Tabell’s Market Letter – June 26, 1992

—– —–o— – – – – – – – – – – – – – – – – – – 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 26, 1992 Most of the week's-marlcet action featured.u'OCovery attempt-from the decline which bad-reached a closing DJIAJow of – 3274.12 last Thursday. There occurred a couple reasouable advancing days-over 1000 advancing issues last Friday and this Thesday. The Dow, however, pulled back as it touched 3300 at mid-day yesterday. 'This w.. not surprising. 3400-3300, the area of the original top on the Dow constitutes fairly heavy overhead supply, and a great deal more demand than bas so far beeu manifested i. going to be required for that supply to be penetrated. II remains our suspicion that the present test of the overhead will be unsuccessful and that the curreut short-term decline will press on to new lows probably somewhere in the low 32OO's. As we noted last week, we think the ability of the 3200 level to hold will constitute Ihe next important markel test. Meanwhile, the familjar pattern of the Dow's outperforming jusl iIbout everything else in sight continues, and the other indices continue to form their own patterns. As recently as Thesday, the Dow Transports moved to a now low below 1300, suggesting an ongoing downtrend. 'This drop, moreover, takes the DITA below its bottom of April 8th, a figure which the Industrial., whose April low was 3181, have not yet breached. The Transports are now down some 12 from their February closing high of 1467.68. As i. the case with the Industrials, it would appear that the DITA is about to test major support, the demand level for this indicator occurring, roughly, at the 1250-1100 area. The exi.ting top would suggest that a good .iud thrust into this support area 'llight take place. As is the case with the DJIA, a break below this support could have .erious consequences. The Dow Utilities have, for whatever reason, the best pattern of all the major averages. An outstanding very-long-term patlern developed when, in early December oflast year, this index moved above the 220 level. Since that time its relative action has been poor, and it has nol been able to po.t a new high in 1992. Indeed, in March-Apnl il moved down into the low 200'., testing an area of strong support. At the moment, the Utility Average's ability to move above 215 would ,uggest thaI an attempl al thaI late-1991 peek IDIght be made. A break below 210 would po.tpone this but would, at the moment, call for nothing worse than another probe into the strong support. The S & P Induslrial. and the similarly-onfigured NYSE Industrials are now close to important tests. Their price patterns both look vulnerable and are-close-to.importanldownside.breakouts.-For-theS&-P-indica\or the-dowoside-breakoul-levelwouJdbe 470 vs. a— close last oighl of 474.81. The NYSE Industrial Average, noW at 274.73 would break down at 272. Given downsIde breskouts, the prospecl for both averages would be a tesl of support, al 460-440 for the Standard and Poor's Index and al 270-260 for the New York Stock Excbange Indicator. If utility averages, as suggested above, bave the best long-term potential patterns, the best immediate relative strengtb i. being shown by financial indicalors. The S & P Financial Index was attsining new high, earlier thi. month above the 35 level. It has since pulled back only modestly from those highs. Moreover the ability to break above 32 early this year strongly suggests that the post-1989 tradiog pattern might have heen a head-and-shoulders base with ultimate targets in the high 40's. When we come to discussing the patterns for those averages covenng secondaJy stocks, some interesting issues arise. Let us begin with the OTC Industrials. 00 February 12th of this year that index reached a high of 741.90. It was, at that point, up 115 from its October, 1990 low. 'This was a rise betwOOD two and three times as greal .. thaI of the S & P 500, which rose only 41 over the ssme period. However, since thaI February high, il bas moved down to a low of 584.80 last Thursday, a fall of 21.18, one whicb, if il had taken place in one of the major averages, we would bave to call a major bear market. The important question i, how much of this recenl weakness is of cycle proportions and how much is simply due to the greater volatility of OTC .tocks. True, the 2O-plus decline so far this year is more than four times as great as the comparable Standard and Poor 500 drop of a bjt under 5. However, even at its low of last week the over-the-counter indicator is ahead 70 from its 1990 low while the Composite is up only about 35. What would be truly useful to know is whether, on a long-term basis, we have ended the long era of underperformaoce by secondarY stocks and embarked upon a cycle-length period of outpcrformance. As our readers know. it IS our own view that this is the case, and that a new era of better action by secondary issues began in 1990. None of this, however, is to deny that wide swings in secondaries will not continue or that such issues will not continue highly wlnerable in weak markets, as has been the case of late. Laslly, il is n….sary to consider the queslion of breadth. As could well be expected, with the DRA strongly outperforming mo,t broader averages, it has also been outperforming all breadth indicators. Our own daily breadth index made its high 00 February 12th–back in that January-March period when most non-DRA av.rages were reaching their peaks.. It reeched a new low and Its maximum divergence from the Dow in mid-April. ThaI mid-April low, intereslingly, was broken lasl week. It i. now 92 days since breadth reacbed its high, and, when the Dow peeked back on June lst, the divergence was 75 days long. Breadth divergences have lasted longer than this, but the index is now a sufficient distance below its high that ultimate confirmation, while not Impossible, seems unlikely. What are we to make of an this We seem, in summary, to be seeing a market which, from a tcchnical point of view, as been growing progressively weaker since early this year-that weakness to some extent being masked by strength in the sort of issues which dominate the Dow. The weakness has not yet extended to the point of being fatal. It is, however, given absence of renewed demand, to become terribly excited about the immediate upside possibilities in today's equity market. ANTIIONY W. TABELL, CMT Dow Jones Induslrial. (1200) 3287.49 DELAAELD, HARVEY, TABELL Standard & Poora 500 (1200) 403.39 Cumulative Index (6/25/92) 7290.48 No statement or expression of opinion or any other matter herein contained IS, or IS to be deemed to be, dlreclly or Indlreclly, an offer or the soliCitation of an offer to buy or sell any security referred to or mentioned The matter IS presented merely for the convenience Of the subscriber While 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 action to be taken by the subscnber should be based on hiS own investigation and Information Delafield, Harvey, Tabelllnc, as a corporation and ItS officers 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 herealter 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 III any other Issue Furlher Information on any secUrity menilOned herein IS avaltable on request