Tabell’s Market Letter – December 21, 1990

Tabell’s Market Letter – December 21, 1990

Tabell's Market Letter - December 21, 1990
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TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 – – — – —-. – – -' – – . –December 21, 1990-;, Our 1991 forecast should hardly be surprising to regular readers of this letter, since we have, essentially, been reiterating it for the past two months. Essentially, that forecast calls for the market to move lower in the early part of 1991, at least testing and, in all probability, breaking the October 1990 low. Once this unpleasantness is out of the way, we would look for a major bottom and the inception of a cycle bull market that should carry, not only through the latter half of 1991, but well beyond. Asked for the time and level of this bottom, we would hazard an educated guess, subject to revision, of sometime in the first quarter at approximately 2150 on the Dow. Let us briefly enumerate some of the factors which argue in favor of this forecast. It should be noted, first of all, that the drop from July through October of 1990 lasted for only 61 trading days, barely 2 1/2 months. With the sole exception of 1987, every bear market in this century has lasted longer. Additionally, such markets have involved a decline greater than the 20 the Dow has dropped so far. Moreover, as we have pointed out almost weekly in this space, there has been an almost total lack so far of the sort of selling-climax or takeoff-rally type of behavior which has, historically, characterized the transition from bear to bull markets. Finally, the point-and-figure pattern for the average suggests the strong possibility of the 2150 downside objective referred to above. Other reasons exist, but these will suffice. There exist, of course, alternative scenarios. The most obvious such alternative is the bullish one, this, unsurprisingly being the one that most investors would like to see turn out to be correct. This interpretation holds that the market did, indeed, bottom on October 11, and that a new bull market, of which the 11.18 advance through December 20 is a part, began at that time. If such is the case, of course, 1991 should turn out to be an entire rising year with an eventual move to well above the 3000 level. – – !!!-his vicw-is …\Je ….tllink ,-excce1ivc–!J-7'ctimictic. wcdocurr.nted- ccmc-!easone-fc! ocur-feeling- — —— – – thus in the technical factors noted above. There are, in addition, some economic arguments. It is now almost universally agreed (although not yet officially announced) that the U.S. economy is in a recession. We have, as technicians, been pointing out for years that the market leads the economy rather than the other way around, and we would expect the present market to bottom well before the end of the current economic contraction is reached. It would be unusual, however, for the market to reach its low almost at the outset of the recession. which would be the case were October 11 to turn out to have been a bear-market bottom. By early next year, though, the market, always prescient, should be able to see around the corner of what will then be a widely publicized recession. Thus our forecast. Yet another alternative outcome for 1991 would be a further extension of the bear market to lower levels with the decline occupying most of the upcoming year. We are willing to concede this one as a possibility. (The most bearish possible downside objective for the Dow is 1850, and we have noted that the market's failure to bottom in the first quarter would suggest the downswing's extension to year-end.) We are, however, unable to see any convincing reason why almost all of the advance from 1987 should be wiped out. There exists still a fourth possible scenario and, paradoxically, this is the one we find the most worrisome. This is the prospect of a sort of mini-upswing, approaching the 3000 level but exceeding it marginally, if at all. The point-and-figure pattern for the S & P 500, indeed, suggests just such an outcome, although the heavy overhead supply just above current levels diminishes its credibility. Such an eventuality could produce a major top significantly larger than the one which now exists. We may be forced, reluctantly, to pay more attention to this possibility at a later date, but it should at this point, we think, be regarded only as a tiny storm cloud on a distant horizon. It must be emphasized that our preferred forecast is. ree.lly. a bullish cne. probably the most bullish for the long term of all the alternatives discussed above. It calls for lower prices over the near term to be sure, but the prices we forecast are not all that different from lows already attained. It contrasts with disaster scenarios involving a major credit contraction and looks only for the continuation of a highly conventional bear market that should, fairly soon, reach a low, undoubtedly at the time the gloom-and-doom predictions become most visible. That low should constitute a major buying opportunity for common stocks. ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (1200) S & P 500 (1200) Cumulative Index (12/20/90) 2638.86 330.61 4845.72 AWTjb No statement or expression 01 opInion or any other mailer herem contained IS, or Is to be deemed to be, directly or mdlrectly, an offer or the sohcltallon of an offer to buy or sell any security relerred 10 or menllOned The mailer IS presented merely for the convenience of the subscnber While we beheve the sources of our Informallon to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements made herem Any action to be taken by the subSCriber should be based on hiS own Investigation and Information Delafield, Harvey, Tabe!! tnc as a corporation and ItS officers or employees, may now have, or may later lake, POSitIOns or trades In respect to any securlbes mentioned In thiS or any future Issue, and such POSition may be dlfferentlrom any views now or hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabelllnc, which IS registered With Ihe 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 secuflty mentioned herein IS available on request

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