Tabell’s Market Letter – July 07, 1989

'tILiilIBUE n.. n.. s LiilIRl 1E'tI n..1E'tI'tI1E1Rl 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEM8ER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC 1609) 987-2300 July 7, 1989 1-1' We .tried,-Jastweek..-to-make–the point–that-historically i-the-process-of-top formaUen -generally –'—I–. requires a fair amount of time. Thus, we contended, even if the current market is beginning Buch a process, it should not be immediately vulnerable. 1987 J however, was an exception to this rule, and a major question is to what degree that experience is applicable today. We can illustrate the speed of the top formation two years ago by tracing, purely as an example, the price history of one stock, General Electric. 50 '10 10' The just eight weeks prior to the crash. The various patterns at right trace out the history of trading for GE as it developed over those fateful two months. The first five columns, leading to the stock's high at 66 are the same as the right-hand five columns on the chart above. Two 0,0 weeks after the high, on September 1, a small top had formed indicating a possible 58, only a couple of points below the then-current price. A week later, 50 on September 8, the downside objective of that top had been reached. Three and a half weeks passed, and (,,0 it seemed possible, despite rather serious signs of general market weakness, that a new base for General Electric might be forming. This was on Friday, 50 October 2, two weeks prior to the break. As the stock pulled back during the following week, the pattern began to look a bit more ominous. 40 However, it was not until Wednesday of the following week, October 14, that it became apparent that a serious top was completed. This was precisely three trading days before October 19. The stock, as indicated at bottom, plunged to a low of 40 on the morning of October 20, violating major support in the process. The final pattern shown is not from two years ago. It is the pattern that exists today, and the similarity to September, 1987 is obvious. The question, of course, is whether history is about to repeat itself. The- current two-point chart on GE at left shows, we think, how the patterns differ. General Electric's most recent rally represents a breakout from a protracted base ormation following the sharp 1987 correction rather than the end of a nine-year uncorrected rise. Support just under 50 is a great deal more formidable than was the case two years ago, and the ultimate upside objectives for the stock are much higher. It seems likely, In other words, that the GE chart should be interpreted conventionally—as having a minor top suggesting a decline into strong support where the stock would be a buy. This coincides with our present opinion on the general market ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (12 00) 2486.15 S & P 500 (1200) 322.20 Cumulative Index (7/6/89) 4631. 78 No statement or expressIOn of 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 offer 10 buy or sell any security referred to or menhoned The mailer IS presented merely for the convemence of the subscriber While we believe the sources 01 our Intormalloo to be retlable, we In no way represent or guarantee the accuracy thereof nor 01 the statements made herein Any acllOn to betaken by the subscriber should be based on hiS own Invesllgatlon and Information Delafield, Harvey, Tabell Inc, as a corporallon and tIs officers or employees, may now have, or may later take, posrtlons or trades In respecllo any secun\les mentIOned In \hIS or any future Issue, and such posrtlon may be different from any views now or hereafter expressed In thIS or any other Issue Delafield, Harvey, Tabel1lnc , which IS registered WIth the 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 informatIOn on any security mentioned herein IS available on request