Tabell’s Market Letter – July 21, 1989

Tabell’s Market Letter – July 21, 1989

Tabell's Market Letter - July 21, 1989
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TABELL'S MARKET LETTER 600 ALEXANDER ROAD, eN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (6091987-2300 1 – – – – – – r.Tlll)lll11-nlarket 'con tinued;1it-'1east'th1'ough-ye-stel'da July 21, 1989 wltll-th,,-Do-w J clllesIhTI u s t r uf l – — – – — I Average breaching the 2600 barrIer and the S & P Composite attaining an all-time hIgh, before pulling back In program-related trading later in the afternoon. We have devoted the last three issues of this letter to an exposition of why this turn of events should not be all that surprising. We would like, this week, to examine a couple of other trends Which also continue unabated and Which antedate the 21-month-old bull market. The chart at left traces the ratio of Standard & Poor's Capital Goods Index to its Consumer Goods Index from 1968 to date. As the chart clearly shows, this ratio can be represented by a line WhICh has been heading due southeast since December, 1980. At that point, the Capital Goods Index was at 157.4 It has managed to eke out an advance to 281.3 this month, a 78 tise over an 8 1/2-year period. Over the same timespan, the advance in the Consumer Goods Index has been 341. There were a couple of short periods—the first year of the 1982 bull market and the tail end of the rise to August, 1987—durmg which capital goods issues briefly exhibited superior performance. In both cases the improvement fizzled out and most recently, since the end of 1988, the consumer measure has risen 23 while capital goods have barely a 10 advance. The ratio is The chart at rIght shows the Dow Jones Industrials and the NASDAQ Over-The-Counter Industrial Average together with, at bottom, the ratio of those two indicators. Like the Capital Goodsl Consumer Goods ratio, this one has been declining for some time, in this case since mid-1983. At that point, topping some five months before the Dow, the OTC Index embarked on a precipitous bear market whue the DJIA was undergoing a ..elatively mild correction. Throughout the entire 1984-1987 upswing, the performance of OTC issues was distinctly ij ! g M M inferior to that of the higher-grade issues in the Dow, and the same has been true from mid-1988 to date, the ratio now being at the lowest level since the 1987 bottom. We have thus, undergone a protracted period. one spanning two major market cycles. during which leadership has clearly centered on a specific area—consumer-oriented, high-grade, defensive issues. What is interesting is that there exists no current indication of an immediate change in this leadership taking place. Since major leadership shifts often take place during the transition between bull and bear markets, it is quite possible that those stocks …which…-have led the parade so far will continue to do so for the remainder oLthe – ' – upswing. ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. Dow Jones Industrials (12 00) S & P 500 (1200) Cumulative Index (7/20/89) 2580.61 333.89 4729.81 AWTebh No statement or expression of opInion or any other matter herem 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 securrty referred to or mentioned The matter IS presented merely for the convenience of the subscriber While we believe the sources of our mformatlon to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements made herein Any acllon to be taken by the subscriber should be based on hiS own Investigation and InformatIon Delafield, Harvey, Tabell Inc , as a corporation and lIs 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, Tabellinc , which IS registered with the SEC as an Investment adVisor, may give adVice to Its mvestment adVIsory and Dlher customers mdependenlty any statements made In thIS or many olher ISSue Further mforma\lon on any securrty menboned herem IS available on request

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