Tabell’s Market Letter – December 30, 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 (6091987-2300 December 30, 1988 For some years now. we have studied the familiar seasonal tendency of the stock market to stage —.-year-end rally, and-it-I!as-been the'custom ofthiSlerferTo poiiitiufSomeofthe col'iCfiisioM — – – – – that can be derived from a study of this phenomenon, Since 1897, when the Dow Jones Industrial Average was first computed, a rally. however small, has begun in December and continued into the new year in 89 of 91 cases, the two exceptions occurring in the mid 1970's. The following facts about the year-end rally may be noted. 1. The year-end rally often has been of great magnitude, occasionally continuing through the entire subsequent year without a 5 correction being recorded. It has frequently continued. with only minor interruptions, for as long as six months into the new year. In many cases, with 1987 being the most recent, the rally continued into February, March or beyond. However, on other occasions. it has been of only a few day's duration, reaching a top extremely early. This was the case in 1988, when an extremely dynamic year-end rally peaked on January 7, the fourth trading day of the year, and an 8 112 correction followed. In the bear-market years of 1960. 1970, 1973, 1974, 1981, and 1982, the rally reached a peak by the first week in January, and, as noted above, the 1976 and 1977 year-end rallies did not carry into January at all, the only two in market history so to fail. 2. There has been a persistent tendency for the rally to begin early in years when the market has been up, and late in years when the market has been down. In recent upward years, 1967, 1975, 1979, 1980, and 1985 are examples, the rally commeneed from early December. In recent downward years, 1962, 1966, 1969, 1977, and 1981, the rally began late in the year. 1986 was an exception, an upward year where the year-end rally started on December 31. The 1987-88 year-end rally started on December 4, (1987 was an up year), and the 1988-89 rally almost certainly began in November, with the December low occurrIng on the second day of the month at 2092.28. -of3. The impo;t;nfthing to wath in ;connectio;-With the market action -in the early months th new year is that December low. This low has been broken in 52 years out of the past 88. However. in 30 of these 52 cases, it was broken in January and February. For example, in 1970, 1973. 1977, 1978, 1981, and 1982, the December low was broken in early January. Since 1937, it has never been broken later than mid-March with four exceptions 196 1974, 1981, and, of course, 1987. Thus, if the market is able to hold above its December low for the first 2 112 months of the year, chances become good that this low will not be penetrated. 4. In years when the December low has been broken, the subsequent trend has been downward two-thirds of the time. 1962, 1966, 1969, 1973, 1974, 1977, and to some degree, 1984, are typical cases. 1965, 1978, 1980, and, most recently, 1982 are exceptions. 5. The magnitude of the rally is an important clue as to the year's market trend. For example. an advance of 10 or more from the December low has been followed by an upward or neutral market in 40 of the 46 years that such an advance has occurred. An advance of less than 10 from the December low before an identifiable correction takes place has been followed by a downward market 10 30 of the 42 years. Last year's year-end rally was over 16. In each year from 1985 to date, the year-end rally has been well in excess of 10. In 1962, 1970, 1973, and 1977, as examples, it was less than this figure. 6. The length of time for which the rally continues -into the new year is important. For example, in 27 years, the rally continued into March or later. In 23 of these 27 years, the eventual trend was upward. In 1964, 1972, 1975, 1976, 1985, and 1986, the year-end rally continued into March and in 1961, 1967, 1971, and 1980, into February. Although 1988 was technically an up year, the rally, as noted above. peaked in early… January. This year so far. the advance from the tDecember low has been under 5. If the rally extends itself to 10 (approximately 2300) In the early new year, it would be a bullish sign. Likewise. continuation of the advance in February-March would be a positive indication. Dow Jones Industrials (12 00) S & P 500 (12 00) Cumulative Index (12129188) AWTebh 2180.89 279.10 3902.53 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. No statement or expression of opinion Of any other mailer herein contained IS, or IS to be deemed to be, dlreclly or Indirectly, an offer or the solicitation of an offer to buy or sell any secUrity referred to or menlloned The matler IS presented merely lor the convenience 01 the subscrtber While we believe the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor oflhe statements made herein Any acllon to be taken by the subSCriber should be based on his own investigation and Information Delafield, Harvey, Tabelllnc, as a corporation and tts officers or employees, may now have, or may later lake, posilions 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, Tabelllnc, which IS registered With the SEC as an Investment adVisor, may gl\o'e 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