—a period, our readers know, to which we have compared the present one–it once more retreated to around 8/10 of 1. It did not move above 3 for almost 30 years, until 1978. Subsequent expansion was mOle rapid. The 5 level was attained in 1982. It remained mostly in the 3 – 4 range through 1985 and then expanded to 6 in 1986. There now exists a year's worth of evidence suggesting that the trend may have turned down again. Under these CIrcumstances, it IS not unlikely that trading could return to 1982 levels with a turnover ratio of around 2 1/2 4 Given today's listed shares, this could mean months in which daily volume averaged close to, or even under, 100 million shares, not, It must be admitted, a particularly pleasing prospect. ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. Dow Jones Industrials (12 00) 2090.15 S & P 500 (12 00) 271.18 Cumulative Index (12/01/88) 3842.40 AWTebh No statement or e)(preSSlon of opInion or any other matter herein contained IS, or IS to be deemedto be, directly or indirectly, an offer orthe solicrtatlon of an offerlo buy or sell any secunty referred to or mentioned The matter IS presented merely for the convemence of the subscnber While we believe the sources of our InformallOn to be rehabte, we In no way represent or guarantee the accuracy thereof nor olthe statements made herein Any acllOn to be taken by the subscnber should be based on hiS own investigation and miormallOn Oeiaileld, Harvey, TabeH Inc, as a corporation and ItS officers or employees, may now have, or may later take, poSitions or trades In respect to any secufll!es mentioned In thiS or any future ISSue, and such poSitIOn may be different from any views now or hereafter e)(pressed In thiS or any other Issue Delafield, Harvey, Tabellinc whlch IS registered With Ihe SEC as an Investment adVISor, may give adVice to ItS Investment adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further tnformallOn on any secUrity mentioned herein IS available on request