Tabell’s Market Letter – June 19, 1992

TABELL'S MARKET LETTER 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (6091987-2300 June 19, 1992 June has brought, along with roses and boneysuckle, what may be 1992's most serious market weakness to date, at least msofar as theDJIA is conpemed. Not that it is Iy aJj that. serious. The-'a..erage wasdown,asof ,esterdaycs CIose4.08 ..hardly an 4 earthshaking amount but, nonethelesS, the Year- deepest drop so far. Historicaliy;-weIlave looked for markets to move 5 or more before being willing to recognize a minor trend. However, the last downturn of 5 or greater took place over six months ago—the 6.93 fall in the Dow between October and Deeember of 1991. The previous one was the August-October 1990 bear market, and prior to that the last greater-than-5 drop was in October 1989, more than 2 112 years in the past. We mention this only by way of suggesting that market weakness has been a fairly rare commodity of late, and we therefore feeJ we owe our readers an assessment of the prospects of further weakness following what we might have regarded in the past as nothing more than a minor blip. At any rate, the current ten-point , P & F pattern for the Dow is shown at left. In many ways the exhibit can be said to be an embarrassment for the classical point- and-figure chartist, at least insofar as 1992 action is concerned. After its initial runup, which was over by mid-Januaty, the DnA stalled at 3290 remaining between that level and 3200 for three months, with a heavy level -DOW JONES-INDUSTRIALS – of trading activity producing the broad, tradingrange pattern shown at the middle of the chart. thirty-two points, closing at 3181.35 and touching a level some forty points below that on an intra-day basis. That action produced a downside breakout from an almost textbook version of a top. . A less likely top, though, could hardly be imagined. Starting the following day, the market put on six consecutive advances with the Dow moving ahead a total of 185 points, reaching 3366.50 on April 16th, crashing through to the upside of the massive trading range. Ironically, what seems to be taking place now is the formation of a pattern similar to the one which formed in Januaty-April. The latest Dow advance stalled just above 3400, and a toppy-looking trading range has ensued. Wednesday's forty-two-point drop looked very much like the false breakout of April 8th. Is the aftermath of this downswmg going to be another explosion into new high territory and, if so, should we forget about point-and-figure charting altogether We doubt it. False breakouts have occurred in the past, recently, it would appear, with increasing frequency, and will undoubtedly occur again. We think, though, that the trading ranges on the chart above show important levels of denumd and supply for stocks. One such area, in the upper 34OO's has proved, for the time being at least, to be unsustainable. 3300-3200, having turned out not to be a top, now shapes up as an important area of demand. Not coincidentally, the most recent putattve top formation suggests a move into it, roughly to 3210. It will be important for 3200 to hold. The first breakout below It may have proved false, but we would not be inclined to dismiss a second one. Even were such a breakout to take place, however, another area of demand would be encountered. We can observe this by enlarging the scale of our P & F chart to the 50-pomt unit shown at the right. On that one, the two recent ranges, shown by the arroWS, look tiny t but the next area of demand which eXlsts at, roughly, 3000-2900 shows up to be, in comparison. truly masSIve. Even Were the worst-case scenario to emerge and the 3300-3200 support prove ,, DOW JONES INDUSTRIALS MID 1987 50 POINT ephemeral, this lower trading area should provide massive support. It must, in addition, be DOted that even a deep penetration into that area would constitute nothing more than a drop of approximately 15, one we are used to calling nothing more than an intermediate-term decline. We are, It seems to us, in the midst of a market pattern that is stIll unfolding. As this pattern slowly matures, the areas of demand for the Dow, outlined above, will prove useful benchmarks as we try to assess probabilities. AN1HONYW. TABELL, CMT Dow Jones Industrials (1200) 3298.73 DELD,HARVEY,TABELL Standard & Poors 500 (1200) 404.08 Cumulative Index (6/18/92) 7286.32 No statement or expression of oplnton or any other matter herein contained IS, or IS to be deemed to be,dlrectly or Indirectly, an offer or the solicitation of an offer to buy or sell any secunty referred to or mentioned The matter IS presented merely for the convenience of the subscriber Whllo we believe 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 acllon to be taken by the subSCriber should be based on hiS own investigatIOn and information Delafield, Harvey, Tabellinc , as a corporation and lIs officers or employees, may now have, 01 may later take, poSitions or trades In respect 10 any secunbes menlloned In thiS or any future Issue, and such POSition may be dlfferen! from any views now Of hereafter expressed m !hJS or any o!her Issue OeJafJeJd, Harvey, TabeJJ Jnc, 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 or In any other Issue Further Informal!on on any security mentioned herein IS available on request