Tabell’s Market Letter – March 31, 1989

—————————————————– – – – – — — —- – – – 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) 987-2300 – —- – – —-00– 'C' – –,-.-. —–.,…,-..,-.March31;!989 -, . – We made the assertion in last wee'k's letter that recent market action could be explained in fairly conventional technical terms. We noted that, on February 7, the Dow had closed at 2347.14. This was the highest figure it had attained in the post-crash era—since October 19, 1987 — constituting a 35 advance from that 17-month-old low. From a shorter-term point of view, it was the culmination of a 56-day, 15.1 rise that had been going on, without substantial interruption (the largest correction was less than 2), since November 16, 1988. Subsequently, a decline of slightly over 100 points took the average down 4.44 to a low on March I, and a rally in early March brought it back to within seven points of its peak on March 16. This test of the high was unsuccessful. and Qur comment last week was that a rather ordinary test of the lows was taking place. This test proved interesting, at least from a numerological point of view. The Dow wound up closing last Friday at 2243.04, exactly the same level, to the penny, as the previous Iowan March 1. The index's intra-day low, 2234.46. attained on Monday. was 36/100 of a point below the comparable March figure. Textbooks on technical analysIs write about tests of this nature. That bottom, If It was one, hardly featured melodramatic action. Monday's volume was an anemlC 113 mIllion shares, the lowest level of 1989 so far. Indeed, since January, 1987, lower volume had occurred on only fourteen trading days. Nine of those fourteen. moreover. had been associated with Thanksgiving and Christmas holidays. We have, therefore, now spent almost two months. 36 trading days to be precise. in a rather restricted 100-point trading range. The obvious question is whether this range constitutes a distnbuhonal tap or a simple reaccumulation area in preparation for a further advance. We confess that we lean, without terribly firm conviction. toward the former theory and continue to think that the twice-tested March low will be broken. Following this bad news, we hasten to proclaIm the good tidings that such an interpretation, if correct, is hardly likely to produce – -,-disasferThe-ino-st-plausil5led6wnsi(reo15jecfive fortb-ellow appears to 0.,2'170; ana we notedlas-t week that. (1) a correction to that level would be about in line with the normal corrective phases which characterized 1988, and (2) that massive support was present in the high 2100's. We lean toward this short-term-top interpretation largely because of the desultory nature of this recovery. including the volume figures referred to above. During the week, moreover. our breadth index moved to a new low, and has recovered very little since. We think. therefore. that further weakness in the averages remains plausible. The patterns for averages other than the Dow differ from it only in degree. The more broadly based S & P 500 also produced a successful test of its low this week and could move back to a support level comparable to that of the Dow. At present, a downside objective of Just under 280, versus a current level around 294, is possible. The Dow Transports, in many ways, appear to be leading the Industrials. It must first be noted that the longer-term rise for this average, 65 from its December, 1987 low, is almost tWIce as great as that of the DJIA. Indeed, the Transports are, one of the few averages, on this side of the Pacific Ocean at least, to have recovered all of the ground lost durmg the crash. The August, 1987 high was 1091.41, and on February 7, they had reached 1087.97. More recently, a top formatIOn has been completed, and, indeed, the downside objective of that top has already just about been attained at recent lows around 1000. Thursday's and Fnday's takeover-fueled strength is unlikely to lead to immediate new highs, but is probably the start of a new base formation which could presage such highs. The action of the Utilities, unsurprisingly, represents the opposite extreme. The rise of the DJUA from its crash lows has been only 18. A high above the 190 level was just recently attained for the third time in the past year and a half, and, like the Industrials, the Utility index has recently been confined within a fairly narrow trading range. in this case between 191 and 182. Decisive penetration of this range on the downside could suggest a fairly significant retracement. perhaps as much as half of the rise since the 1987 low of 160. It is worthy of note, though, that this range has been able to hold so far in the face of heavy pressure from the bond market. All of this. of course, fits within the context of what we conceive to be the longer-term pattern. It has been our view that the market cycle which began in October, 1987 would ultimately come to constitute an accumulation area for a longer-range advance. Given this assumption, it would be normal to expect the rising phase of the cycle to be relatively modest in extent. ThIS largely has been the case—Iess so with the Transports and to a fault in the case of the Utilities. It remains our view that this reaccumulation pattern is likely to continue. ANTHONY W. TARELL DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (12 00) 2289.77 S & P 500 (1200) 294.24 Cumulative Index (3/30/89) 4212.00 AWTebh No statement or ex pression of oplmon or any other matter herein contained IS, or IS to be deemed to be, directly or indirectly, an offer or the soliCitation of an offer to buy or sell any secunty referred to or menlloned The matler IS presented merely for the convemence of the subsCriber While we believe the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor ot the statements made herein Any action to be taken by the subSCriber should be based on hiS own investigation and information Delafield, Harvey, Tabellinc ,as a corporation and Its officers or employees, may now have, or may later taKe, poSitions or trades In respect to any secuntles 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 asan 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 Information on any security mentioned herein IS available on request