Tabell’s Market Letter – February 08, 1991

-r—————————————————————————————————————— TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC 1609) 987-2300 February 8. 1991 Achetez sux canons, vendez aux clairons – -frerlchProvei'b- We suggested in this space on December 7 that there was little pOInt in worrying about a bull market sneaking up on us. Such markets, we noted, generally announce themselves. early in the game. with rolls of drums and blares of trumpets. This the current stock market did on January 17. with a 114-point rally. 1,500 advancing stocks and 300.000.000 shares of volume. It has been repeating that announcement loud and clear ever since. It has. really. been quite an amazing three weeks. The Dow was. on Wednesday. up 14.6 from its low of early January and an astonishing 19.7 from the October bottom. Since the January 9 low. the market has been up on 15 of 21 days and. perhaps even more unusual, there have now been some 13 consecutive days. and 16 days out of the last 17. on which daily advances exceeded declines. While all this was going on. trading activity boomed. with volume well over 200.000.000 shares on the past 7 trading days. To find anything in the way of a correction during the upside explosion. one needs to look at half-hourly figures. There have been. from January through just this Wednesday. three downswings lasting longer than an hour and a half, the worst case being January 28 -29. when the Dow was off 26 points between 330 on Monday and 1030 on Tuesday. It seems obvious to us that there can be only one factor cited to account for all this—the Persian Gulf War. Consider the market's position the day prior to the war's breakout. A 20 decline had bottomed just three months previous and had been followed by an unimpressive 11.5 rally. More than half the ground gained by that rally had been lost by January 9. and the December low had been broken, historically a bearish indication. Then came the war. and. almost immediately. the achievements of high-tech weaponry began to suggest a successful conclusion. The market has never looked back since. – – – – – . Why we must.a.ash-ourselvest should-this'be so!On6 reasonA-is,-essentiaHy-non-quar..tifiable- , , – . – but. we are convinced after 37 years of observing the stock market. none the less real. This IS the tendency of the American people to rally behind its leaders whenever a catastrophe or crisis takes place. One thinks of what this letter called the uJohnson confidence boom, following the assassination of President Kennedy. The polls suggest. so far at least. that the majority of Americans support the action taken by their government. The nOW-Ubiquitous flags and yellow ribbons are not, we think, unrelated to the stock market euphoria. The war, however, is likely to have a more tanglble effect. It was just six weeks ago that the majority of economists reached the consensus that we were, by then, in a recession. Now. before that recession has even been officially recognized, we are beginning to ,hear from seers that, given the stimulus of war production on economic activity. the recession may be short. possibly over by mid-summer, and relatively painless. Since the prognosis of a recession was the major fuel for bearish scenarios in the second half of 1990. the prospect of that recession's end has improved the market outlook dramatically. The quotation at the top of this page. translated. means Buy on the cannons; sell on the bugles. The axiom. not a bad piece of folk wisdom. suggests purchase of stocks on the outbreak of war and their sale when the sound of bugles heralds Victory. The first part of the advice has certainly proved true. Technical factors. however. would suggest that a fair amount of both time and upside action remains before we can test the validity of the second part. The chart pattern for the Dow indicates. minimally. a test of the previous highs with the most plausible upside targets centering around the 3.100 level. The reading. as we noted last week. can be confirmed by inspection of the individual pattern for the Dow components. Indications are, in other words, that the old high for the Dow. achieved just under 3.000 last summer. could well be exceeded. although not by very much. This suggestion )8 J interestingly, confirmed by .the study of previous long runs of days showing positive breadth. The present instance constitutes the 16th case since 1926 when there have occurred more than 12 such successive days. Such periods seem to have a tendency to occur not at the outset of a bull market. but following more or less severe declines taking place in the advanced stages of bull markets prior to those market's ultimate highs. August. 1960 and August-September. 1965 are cases in point. In summary. the evidence points toward a continuation of the markets upward course, but there is some likelihood that the advance, while worthwhile, may turn out to be relatively limited. There is also the suggestion that we may have to rethink the meaning of the August-october downswing of last year. That. however. is the subject for another letter and we feel that the market will afford us plenty of time to undertake such a reassessment. ANTHONY W. TAB ELL DELAFIELD. HARVEY. TAB ELL INC. Dow Jones Industrials (12 00) 2820.54 S & P 500 (1200) 375.03 Cumulative Index (2/7/91) 5259.78 AWTjb No statement or expression of opinion or any other matter herein contained IS, or IS to be deemed to be, directly or Inditectly, an offer or the solicltatlon of an offer to buy or sell any security re1erred to or mentioned The mailer IS presented merely for the convenience of the subscnber While we beheve the sources of our Information to be rehable, we In no way represent or guarantee the accuracy thereof nor of the statements made herein Any acllon to be taken by the subscriber should be based on hiS own mvesllgatlon and Information Delafield, Harvey, Tabelllnc, as a corporation and ItS officers or emptoyees, may now have, or may later take, posrtlons or trades In respect to any secunlles mentioned In thiS or any future Issue, and such poSition may be drlferent from any views now or hereafter expressed In thiS or any other Issue Detafletd, Harvey, Tabellinc , which IS registered With the SEC as an Investment adVisor, may gIVe adVIce 10 Its investment adviSOry and other customers Independently of any statements made In thiS or In any other ISsue Further mformabon on any security menlloned herein IS available on request