Tabell’s Market Letter – September 29, 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 609) 987-2300 September 29, 1989 The Dow Jones Industrials, staging a sharp, mid-week rally, continued to hold above the 2640 -……,… – – level-;–wtlich-represents'-the …-low reached-in- Au gus t–'and-..-w hich-would. constit u te-'-a–downsidereako1J.t . from what now must 'be considered a fairly important potential top Continued ability to hold in this range without breaking 2640 (or 342 for the S & P 500) could only be construed as bullish and would indicate that the present interruption in the advance which began last November would be completed with only a consolidation rather than a correction. Unimpressive breadth and volume, however, continue to suggest the likehhood of a downside breakout eventually taking place. The downside targets for such a decline, were it to occur, are not, at the moment. all that serious—centering around the low 2500's. The problem would be to fit it into a longer-range scenario. As technicians, we are, of course, committed to the belief that market patterns repeat themselves and that bull and bear markets tend to follow similar rules of behavior from cycle to cycle. There are, of course, just enough exceptions to this rule to make life interesting, but until evidence to the contrary accumulates, it is wisest to treat the exceptions as being just that. Up until a few years ago, at least, there existed a reliable rule of thumb concerning major tops and major bottoms. The former generally built up over'a protracted period of time as a given advance slowly ran out of steam. accompanied by deteriorating measures of market momentum. The latter. by contrast, could be identified by obvious selling climaxes, sharp declines and recoveries on increased volume compressed into a short time frame. Past major lows—June 1949, September 1953, October 1957, May – June 1962, October 1966, May 1970, and October – December 1974—all were identifiable by such climaxes. In the past 15 years, bottoms have emerged in a quite different form. February 1978 and August 1982 (also July 1984, if one chooses to treat it as a major cycle bottom) displayed a new set of characteristics. They began with a slow drift to lower levels on decreasing volume and then, out of the blue, put on an upside explosion. The older pattern of a selling climax was conspicuous by its abThseeclimnacctic ebot.tomreturn7edwith avengeance onOc-tober121l7l911'7o' but, follOWing thetest–''-'I of the climactic lows in December, 1987, the market displayed behavior quite different than that shown following earlier climaxes. Between 1949 and 1974, after the low (and its test if there was one) had occurred, there ensued a long rally, generally the strongest one of the bull market. This, as we all recall, was not the case with the current upswing. It spent most of the year 1988 swinging back and forth in a trading range with a moderate upward bias, and not until last November did we witness the characteristic bull market extended leg, a phase which which mayor may not have ended on September 1. Interestingly, another recent market cycle, 1978 – 1981, behaved in more or less the same fashion with a protracted trading range running from February 1978 through Silver Thursday in April 1980, at which late date a long upside leg developed. Thus 1987-89, in this respect at least, behaved in the modern fashion. What about the characteristics of market tops, which are now what we should be concerned about following a two-year advance. As we noted above. we had learned, over the years, to expect tops to form over a lengthy period of time and, during that time, to provide the analyst with a battery of evidence for detecting them. Then, of course, there occurred August – September, 1987, whose salient characteristic, as we have noted many times. was the amazing speed with which tops built up. The only historical parallel for this, was the summer of 1929, and, as far as the break was concerned, we did indeed have a replay of 1929. The aftermath, of course, was quite different—for which blessing we may all be truly thankful. The interesting question, of course, is whether 1987 was an exception to the rule or constituted the first exemplar of a change in the pattern for market tops, much as 1978 seems to have initiated a change in the typical bottom formation pattern. For the time being, at least, we remain inclined to treat it as an exception, and it is our current view that any short-term correction which might -occur over-the near term …would be nothing more than a correction. As we indicated.last.week. we.do not think that the ghost of 1987 has been laid to rest in the minds of investors, and we think that any noticeable decline at this stage, which, as noted above. we consider probable, would bring recollections of 1987 to the surface. For the time being, at least, we remain convinced by the historical evidence which suggests the current bull market stil! has further to go, and, unless the current top broadens, it remains our view that a short-term downswing represents the worst-case scenario at this time. ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (12 00) S P 500 (12 00) Cumulative Index (9/28/89) AWTebh 2704.21 349.56 4901.15 No statement Or e)(presslon of opInion or any other matter herein contained IS, or IS to be deemedto be, dlreclly or Indirectly, an offer or the soliCitation of an offer to buy or sen any secunty referred to or mentioned The matter IS presented merely for the convenience of the subscnber While we beheve the sources of our information to be rehable, we In no way represent or guarantee the accuracy thereof nor of Ihe statements made herein Any action to be taken by the subscnber should be based on hiS own InvesligatlOn and information Delafield, Harvey, Tabelllnc, as a corporation and ItS officers or employees, may now have, or may later take, poslliOns 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 8)(pressed In thiS or any other Issue Delafield, Harvey, Tabellinc , which IS registered With Ihe SEC as an Investment adVisor, may give adVice 10 liS -Investment adVISOry and olher customers Independently of any statements made In thiS or In any other Issue Further information on any security mentioned herein IS available on request