Tabell’s Market Letter – August 24, 1990

TABELL-S MARKET LETTER ……- 600 ALEXANDER ROAD, eN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMIlEn NAIIONAL ASSOCIAllON or Sl'CUnIlIES DEALEI1S, INC 160919U7-2JOO r– August 24. 1990 As its writer ages. this letter has. we freely admit, tended to assume an increasingly avuncular tone. We cannot. therefore, resist pointing out that we have, in 36 years of obqerving the stock market I managE(f to live th'0ugh P fpir numbr I)f lNecks r!Jh like the 19ftt one. Experience, we regret to inform our younger readers. does not make them any more pleasant. At Thursday's close. following a three-day. 170-point decline. the Dow found itself down 17.21 from an all-time high which had occurred only 27 tradmg days ago. It had. at that level. not yet reached the standard threshold we have used to test for bear markets. a 20 drop. but there exists. at this writing. little eVIdence that it will not shortly do so. No decline of the post-World-War 11 period has reached the 17 level without ultimately coming to be recognized as a major-cycle bear market. This interpretation is reinforced by the fact that the decline has taken place following a major breadth divergence. a patently false upside breakout which featured even narrower leaderhip and other assorted signs of technical weakness. Thus. the 2999.75 close on July 17 is likely to assume major-cycle significance. Having said this. It must be reiterated that. as pointed out above. we are on familiar ground. The sort of downside momentum which has developed since the onset of the Middle East crisis has not occurred many times in the past and is thus easy to identify. It has generally tended first to manifest itself at a point when the market was fairly close to its low in terms of time. Historically. though. it has first appeared considerably above the ultimate low. What we are saying. in other words. is not that the next few stock-market weeks are likely to be enjoyable. Indeed. just the opposite is the case. What we are suggesting Is that the current downswing. whatever level it may ultimately reach. will. before too long. have run its course. We are not attempting to be flippant in noting that it is possible to characterize severe market breaks as periods Including a large number of days when the market goes down a lot. It is not hard to quantify thIS notion. There have been. for example. no fewer than eight days over the last trading month in which the Dow ha. declined oy m')re thAn I 112. A. onp looks at the past history of cases where the number of such down days has exceeded five. one finds that they have tended to occur at points very close in time to what have come to be recognized as major market bottoms. Examples are June 4. 1962. with the Dow at 593.68 versus a June 26 low of 535.76. May 19. 1970 at 691.40 versus 631.16 on May 26. or August 23. 1974 at 686.80 versus an effective low of 587.61 on October 3. In all of these cases. the market eventually moved lower by a significant alnount. However, it did so within a relatively short tlmeframe. In the current case. the fifth 1 112 drop occurred on August 16. We are, in other words. reaching what is often known, imprecisely. as oversold territory. It is necessary. though. to amplify this comment by saying that. by many measures. we have reached such territory only lately and by other measures not yet at all. Many oversold gauges are dependent on by the breadth of market drops. and yesterday was the first day on which there occurred the number of declining issues typical of climactic action—1640 being the largest figure attained since October. 1987. It should be noted that the delay in attaining this level may be due to the fact that not until recently had oil stocks joined in the general weakness. We have not yet seen anythIng even approaching climactic volume. It has been our practice to define such volume as cases in which tradIng on a given day reaches twice its 25-day moving average. Yesterday's 250 million shares compared to an average of 180 mtllion. A volume climax would be identifiable only were activity to approach the 400-million-share level. On top of the abysmal short-term outlook. it is necessary to point to the disturbing fact of the Dow's breaking below the 2520 level. a fIgure first attalfled in October 1989 and tested in January 1990. We have been noting the Importance of this trading range. which goes back to summer a year ago. for the past two weeks. suggesting. to he honpgt, that the support it provided was likely to hold. I t has. obviously. not done so I thus raising at least the possibility that a major portion of the advance from the 1987 lows may be retraced. If this is to be the case, however, it would, in our view, most likely occur in 8 two-part bear market such as 1973-1974. This will. at least. give us a chance to assess the possibility on any rally that may occur following short-term reversal evidence. The forecast above is, necessarily. pessimistic but. it must be noted, we have been talking about the current market in terms of past major cycle bottoms and have found that, by some measures, at least, the present is quite comparable. We now know these bottoms to have been singular buying opportunities. difficult as thls was to recognize amid the gloom whlch prevailed at the time. ANTHONY W. TAJ3ELL DELAFIELD. HARVEY. TABELL INC. Dow Jones Industrials (12 00) 2509.65 S & P 500 (1200) 319.43 Cumulative Index (08123190) 4510.83 AWTebh No talomenl Of ClIPfOSSlon ot opinion Of any olllel maUOf herelll contatned IS or IS 10 he cJeullicillo 1m, (hrecUy Ot looueclly, an oUel 01 the whcllallon at In allt;r to buy or SLit ,my secuflly reflllwd to or menlloned 1 hlj mailer rs pfCsc(lled mercly for Ih(, coovemence of Ihc' sutJsClrl)(!r Whrle we beheve Ihe source of ourmformahon to te reliable, we 111 no way leprnsfinl or guararltee tllC accuracy Ihereul 1101 01 the talemcnts made heleln Any Clellan to bel tacn bv 1110 subscrrlof'f h()uhj Lou IJ(sed orr lils own uwesllgalron amlmformatron Delalluld, Harvey, 1 ,!Jelt Inc a, a COJPOldliGIl and lIt- ullrcCf!. 01 employeet-, nMy now Imvc, 01 mal' IWr 1,)18 pOt-illorlS or Iratlc..III ,epecl tu lny securrtles IIlt'nllorll'l1 U\ II11S 01 flOy !tllulO Issue CUI(I SUI II pOSlllon may IIC (Iltfc.enIIIOnl any views now or he(ealler expresed In this 01 ,lilY olher rsue Dulnhchl 1t.uvey 1 abell Inc whrch I iOilrteled wrth Ihe SEC as ,In tnVLtmellt mivrsOl, iliaI' give dcivlce In rls Investment advrOIy and lliller customers IncJepenrlenlly 01 any tatelllem! mncle rn IhlS 01 rn any othcr t!uc Further rnlornlllron orl any spcwrly mC!llinnLd he. ern r!. aV'IIIbl, on reqllC!1