Tabell’s Market Letter – September 28, 1990

TABELL'S MARKET LETTER 600 ALEXANDER ROAD, eN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 September 28. 1990 As suggested lastweek the Dow .JonesI!1dustrillL Average penetrated sooner rather than later the August 23 low of 2483.42. posting a closing low on Thu'rsday of 2427.47—a correction to date of 19.08 from the July 17 high earlier this year. Examination of broader-based averages such as the Value Line Index (-24.88) and the NASDAQ Composite Index (-27.64) over the same time period does little to dissuade the investor of the severity of the decline. The market. having quickly answered for us the question posed last week. Will a test of the August 23 low turn out to be the ultimate low of the current cycle. should now be asked by us two obvious questions. First. How far will the decline go. and secondly. How long will the decline continue. The answer to the first part may be shown by measuring the past nine declines since the post-war period that were larger DJ II DAYS X CHANGE THIS SWING than 19. the decline in the market through Thursday. These percentage swings are shown in the table at right. together with the number of trading days in each period. 5 29 46 6 13 49 4 6 56 10 22 57 212 50 161 60 521 05 419. 79 0.00 -23 95 222.43 -19 43 a 857 1807 389 The average decline of these nine previous 12 13 61 734.91 75.07 periods is 29.32. This translates. in 6 26 62 535 76 -27 10 terms of the DJIA. to a correction of 880 2 9 66 995.15 85 75 points. and. if taken from the July 1990 10 7 66 high of 2999.75. would indicate a decline 12 368 5 26 70 744 32 985.21 631 16 -25.21 32.36 -35 94 il1 t\l. DJ!…A to .l!'..e2100 levl……..! a.!..e 1 1 L73 1051. 70, 66. 63 almost two-thirds of' the way toward that 12 -6 74 – 577 '60- 45 08- 1043 134 913 167 518 367 665 – 481—- objective. The 50-point-unit point-andfigure chart of the DJIA is helpful in putting this potential correction into perspective. The top formation. which. obviously. has broken out on the downside. indicates an objective in the 2200-1950 area. coincident with strong support present from the 1987 low. At this time. 9 21 76 2 28 78 4 27 81 8 12 82 8 25 87 1 9 27 90 1014.79 742 12 1024 05 776.92 2722.42 . ; 2427.48 75 69 -26.87 37 99 -24 13 250.41 -; ; -19 08 452 362 798 328 1273 38 693 51 it would appear that this support should limit the downside risk to this area. The second of the above questions is more difficult to answer because of the different types of market bottoms that have occurred in the past. The average number of trading days for the nine declines is 347. Assuming that there are 21 trading days in a month. the average length of the previous corrections would be approximately 16 months. Therefore. it is possible to extend in time the length of the present decline from the July 1990 high into the fall of 1991. However. it is. of course, not that easy. For example, the October 1987 decline lasted less than two months, and the June 1962 decline lasted a little more than six months before the low was reached. In both cases, these corrections were classical selling climaxes from an oversold condition and were over quickly. What we should expect, short term. in the market is a rally from its current. oversold condition. After- such a rally is completed, a test of the market's eventual low. -which we may have experienced this week. should be watched closely. Based on past market declines, for this process to be completed, we could expect a lower market some time into next year. Dow Jones Industrials (12 00) S & P 500 (1200) Cumulative Index (9/27/90) AWTebh 2418.56 298.15 4295.62 ROBERT J. SIMPKINS, JR. DELAFIELD. HARVEY. TABELL INC. No statement or expression of opinion or any other matter herein contained IS, or IS to be deemed to be, dtrectly or tndtreClly, an offer or the soltcltatton of an offer to buy or sell any secunty relerred to or menttoned The matter tS presented merely for the conventence of the subscrtber Whtle we believe the sources 01 our mlormalJon 10 be rellable, we tn no way represent or guarantee the accuracy thereof nor of the statements made hereIn Any actton to be taken by the subSCriber should be based on hts own tnvesllga\!on and InformaliOn DelafJeld, Harvey, Tabellinc ,as a corporallon and Its offIcers or employees, may now have, or may later take, posItIons or trades In respect 10 any secunlles mentIoned In thIS or any future Issue, and such posrtlon may be dIfferent from any vIews now or hereafter expressed In thIS or any olher Issue DelafIeld, Harvey, Taben Inc, whIch IS registered With the SEC as an Investment adVIsor, may gIve adVice 10 ItS Investmenl adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further Information on any securrty menltoned herelf'llS available on request