Tabell’s Market Letter – October 26, 1990

———- TABELL'S MARKET LETTER I ——————————- 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 October 26, 1990 The sharp rally of last Thursday and Friday, which moved the Dow Industrials up some 200 points on an.intra-day basis, failedto follow. through.in thiswp;ek's .trading ,which. could .. aLbest , be '. . described as mixed. There was, in the week's action, little to suggest that the bear market, for which the low so far is 2365.10 on October 11, does not remain intact. One lonely bright spot, however, shines out on the current dreary market scene. This is the action of utility stocks, which have been dramatically outperforming the rest of the market since late last summer. The DJIA, as we noted last week, has posted 8 series of three consecutive lower lows. in late August, late September, and mid-October. There exist three corresponding lows for the Dow Utilities, but these lows show an obvious uptrend—187.94 on August 24, 195.55 on September 28, and 201.02 on October 11. On October 22, the Utility Average closed at 210.89, a level 10.44 above its August low. —-'-' ,0 2I ,,I 2 b I, I ,7, I . DOW J1JJJJIURU …..,…' IJ , ,I .J I ,., .. II II II II II II , II DOW JONES I, I ! It4DU. RI 6,L VERAbE ,-..,.-,—-1 It — 1,I '— I;1,- -.. – – I I'I,.1.. ! ., 4// I ' NV ( II 11 I II I r l' I I II II II liy II ; I !, I II II II II II I I ,I ,, , I ,I I, I, It has been suggested by many commentators that this action is builish, and it cannot be denied that it has some positive implications. These derive from the fact that, in bear markets, the Utility Average often bottoms well before the Industrials, and current utility action is, therefore, consistent with October 11 having been a bear-market low. The solid lines on the chart above show all Dow Jones Utility low points since 1949, using a 10 filter to define highs and lows, and it can readily be seen that these lows have often occurred well in advance of DJIA bottoms. There exists, however, a practical difficulty in using the Utility Average as a forecaster for the rest of the market. This Ues in the difficulty of recognizing when a low has actually occurred. We know, for exsmple, that the most recent low for the DJUA occurred in August, but it is entirely conceivable thatthis J!lW may later. 11,, exceeded. along with, presumably, low.erlevels. for the Industrials. One solution to this problem is to recognize a Utility low as having occurred only after the average has advanced by 10. This, of course, is what has occurred in the present case, and past such occurrences are noted by the dotted lines on the chart. Again, there are a significant number of cases when this action occurred in the early stages of bull markets. There have, however, been some false indications. n January, 1970, for example. the utilities had fallen 25 from their 1968 high. They then posted a rally which exceeded 10 on March 2, 1970, at which time the Dow was at 780.23. It, of course, later reached a low almost 20 lower at 631.16 the following May. A similar utility rally took place in early 1974, and the market declined throughout that year, ultimately reaching much lower levels. Good utility action at the moment. then, is basically positive, but we would await more definite evidence of market strength before relying on it in the present instance. ANTHONY W. TAIlELL Dow Jones Industrials (1200) 2468.07 DELAFIELD, HARVEY, TABELL INC. S & P 500 (1200) 307.07 Cumulative Index (10/25/90) 4250.84 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 or the soliCitation of an offer to buy or sell any security referred to or mentioned The matter IS presented merely for the convenience of the subSCriber While we beheve the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements made herein Any action to be taken by the subscriber should be based on hiS own Investigation and Information Delafield, Harvey, Tabelllnc, as a corporation and ItS officers or employees, may now have, or may later take, posliions or trades In respect to any securities menl10ned In thiS or any future Issue, and such pOSition may be different from any views now or hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabellinc , which IS registered With the SEC as an Investment adVisor, may give adVice 10 rts Investment adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further information on any security menlloned herein IS available on request