Tabell’s Market Letter – September 14, 1990

TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 9872300 September 14. 1990 We are. regularly. accused of being out of the office at critical and exciting market junctures. and this accusation becomes relevant since we wlll. shortly. be embarking on a four-week vacation … '.,.- There is p' unfortunately .v,!!,1,y…litPe w,e.,cansay;by wayof,avaledictory. W,e, knowo.llythat.on July .,,, 17. a market process got underway. that process having carried theDJIA down some 17 to a low. so far. of 2483.42 on August 23. There are a number of reasons why this action should be disturbing. The beginning of the downswing. in mid July. took place 33 months after the major bottom attained in October. 1987. This is an interval totally consistent with the normal lifespan of a cycle bull market. It began after an almost-one-year breadth divergence which has been commented on by us and just about every other published technician. Under these conditions it is certainly possible to have Borne doubts as to whether August 23 will turn out to be the ultimate low of the current cycle. Under these conditions. it is generally best to avoid precipitate action and allow the market to tell its own story. This it has. in the three weeks since August 23. most assuredly not done. Our colleague. Bob Simpkins. wlll be writing this letter in our absence and he. along with the reBt of our staff. will be trying to interpret the market story as it unfoldB. What will they be looking for It may appear trite to say that. with the Dow off 17 from its high. they wlll be looking for a market bottom. It is. however. well to recall this fact. Many technical indicators are useful only at tops. An entirely different set tends to be brought into play when we try to identify market lows. It is these indicators to which we will be paying attention over the next month. The task is complicated by the fact that the nature of bottoms has changed somewhat in recent years. The standard characteristic of market lows up until the 1970's tended to be an identiftable selling climax. October. 1957 is one textbook example. The Dow closed on October 22 of that year at 419.79. off 20 from its July high. For the .ten days ended the previous day. declines had exceeded advances by an amount equal to 31 of issues traded. Volume on the climactic day was almost twice its normal level. and the Dow. over the last ten days of the period. was down almost 7. All these were normal indicators of a climactic oversold condition. Following this I,w. October 23 saw a 4-plus rally-onequally;…heavyvolufile. – -' – – ,.—.- -….. – – — -,- – '- . This pattern. a panic decline followed by an equally sharp recovery. was characteristic of pre-1980 market bottoms. Similarly characteristic was a subsequent test of the lows. a test Which. in 1957. took place on December 17 at 425.65. More recently. readers wlll recall. the 1987 low exhibited this pattern in even more extreme form—a precipitous fall on October 19 through mid-day October 20. a day and a half of an equally sharp rally on October 20 – 21. and a subsequent test of the lows in early December. . As the institutionalization of the stock market became more pronounced in the 1980's. important lows began to assume a slightly different shape. Selling panics were often absent and the fireworks. by contrast. tended to occur on the upside. emerging out of the blue following a market which had been drifting slowly lower. We have long theorized that the reason for this is that the operative fear in modern markets is that of the under-invested institutional money manager who fears lagging the Standard It Poor's 500 in a rising market. In any case. the new sort of pattern is exemplified by 1982. When the Dow reached its low at 776.92 on August 12. it had been declining slowly on desultory volume for some months. The next couple of days saw only a modest rally. indistinguishable from a host of other minor upticks that had preceded it. Finally. August 17 saw an upside explosion with an almost-5 gain. all this taking place on record-setting volume. February 1978 and July 1984 saw not dissimilar lows. The current situation. moreover. is fraught with still further ambiguity. Many of the elements of a 1960's-style climactic bottom were present on August 23. but not all were in evidence. The 10-day advance-decline total reached 30 of issues traded. but much more extreme levels had been reached in 1987. 1966. and 1962. The ten-percent. ten-day change of August 23 qualified as a deep oversold. but volume. only 1.38 times its normal level. was tepid. ' What then are the elements to look for over the coming weeks One will be the occurrence of a more easily identifiable selling climax. This should include another day (or days) of 1400 or more declining issues. with volume running somewhere in the 350-mlliion-plus range. This sort of action. followed by a snapback. would give us some indication that the process which started begun in July was, at least temporarily, over. Failing the occurrence of another climactic-type period. it would be helpful to see a test of the August lows with a demonstrated ability to hoid above the approximate-2500 level. Were this to be foliowed by upside action showing above-average breadth and volume. the technical picture would turn suddenly quite optimistic. To date. nothing of this sort has occurred. The averages. for three weeks. have held in a trading range centered around 2600 and broke out of this trading range on the downside in Friday-morning trading. This may indicate an imminent test of the lows. Obviously. the major elements of the 1990 stock-market story have yet to unfold. ANTHONY W. TAB ELL DELAFIELD. HARVEY. TAB ELL INC. Dow Jones Industrials (1200) 2564.85 S It P 500 (12 00) 316.22 Cumulative Index (9/13/90) 4664.94 AWTebh 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 orthe soliCitation 01 an offer to buy or sell any security referred to or menliOned The matter IS presented merely for the convemence of the subscnber While we beheve the sources 01 our information to be rehable, we In no way represent or guarantee the accuracy thereof nor olthe statements made herein Any aClion to be taken by the subSCriber should be based on hiS own investigation and Information Delafield, Harvey, Tabelltnc ,as a corporation and Its 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 posilion may be different from any views nowar hereaftere)(pressed In thiS or any other Issue Delaheld, Harvey, Tabelllnc, 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