Tabell’s Market Letter – June 05, 1992

TABELL'S MARKET LETTER 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 June 5, 1992 It IS, to put it sImply. boring. For all of 1992 so far, almost a half-year now, we have witnessed the same sort of stock market. What -has basically been taking place, asthe mediacertainly do-not tire of telling us; is that-the DoW-Jones-Industrial Average has been – moving ahead–although not by all that much–while just about every other market indic;'tor remains in a neutral or downward trend. The record is worth examining. The Dow closed 1991 at 3168.83. On Monday, it reached 3413.21, breaking 3400 on a closing hasis for the first time. (Eventually, one would hope, these crossings of even-hundred-pnint figures will become so ubiquitous that we won't have to menlton them anymore.) At any rate, this constituted an advance of 7.71 , a number which can hardly be called earth- shattering. Periods of comparable length during which the Average has advanced 20 have heen common during the 1980's and 1990's. The rise has, nonetheless, heen a persistent one. For example, there have heen, through Wednesday, 105 trading days in 1992. The Dow has posted a new bull-market high on 22 of them. This works out, on average, to a new high's being posted somewhat oftener than once every five days. ThIs average compares quite closely to the actual experience. There was a thirty-day hIatus between March 3rd and April 14th during which no new high was made. (The total decline involved was only 3.31 ). Ontside of this one period—and one other lI-day gap in April-May- there has been, Ibis year, no period of longer Iban seven days when a new high was not made. We are not trymg here to invent a number Or yet another mtereshng fact not worth knowmg. We think there is a psychologically positive value to an environment in whIch mvestors are able to read in the paper, about once a week, that a new high is being made. This persistence on Ibe upside provides a contrast with the noiddle part of 1991, with which this market has often been compared. There was, at that time, a sinoilar slight upward bias, but Ibe interval between new highs being posted was much greater. Between April and October there were only seven days on which new highs took place with. obviously, extensive gaps in between. Meanwhile, as everyone is aware, the Dow's performance. unexciting as It is, is far superior to the record of just about any other measurement. On Monday, when the Dow closed almost eight percent above its 1991 final figure, Ihe S & P 500 had moved to a level just twenty-one one-hundredlbs of point below ilB 1991 close. We all know the approXImate record of Ibe 500 Its high was aclueved back in January at 420.77, and it has not been able to equallbat peak SIDee, despite those 22 new highs m 1992 for the Dow. Between January and Apnl it fell some 6.24 and, indeed, at its high of Ibis week, was under where it had heen back on May 11th. -Or,-for an example of-even-worse-performance;-let-uscolisider-secondaty-stocks. The OTe-Industrial Index-currently stands- four percent below its 1991 close, and its recent performance actually is not all that bad. Between Its high (also in January) and a low m April, it fell by almost 17 . It has sinee managed to recoup about a quarter of its loss. It has been suggested that part of Ibe reason for the superior performance of the Dow has been the no no fact that it is an Industrial average, and that 1t is cyclical, heavy-industry companies that have prOVIded no no market leadership in recent months. One of the 'b'blP III ,lllll rl I….. 1',1' .11 . .I'lIII — , ,.100..1111 Il .- II ! rI (relatively) rew stocks that have been appearing of late on the new-high list is, as a typical example, Almninmn Company of America, a Dow component, whose two-point unit, point-and-figure chart appears at left. It can hardly be called a bad chart The base in Ibe 50-74 area formed smce late 1989 and shown by the dashed lines is impressive and the ability to reach ALUMINUM COMPANY OF AMBUCA 2POINT AA new peaks suggests the potentIal for an upside target close to twice current levels. One can, though, be pardoned for wondenng, just what combination of circumstances is going to be required to produce such a figure. For 1991, Alcoa earned 71 cents per share. This was, admittedly, after one of those one-time charges wmch have turned out to be Ihe bugaboo of analysts Thts charge amounted to 2.55. Even after it is removed, though, Ibe pie IS close to 25. Ab, but we have that magIcal recovery in prospect for 1992 which presumably will cause everythmg to come up roses for cyclical companies. Not, apparently. for Alcoa, though. since consensus estimates call for operatlOg results to be flat for 1992. (First quarter earnings were down.) It is perfectly pOSSIble to argue, of course, that. as m any cyclical company, peak earning power for AA is a good deal higher. Indeed eammgs of over 10 per share were posted in 1989 It is less easy to argue that a prenoium multiple should be applied to those eammgs, if as and when they emerge. Indeed, Alcoa's high for 1989, the year m which those earnings were posted, was about the same as today's pnce Now we are, of course, technicians. and. as such, we have a great respect for the market. It is lOdeed quite plausible that. in the chart pattern for Alcoa and in its perSIstent firmness for 1992. the market is telling us that the prospects for recovery are a great deal better than those contatned lD forecasts aV3.11able so far. It would by no means be the first time In financial history that the market has proved to be a better forecaster than many experts. Full valuations and lack of market breadth, though, make the investment outlook in mid-1992 a perplexmg one ANTHONY W. TABELL, CMT Dow Jones Industnals (1200) 3381.06 DELARELD, HARVEY, TABELL Standard & Poors 500 (1200) 412.17 Cumulative Index (6/4/92) 7418.25 No statement or expression of opinion or any other matter herein contained IS, or IS to be deemed to be, directly Of indirectly, an offer or the soliCitation of an offerle buy or sell any security referred to or mentioned The matter IS presented merely lor 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 taken by the subscriber should be based on hiS own Investlgallon and information Oelaheld, Harvey, Tabelllnc, as a corporallon and Its oftlcers or employees, may now have, or may later take, posItIOns or trades In respect to any securities mentioned 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 Oelafleld, Harvey, labellinc , 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 Fur1her Informallon on any security menlloned herein IS aVailable on request