Tabell’s Market Letter – December 22, 1989

'11 IBHSn..n.'S it1jJIRl 1E'1I n..1E'1I'1I1E1Rl 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 December 22, 1989 As th!!-.-e!'l XrMQroachJJ 1he—,,i!!1arveso… B.to iss.Jl.J9!9J!ca!!h.J9 be,..8st!lct . as possible, ,we think it likely that the stock market will form -8 major top at some time during the – – — upcoming year. As our readers are aware, we do not subscribe to the theory that such a top would constitute Armageddon. We outlined the reasons for this in this space two weeks ago. At some point, however, there will indeed commence a major downswing of the sort that occurs, on average, every four years. and it seems to us likely that the next such downswing will begin in 1990, Our review of the year 1989 last week tried to make two points which we regard as essential, The first point was that October – December 1987 obviously constituted a major market low, and the second, which follows logically from the first, was that the year 1989—at least through October 9—was part of a major bull market, one that at the moment is two years old. It is this time factor that seems to us crucial. If the major upswing is now 26 months old, it will be 38 months old by the end of 1990. We have identified 24 market cycles since the DJIA was first computed in 1896, and in only seven of those cases did the advancing phase last longer than 38 months. The last such phase, which occupied 61 months from July 1982 to August 1987, was the second longest on record. We think that two record-setting bull markets in a row are unlikely. The level to which the current bull market might aspire prior to reaching a 1990 top is a bit more uncertain. The maximum readable long-term objective for the Dow has. for some time now, been 3400, and we would regard this 8S an outside limit. However, it is quite possible that the market might top out before this objective is attained and, following a bear market, reach it on the next cycle. There are, of course, two ways in which the above forecast might prove to be incorrect. The first, which worries us less, is that the market will spend the entire year sailing merrily along to new peaks, destroying, in the process, all existing top formations. The second possible source of forecast error lies in the opposite direction. We need to ask ourselves whether, since we are indeed –Iooking- for-the-forma-tion-a—toPF8Ueh-a—preeess-mighlnt eJea!y-h,,-ve-begun.-with-the2-791-.41– – figure reached by the Dow on October 9 constituting the bull-market high. We cannot deny that this is a possibility. The Dow has, essentially, remained, since last summer, in the 2590-2790 range, and the upside objective of the small base following the October 13 break has already been attained. It is certainly possible that the formation in question will come to constitute a major top. There have, moreover, been distinct signs of technical deterioration presenting themselves since well before the October high was reached. What needs to be asked is whether such deterioration is sufficient to forecast a bear market of cycle proportions. For the time being, at least, our scenario is that such is not the case. As our readers are aware, we analyze, each week, the technical pattern for some 1800 stocks. Based on this analysis, we rank each issue on a I-to-5 scale, with issues ranked 1 having exceptionally attractive patterns. and issues ranked 5 showing the greatest degree of vulnerability. The number of first-tier stocks peaked on September 8 at 599 and has since dropped off to as low as 363 in early December. At the same time, the number of potentially vulnerable issues has increased from 55 to 136. However, even after three months of weakness, the number of stocks ranked lit or 2 remains twice as great as the number ranked 4 or 5. Likewise, as we have been noting in this space for some weeks, market breadth has lately exhibited significant weakness, weakness great enough to make it highly unlikely that our breadth Index can attain new peaks on the present rise. However, breadth tops (the last one was on August 8) generally show a significant lead on market peaks. Breadth action, therefore, is consistent with the forecast of such a peak being deferred until some time in 1990. Mid-1989, in technical terms, could be described by recalling the beer advertisement—It doesn't get any better than thisII. This, indeed, proved to be true, and the technical situation J unable to get better has, indeed, gotten worse. We are not sure, however. that it is bad enough to say that bear-marke mdiil'!l! xist 8 i !ime. .. E— .- . — L –.. … We expect to be occupying ourselves, dunng the early months of next year, WIth trYIng to gauge the extend of technical deterioration. in order to see whether it is necessary to modify our present stance. Absent such deterioration, we will continue to look for the bull market's last hurrah in the year ahead. ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (12 00) SAP 500 (12 00) Cumulative Index (12/21189) 2696.03 345.60 4757.62 AWTebh WE WISH YOU ALL A HAPPY AND PROSPEROUS NEW YEAR! 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 sohcltatlon of an oHer to buy or sell any secUrity referred to or mentioned The matler IS presented merely for the convenience of the subscriber While we beheve the sources of our information to be rehable, we In no way represent or guarantee the accuracy thereof nor of the statements made herem Any action to be laken by the subSCriber should be based on hiS own Investigation and Information Delafield, Harvey, Tabelllnc, as a corporallon and rts officers or employees, may now have, or may later take, POSitiOns or trades In respect to any securities mentioned In thiS or any future Issue, and such position may be dlfferentlrom any views now or hereafter expressed In thiS or any other Issue Delafield, Harvey. labell Inc, which IS registered wlthlhe SEC as an Investmenl adViSOr, may give adVice to Its Investment adVISOry and other customers Independently of any statements made In thiS or If\ any other Issue Further information on any securrty mentioned herein IS available on request