Tabell’s Market Letter – April 10, 1992

TABELL'S MARKET LETTER 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC 1609) 987-2300 April 10, 1992 We published in this space three weeks ago two charts. The first of these was a short-term (lO-point-unit), point-&-figure chart rI– of the-Dow-which.-wesuggested,-hnd-broken-cut-cf-wh&t—a.ppcarcd to bc-minor-topTTh-5trei1glli-ofl1rarweek-(the A'lerage-..vas'wlue–I,, mid-32oo's) constituted, we thought, a move into overhead supply and was, therefore, likely to dissIpate. The second chart in that letter was one of the Nikkei Index, and we noted that the Japanese indicator's move below 2O,000–at which level it had already been cut almost in half–was, to say the least, ominous. This week, of course, Japan hit the front pages. By Thursday, the Nikkel was at 16,Soo–iown 18.5 over just 13 tradmg days before a sharp Friday rally retraced part of the loss. The Japanese market is admittedly volatile, but this was one of the deepest plunges in its history. The U.S. market encountered a few equally steep drops in the 1930's. The only one remotely comparable in recent years would be, of course, the DJIA's fall of 34 in 11 days in October, 1987. As far as Tokyo is concerned, we have little highly original to say. Technical analysis is now a widely-practiced discipline, and many of our colleagues have noted the depressed volume on the fall so far, suggesting that large sellers are not bemg accommodated and the unlikelihood of a near-term bottom. On the fundamental side, experts are divided on the potential impact of an ongoing Japanese collapse on U.S. stock prices and, indeed, the outlook for the Japanese economy. Some of these experts are, of course, the same ones who were suggesting a few years ago that the Japanese were financial geniuses who could commit no economic wrong. In any case, let us reexamine the technical position of the U.S. market, this time with a 20-point unit chart as shown at left. It depicts the almost- straight-line advance in which the Dow, which was well under 2900 in early December, was, by the second trading day of 1992, above 3200. (The S & P 500, on that date, was less than a point away from its all-time high, which would be scored two weeks later.) For all nf QQ so f lIv the market hasl1l9yed sideways, or, in the case of the S & P, sideways with a slight downward bias. This week's Japan-insprred weakness decisively penetrated that sideways trading range on the downside. There is a very simple conventional interpretation of this pattern -that it is a top which should be measured across the line A-B, yielding a downside objective of 2900. There are, of course, a DOW JONES INDUSTRIALS MID 1991 couple of additional pomts which need to be made. 20 POINT First, the breakout could be false—see mid-December 1991 for an example of such an occurrence. Second, an alternative reading is possible. If one accepts our original interpretation of three weeks ago, that the top was complete at that time, and the subsequent upside action was merely a failed move into overhead supply, then the downside target is more conservative— approximately 3040. In either case, we think that yesterday's and this momings probe back into the mid-32oo's is likely to be turned back by the overhead supply as was the one which preceded .t. Technical analysis is, in part, the study of trading ranges, and the reason we show a bit of history on the chart above is to show part of the long trading range which contained the market for almost all of the last three quarters of last year. Again, to review the action, the Dow moved up from a pre-Desert-Storm low under 2500 in early January reaching above 3000 by early April. It subsequently made four downside probes at 2900-2860 before rebounding each time. For the record, some 39.4 billion shares traded between the time the Dow first moved through 2860 in mid-February 1991 and the attainment of a new high on the day after Christmas. The tenets of technical work hold this to be support-an area of demand. Similar areas of support, from approximately the same time- I period, exist for most of the other major ave….ges, around 1250-1150 for the Dow Transports (1348) and at 390-375 for the S & p Composite (404). We expect this support to hold. The tops for the averages count mto it, not below it. These readings seem to be confirmed by the patterns for individual stocks. For the most part the potential tops do not seem, at the moment. to be of major proportions. Moreover, a great many of last year's market leaders, some of which have taken moderately severe beatings, have reached their downSide targets and their vulnerability from these levels appears limited. Our current favored scenario, in other words. is for a minor- intermediate, not a serious market drop. ' We expect, therefore. that the stock market will be a buy if and as the support levels mentioned above are reached. Nonetheless, as is always the case, the behavior of the market at those support levels will be Important. FaIlure of demand to materialize at those reduced prices could raise some serious questions, ANTiiONY W. TABELL, CMT DELAAELD,HARVEY,TABELL Dow Jones Industrials (12.00) 325447 Standard & Poors 500 (1200) 404.32 Cumulative Index (4/9/92) 7221.64 No statement or expression 01 opinion or any other matter herein contaIned IS, or IS to be deemed to be, directly or Indirectly, an offer artha sohcllatlOn of an offer to buy or sell any securrty referred 10 or menlloned The matter IS presented merely for the convemence 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 laken by the subscnber should be based on hiS own Investigation and Information Delafield, Harvey, Tabelllnc, as a corporallOn and rts officers or employees, may now have or may laler lake. pOSitions or trades In respect to any securrtles menhoned 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, labell Inc which IS registered wrth 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 Information on any security mentioned herem IS available on request