Tabell’s Market Letter – January 15, 1954

,' ThIS does not mean that all A few examples of light blue common stocks will share in the chips follow advance. There are many that Allegheny Ludlum Steel wlll do little or nothing market- Alhs Chalmers wise. Quite a few will be selling Bucyrus Erie lower at the year-end but the de- Cham Belt gree of vulnerability does not aP- Deere & Co, pear to be as great as in 1952 or Joy Manufacturing 1953, Mead Corp. Favorable Action Concentrated in Investment and Growth Issues NatIonal Gypsum Penn-DixIe Cement Shamrock Oil & Gas' The better grade investment and Sylvania Electric growth issues, wlnch have. been Western Auto Supply the market bulwarks smce 1949, Yale & Towne will undoubtedly continue their At this stage of the market pat- favorable action. However, this tern, there does not seem to be group has shown some excellent any great chance of wide appre- price gains over the recent months ciation in the marginal or specula- and may be in need of some rest tive issues. There will be out- and consolidation before their main advance is resumed later in the year. Even III this group, proper selection is of prime im- standing exceptions of coul'se, but most issues of this type are in the hands of tired holders who may be willing to sell them on any portance. minor price rise Until there is The most interesting profIt pos- enough of a speculative public slbihties appear to be in what following to absorb this overhead might be described as the light supply, there is apparently lIttle blue chips 11 These compose the chance for this type of issue to type of equities just a bit below move apprecIably higher. Broad the quality grade of the invest- public speculation may again ment issues. They might also be again come into the market, but classified as bUSInessmen's rIsks. there are no immediate signs of I drew attention to this group a this developing. year ago but, with a few excep- In the main, 1954 should be a tIOns, they have done little mar- good year for .the investor who ketwlse. They are still available continues to hold, and buy, the at fIve to eIght times earmngs to common stock equities that will Yleld 7 to 9 on a 50 payout ultimately benefIt from the con- TechnicallY. they have been m tmued long term growth of the country This, as always, will re- what appear to be accumulatIon qUIre careful selection not only as patterns for several years and are to quality but as to price level. m a position to advance out of From a technical approach, there these areas Without further need of consolidatIon. They could be- seems to be little likelihood of a major decline in the stock market in 1954. The chances rather favor come posslble candidates for in- a rIse of about 25 from cW'rent stitutional investment over a pe- levels by the end of the year. This riod as their quality improves and will be the start of an advance that will gradually broaden out to as the supply of higher grade is- include a larger segment of the sues gradually diminshes. market. 4 10rwJ,vI Ilif;; Reprinted from 1hfl COMMERCIAL and , I FINANCIAL CHRONICLE Thur&aay. Janu(lTY 7. 1954 1954-The Beginning-01A New BuU Market By EDMUND W. TABELL General Partner, Walston & Co. Members of the New York Stock Exchange Markel analysl predicts selective markel wilh an advance of 25 in Ihe industrial average by Ihe year-end. Lists mosl ,. . inleresting profil possibilities in Ihe Iighl blue chips' Expects subsequenl gradual broadeniog-oul of advance 10 include larger market segment. Maintains there are few issues technically vulnerable 10 sharp price declines. Ciles market's pasl aod current performance as confirming his expectation of long-trem \, advaoce lasting uolil 1960. Busmess will be lower in 1954 issues such as utilities, foods, food That lS almost a unanimous chains, tobaccos (which haven't opinion. The forecasts vary from turned out so well) or on growth almost the same level of busi- companies that, although they ap- ness as in pear to be sellIng rather high in 1953 to a 5 relatIon to present earnmgs and to 15 de- dIVIdends, po 5 S e s s contmulOg chne. By def- growth potentials which should ITIlhon, th e result jn hIgher earnings and divi- decline varies dends over a perIod of time. between a re- To the speculator, It appears cession, a evident that the cyclical, second- shake-down, a ary and marginal companiesshould – correctIOn, a be aVOIded untll the business pat- leveling-out, a tern improveS. Some holdings of gentle s 11 d e speculative g row t h compaOles or d. consolI- should be rctamed but, in the dation. V 1 r- main, lIquidity should be stressed tually nobody in speculatIve SItuations This has ,,, , expects the bUsmess level to be substan- been the opinion of the profes- Edmund W. Tabell sional investor rather than the general public and it has worked tially higher in 1954 On the other out very well over the past two hand, no one (except the profes- or three years, It has accounted sional pessimists) expects another for the extremely dIverse action 1929. Should majority opinion of the market since February, 1951 '. hold true, it seems fairly ObVIOUS and the simultaneous bull markets that the mvestor or speculator in and bear markets in individual the stock market should pursue a issues – during that period. Will v e r y conservative course He this type of selective market ac- should concentrate on defensive tion continue into 1954 Or will , I the relatively unfavorable busi- The Present IndJcation ness prospects result in a general Before attempting to answer declme in equity prices regard- that question, it might be advis- less of quality able to review the last five years This subject has been pretty or so of market action. In late thoroughly explored both from an 1948, I ventured the opinion that, economIC and a statistical VIew- in 1942, the stock market had point. The conclusions arrived at started a long term uptrend. are not very definite but appear, (Commercial & Financial Chron- in the mam, to favor a somewhat icle, Sept 9, 1948.) It would be a lower level of common stock war-postwar-inflatIon a d van c e pnces in 1954. Perhaps another simIlar to that WhICh occurred vIewPoint might shed some fur- from 1914 to 1929 but, because the ther lIght on the picture. uptrend had started from a com- The Technical Approach to Long-Term Action paratively lower price level, it would most likely last longer than the IS-year advance that com- As a market analyst or market menced at the begmning of World technician, most of my work has War 1. I proJected the present been concentrated on ,the technical advance to at least 1960. At the approach to market action. Lay peak, stock prIces would most or uninformed opinion believes likely be considerably above the that the use of charts or graphs is 1929 highs. Of course, such an mainly related to the shorter term advance would not be in a straight swmgs of the market. I de; not line and would be interrupted by think this is true. There IS no a number of rather drastic inter- method, fundamental or technical, mediate term declines. Long term that can succeed in continuouslY advances of this nature usually forecasting short term market consist of at least five phases, movements. Even if it could, the three of advance and two of de- costs involved would most likely cline. invalidate its findings. However, By 1948, the market had under- a study of supply and demand fac- gone the first advancmg phase tors, when coupled WIth an analyt- from 1942 to 1946 (the Dow-Jones ical or statistical approach, can mdustrial average had moved be of inestimable value in select- from 96 to 213). This advance was ing favorable equities for longer too rapid and, in 1945-1946, a term investment or speculation. large number of speculative IS- More and more, professional in- sues were over-exploited. A cor- vestors are using the technical ap- rection was needed and the proach as a check against their market dropped from 213 to 160. fundamental or statistical find- By late 1948, the technical pattern ings. indIcated that the second phase, I use over 1,500 graphs to check onc of decline, had been largely my technical opinions. These completed despite the fact that, as graphs relate mainly to the price today, most business forecasts in- and volume action of individual dicated a decline. Technical work securIties listed on the New York suggested that the next important Stock Exchange or the American move In the market would be toStock Exchange. A study of these ward higher levels and that the graphs combmed with an evalua- next phase of the long term ad- tIon of internal market action vance should carry to about the such as volume, advances and de- 250 level in the Dow-Jones indus- clines, new highs and lows and trials by the early 1950s. After other factors gives a fairly defi- some further irregularity, the nite indication of whether the market advance started from the buying and selling strength IS pre- 160 level in June, 1949 and reach- dominant in individual issues as ed a high of 295 early in 1953. well as the general market. Actually the action of the aver- What does the technical ap- ages in the past three years has proach to market analysis show not accurately portrayed the ac- at the moment tion of the average stock. Most , il stocks reached their highs in 1951 get very far in either direction when ,the Dow-Jones industriaJ (Commercial & Finnacial Chronaverage was approxImately 265. Icle, Jan. 1, 1953). For this rea- To the holder of the average son, I projected a relatively nar- stock rather than the stock mar- row range for the Dow-Jones inket averages, we have been in a dustrial average for 1953 with a bear market for about three years. hIgh of 300 and a low, of 250. The Smce January, 1951, the market actual intra-day high and low was has undergone a piecemeal read- 295.06 and 254.36. justment The steels reached their highs in January, 1951, and have Great Selectivity Ahead declined 33. The textilcs reach- In 1954, technical indications are ed their. highs in February, 1951, that the market will again be very and have declined almost 40; the selective. Again there are a con- distillers reached their highs In siderable number of issues that October, 1951, and declined over appear to be in an untrend. Again 30 ; the coppers reached their there are a considerable number high in January, 1952, and have of issues that appear to need declined 33; the oils reached further consolidation before an theIr highs from March to July, Important upward move is in- 1952, and have declined 25. The dicated. But-and this is the most farm equipment issues reached important change-there are rela- their highs in October, 1952, and tively few issues that appear have declIned over 30. Even the technically vulnerable to sharp rails, which reached theIr high as prIce declines. That is why I find recently as January of 1953, have it difficult to visualize a real bear declined almost 20. market in 1954. Most issues have In 1951, my techmcal work in- about reached the downside ab- dIcated that the market, as far as jectives outlined by theIr 1951- most stocks were concerned, had 1952 tops. That is why I expressed reached a temporary top C'Com- the opimon, after the Dow-Jones mercial & FinancIal Chronicle, mdustrial average had reached March 8, 1951) and needed a read- the Scptember low of 254.36 that justment or consolIdation period the market was less vulnerable to correct the temporarily over- than at any time in the past two bought condItion. This correction years (Commercial & Fmancial has been taking place for three Chronicle, Oct. 8, 1953) years with the majority of issues The market rallied from the working lower regardless of the September low to a December relative firmness of the various high of 285 20. The advance was stock market averages. led by the high grade issues. At At the start of 1953, the read- the year end, the industrials were Justment had not yet been com- at 280.90 or some 15 points below pleted. An analysis of ,the price the January, 1953 high. There action of over 1,400 individual mayor may not be some further stocks led to the conclusion that, irregularity. It is possible that while quite a few issues had com- the market might again decline to pleted their correction and were about the 265 level If this hap- in an uptrend, there were a larger pens, it will most likely occur in number that needed addItional the first SIX months of the year consolIdation before an important and, in my opinion, will be the upward move was indicated. last opportunity to buy selected There were also a relatively large common stocks at the very favor- number of issues that still had able prlce-to-earnings and price- vulnerable patterns and indicated to-dividend ratios that are now thc probability of sharply lower available. Some time during the levels. AU of this led to the con- year, In my opiriion, the market elUsion that price action in 1953 will start a selective advance that would be highly selective with in- h dividual issues having private bull could carry t e industrial aver- and bear markets of their own age to about 325 by the end of but the general market would not 1954. 8