Tabell’s Market Letter – October 19, 1990

TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 JI October 19. 1990 We have absolutely no apologies for having spent the last month on vacation in Australia. First of all. watching the stock market decline is neVer a pleasant experience. and we escaped such an experience by being away over the past four weeks. Secondly. absence often involves surprise. unexpected market behavior. This was' not tl'\ieiTItiitr!present case;–howevel;-since the 'aeterioFation -.- that occurred prior to our departure led to the expectation that the market would be lower on our return—as. indeed, it was. Among the events that took place on our holiday was the Dow's exceeding the 20 threshold we have normally used to measure cycle-magnitude bear markets. Thus. July 17. 1990 can now officially be noted as the ending date of the bull-phase which began in October 1987. and the technician's current task will be to identify the low of the bear phase of that cycle. For comparison purposes. we are listing the eleven completed market cycles from World War 11 together with the statistics for the current decline to date. There is nothing in these numbers. it must be admitted. that suggests that the current downswing is oVer. As the table shows. the decline in the downswing to date is just 21. and every bear market since 1961 has been deeper than that figure. Secondly. it STARTDJIAENDDJIA7.CHG DAYS has consumed so far only 61 trading days. a timespan which Ma'J 2'1 1'146 212. 50 act '1 1946 163 12 -23 24 '13 Jun 15 1948 1'13.16 Jun 13 1'14'1 161 60 -16 34 281 must be considered inordinately Jan 5 1953 293.79 Sop 14 1953 255 49 -13 04 176 short. There exists a natural Jut 12 1'157 520 77 act 22 1957 419 7'1 -19 39 71 tendency on the part of investors Dec 13 1'101 734 '11 Jun 26 1962 535 76 -27 10 134 to remember the most recent cycle Fe. '1 1966 '19 1 Oc t 7 1'166 744. 32 -2. 21 167 with the most clarity. and as Dec 3 1'168 985 21 Ma 26 1970 631 16 -35 '14 367 precipitous, the bear market of August – October 1987 may have ; ; .; 2 ; g . 481 362 Apr 27 1'181 1024.05 Aug 121'182 77692 -24 13 328 been. it was pleasantly short. Aug 25 1'187 2722.42 act 19 1'187 1738.74 -36 13 38 completing itself in. just 38-,.;J;U.;tI.;7,.1.;9..;'1..0,…2;'19'17..;5….0;C,.t-I..1—19'10 2365 10 -21 16 61 trading -. – – – . – – days-; .—-.— The table quite clearly shows this type of action is highly unusual. as most downswings have tended to consume more time than the 61 days the present one has occupied. Even the relative shortness of the 1957 decline is misleading since the real top can be said to have occurred over a year before. in April 1956. Absent reversal evidence. therefore. there is little reason to expect the present downswing to be over anywhere in the near term. and there is a fairly strong likelihood that it may continue some time into 1991. Reversal evidence. as Bob Simpkins noted in this space over the past four weeks. has been conspicuous by its absence. There have been to date three distinct declining phases. since the July 17 high of 2999.75. The first ended on August 23 with the Dow at 2483.42. The next important low was on September 27 at 2427.48. and after an early October rally. another new low was posted on October 11 at 2365.10. This has been the lowest figure reached to date. None of these three bottoms can be said to have demonstrated action resembling a selling climax. Only on the first of the three. back in August. was an oversold condition reached and on none of them has there taken place the kind of increased volume which one would associate with a climax decline. At best. there has been some indication. in recent market action. that the decline has lost some of its momentum. It has been pointed out. for example. that the August 23 market low market saw 707 new daily 52-week lows. while the two SUbsequent bottoms reflected new low figures less than this. 407 on September 27 and 375 on October 11. Unfortunately. a glance at the record suggests that this action is less bullish than it might appear. Indeed. in most cases. the peak number of new lows is achieved well before the average's bottom both in terms of time and of percentage drop. A notable example is the 1973-1974 decline where the highest daily new low figure achieved was 858 on May 21, 1973. The final bottom in the market occurred almost a year and a half later in December 1974. Admittedly. there were only 297 lows on that date. but the Dow had declined to 577.60. Inve'stor's also-tend -to remember-th— 1981198Ybottom as characterized by a decreasing downside momentum and fewer and fewer lows. This is indeed true. the peak new low figure having been 590 on September 28. 1981. However. the Dow was at 842.56 and did not bottom until 211 trading days later in August 1982 at 776.92. Thus. eVen if August's new low figure is never exceeded on this downswing, the market is not immune against further decline. As Bob noted last week. the most plausible downside targets are in the 2200-1950 area. which would produce an ultimate decline in the 26 to 35 range. This. as the table above shows. would be a totally conventional bear market. As these levels are approached. it would be normal to expect market comment to become more and more apocalyptic. The most plausible reason for such comment would be the structural weakness of the U.S. financial system. and it must be recalled that there is. in almost all bear markets. a plausible reason for the market to be going down. this plausibility being the most obvious at just about the time the market is reaching its low. However unpleasant they may be though. history suggests that bear markets are a perfectly normal part of cycle-market behaVior and present. at their lows. unique buying opportunities. Such will be the eventual case with the current downswing. Dow Jones Industrials (1200) 2478.96 ANTHONY W. TABELL S P 500 (1200) CumulatiVe Index Cl 0 /J 8/90) 309.39 4187 42 DELAFIELD. HARVEY. TABELL INC. No statement or expression of opinion or any other matter herein contained IS, or IS to be deemed to be, directly or Indirectly, an offeror the soliCitation of an offer to buy or sell any secUrity referred 10 or mentioned The matter IS presented merely lor the convenience of the subscnber While we believe the sources of our Informallon to be reliable, we In no way represent or guarantee the accuracy thereof nor olthe statements made herein Any acllon to be taken by the subscriber should be based on hiS own investigation and Informallon Delafield, Harvey, Tabelllnc, as a corporation and Its officers or employees, may now have, or may later take, poSitions or trades In respect to any securttles mentioned In thiS or any future Issue, and such posilion may be different from any views now or hereaiter expressed In thiS or any other Issue Delafield, Harvey, Tabellinc , 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 mformalton on any secunty mentioned herein IS available on request