Tabell’s Market Letter – January 25, 1991

Tabell’s Market Letter – January 25, 1991

Tabell's Market Letter - January 25, 1991
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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 January 25, 1991 lVe spent approximately tlalf of last weeks letter discussing market action for one single day-,-Januar7, lY9L We intend tospnd t!tis week's edltion.,going into.furttler detail on the same subject. This could-;oCcOUrse,be described'asoVei'kill. Whatrefevance;-the reader may' – well ask, can one day's trading tlave to ttle long-term stock market outlook The answer is quite a bit, if action on ttlat particular day is sufficiently unusual. For there are, technicians have long recognized, short-term patterns that can occasionally afford an insightful glimpse into ttle longer-term, supply-lemand picture. One such pattern, noted by some of the earliest writers, is the selling climsx, In which the market moves down sharply on dramatically increased volume and then turns and, on equal volume, moves sharply to the upside. This is caused. theoretically, by panic selling, which, finally exhausted, is replaced by informed buying once the wave of liquidation has run its course. There is evidence that this sort of pattern has subtly altered in recent years, with ttle first half, the panic-liquidation phase, often being absent. The institutional investors who dominate todays markets, it is reasoned, are less apt to become fear-crazed sellers, but can be stampeded into buying once an oversold market gives evidence of turning. An especially sharp market rise, therefore, is not without significance. The 114-polnt rise in the Dow last Thursday can certainly be appropriately described as sharp, amounting, as it did, to 4.57. If one gauges that day against the vast panoply of stock -market history, it is not all that- exciting, ttlere tlaving been no fewer than 87 larger daily rises since the first computation of the Dow in 1897, and, in the same period, 105 advances of 4 or greater. We need, however, to remind ourselves of the fact that, where market volatility is concerned, the 1920's and 1930's were an era entirely unlike the current one. Of ttle 105 greater-than-4 rises, no fewer ttlan 80 occurred between 1926 and 1940. There followed 17 years, until 1957, before such an upswing again occurred, and, as noted last week, there tlave been only 15 cases since then, within which category January 17, 1991 ranks eighth in terms of perc,,-ntag!lva,,-ce. The association of 4-plus rises with turning points is -unmistakable. There have been. since that time, eight completed bear markets, seven of which had one or more 4 rises associated with their low. In 1957, a sharp advance occurred one day after the market low on October 22. The actual low of the 1962 bear market was at 535 on the Dow in June, but an initial low of 576 was followed by an unusual single-lay rally on May 29. 1970 also saw a large rally ttle day after the bear-market low was posted. In 1974, there were two more-than-4 rallies in October, from the 601 and 633 levels on the Dow, before the average finally bottomed at 577 in December. The 1976-78 bear market was peculiar in that the actual selling climax did not occur on the February low, but ten months later on a test of that low. This was the famous Halloween Massacre, and it was duly followed, on November I, by a 4.4 rally. An additional climax occurred on yet another test, in April, 1980. Finally, the August 12, 1982 bottom was followed five days later by an almost-5 advance on August 17, and two more similar rallies on October 6 and November 3. The two days following October 19, 1987 each produced huge advances, the 10 rally on October 21 being the largest since 1933. To reiterate, of eight bear markets over 33 years, the bottoms of seven have been associated with 4-plus rallies, the only major bear market failing to produce such a phenomenon being 1966. Likewise, the only greater-than-4 advance not associated with a bear market low in these 33 years occurred on November 26, 1963, following the important intermediate-term break set off by the Kennedy assassination. The January advance can also be considered unusual in terms of volume, the 318 million stlares which traded being 2.185 times the 25 -lay average. This manifestation is rare and has taken place only 18 times since 1957. As is the case with 4 rises, these instances have tended to be assooiated with importnt bottoms. Althouh no,such dey cccurred,ln 1966, 1970, or 1974, five of the large rallies discussed above were also heavy-volume days. Finally, there were, on January 17, 1,519 advancing issues, which constituted almost 75 of all issues traded. This number has been bettered only 38 times since 1957, and, once more, the bulk of these instances were associated with major-cycle lows. There are a number of reasons, most of them familiar to our readers, why we are unwilling quite yet to pronounce the end of the 1990–9 bear market. It must be admitted though, that last Thursday's trading constitutes an impressive phenomenon, suggesting that the lows of earlier this month could very possibly constitute an effective bottom. Certainly any further evidence of internal strength in the market would suggest, at the very least, a relatively beneficent intermediate -term outlook. Dow Jones Industrials (12 00) S & P 500 (1200) Cumulative Index (1124/90 AWTjb 2652.72 336.35 4727.37 ANTHONY W. TAB ELL DELAFIELD, HARVEY, TABELL INC. No statement or expression of oplmon or any other matter herein contained IS, or IS to be deemed to be, directly or Indirectly. an oHer or the solICitation of an cHer to buy or sell any security referred to or men\!Oned The matter IS presented merely for the convenience althe subsCriber While we beheve the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor afthe statements made herein Any acllon to be taken by the subscnber should be based on hiS own Investlgabon and rnformattan Delafield, Harvey, Tabell Inc. as a corporallon and Its officers or employees, may now have, or may laler lake, poSitions or trades In respect to any securrbes mentIoned tn 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 to liS Investment adVISOry and other customers Independently of any statements made In thiS Of In any other Issue Further Information on any seCUrity menlloned herein IS available on request

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