Tabell’s Market Letter – March 15, 1991

TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 – March 15. 1991 The recent advance of the Dow Jones Industrial Average toward the 3000 level would suggest —-;— that-a -closing over-this …level-in-the-near-future .. is… a…. distinctpos5ibility–'However, whattype– – – . — … ;(- of market and and how far over this ieve1 remains the interesting but unanswered question. A plausible scenario or this recent advance in the market, which iS 9 of course, over simplified. goes as foUows—lower interest rates in the bond market result in higher prices of long-term Treasury issues. this in turn triggers index-arbitrage buy programs. which sent buy orders to the floor of the 'New York Stock Exchange cauRing stocks to advance sharply. This is precisely what appears to have happened this week through Wednesday afternoon. pausing briefly for the rest of the week for the triple watching hour to unwind on Friday. Last week this leUer analyzed the strength of market breadth and the extent of the current market rise to date. By utilizing the same raw advance/decline data. it is possible to show how much farther the market could in fact advance based on the past history of this series. The table below shows the ten day average of advances divided by the ten day average of declines. Starting in 1949. this series has produced 17 periods when the ration has exceeded 2.0 or more. In many instances. the ratio, reflecting a strong broad market advance, was over 2.0 for a number of consecutive days. – — ADVANCES DECLINES DAYS 144 DAYS 10 DAY 10 DAY OVER TODAYS FORWARD DATE AVERAGE AVERAGE RATIO 2,00 DJiA DJiA CHANGE .JUL 14 1949 476 230 2 072 2 173, 59 200 13 15 289 NOV 20 1950 586 291 2 012 1 231. 53 252,08 8 876 JAN 26 1954 590 294 2 011 1 292.85 350 38 19 b45 JAN 24 1958 610 305 2 003 1 450 66 503.64 11. 756 JUL 12 1962 753 318 2 370 2 590 27 682. 52 15 628 NOV 15 1962 719 348 2 065 5 629 14 721 43 14 669 ..JAN 18 …. 1-96-7—-855 01—2—1-84-a—e4'l916–J2–S-i22 DEC 7 1970 950 448 2 122 2 818 66 890 19 8 737 JAN 15 1975 1025 465 2 207 4 653.39 823 76 26 075 FEB 3 1975 984 486 2 025 1 711 44 829,47 16 590 JAN 16 1976 1047 498 2 101 9 929 63 986.79 6 149 AUG 30 1982 1113 529 2 105 6 893 30 1145 90 28 277 OCT 14 1982 1109 541 2 050 2 996 87 1229 68 23 354 OCT 19 1982 1139 568 2 004 2 1013,80 1218. 75 20 216 JAN 15 1987 FEB 6 1991 FEB 12 1991 1173 110 1110 497 2 358 2 2070, 73 2680 48 29 446 509 2 169 2 2830 94 o 00 o 000 549 2.024 2 2874. 75 o 00 0,000 – –.- What is interesting about this series is the behavior of the market after the peak in each ratio is made. By comparing the DJIA from each peak in the ratio to a period approximately six months (144 trading days) forward. an unexpected phenomenon of this momentum indicator is observed. Rather than indicating a possible correction from an over-bought condition. i.e. a strong plurality of advances over declines for a minimum of ten days, we find the average advance for the first fifteen observations since 1949 has been 16.85 percent with the market being higher in every occasion approximately six months after the peak. If we were to apply this average percentage advance to the two most recent peaks in February of this year, an upside projection in excess of 3300 would be Indicated sometime in the fall of this year. There can be no doubt that we 'have had since January of this year an impressive dynamic stock market advance—from January 9 through March 6 the DJIA has increased 20.36 percent in just 39 trading days—in a short period of time. Since such rallies generally take time to lose momentum, it would appear likely the rally will continue. Higher prices are indeed indicated. The 'projection' of 3300 'mentioned-abOve falis within the -upside objective of 3100 from a short base formation last fall and, going back to the 1987 -88 base that remains intact, an upside target of 3400. All this brings us back to our original unanswered question, Is this a mature stage of a bull market started from the October 1987 low or the start of a new bull market Point and figure chart analysis and momentum indicators such as the one discussed above would, for the intermediate term, argue for higher levels in stock prices 10-15 percent above current levels extending possibly into the fall of this year. If this is true, it appears a positive market environment is currently present while we wait for the answer to unfold. Dow Jones 'Industrials (12 00) S & P 500 (1200) Cumulative Index (3/14/91) RJS jb 2944.06 373.26 5847.98 ROBERT J. SIMPKINS, JR. 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 offerlo buy or sell any security referred to or mentIOned The maner IS presented merely for the convenience of the subscnber Wh1Ie we believe the sources of our information to be reliable, we In no way represent or guarantee the accuracy thereof nor olthe statements made herein Any aclion to be taken by the subSCriber should be based on hiS own Investigation and InformalJon Delafield, Harvey, TabeU Inc, as a corporatIOn and tis offICers or employees, may now have, or may later take, posillons or trades In respect to any secUrities menboned In thiS or any future Issue, and such postllon may be different from any views now or hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabelllnc, 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 Information on any security mentioned herein IS available on request