Tabell’s Market Letter – May 13, 1966

-, . Walston &Co. —–Inc —-INVESTMENT BANKERS MUTUAL FUNDS MUNICIPAL BONDS Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER May 13, 1966 The market slide continued this week. Aft er a sharp dip on Monday, the Dow-Jones Industrials rallied on Tuesday and Wednesday, but selling set in on Wednesday at noon and the decline an intra-day low of 868.65. It is difficult to judge how-low'the Averages may go. Our letter of last week pointed out that various downside objectives between 850 and 825 can be read. If this area is reache the market would have come full cycle, returning to the levels reached at the lows of last June. In other words, it will be possible to describe the market action of the past twelve months as a trading range with highs of 941 and 1001 in May 1965 and February 1966, and lows of-832-and -whatever-low is -dedirieti'lJ'un-efg-6DaniMay , This is entirely consistent with our view expressed in this letter over the past year. At the 1965 lows this letter said – The uptrend channel in which the market has held since the Cuban crisis low has ended and will, in our opinion, be succeeded by a broad trading area which will be featured by'wide swings both up and down…….. The market could remain in this movement for a year or longer with the Averages and individual issues showing wide price swings. The lower limits of the range should ,be viewed as a buying opportunity. The upper limits should be viewed as a selling opportunity in issues with below-average longer term attraction. We see no reason to change this opinion today. Nonetheless, it would be ridiculous to say that the recent erosion in stock prices is without meaning. In the process of their decline from' the Februar-y highs, a great many issues have broken out on the downside of substantial 0 In a great number of these cases the downside implications of these trJffing e c siderably below current levels. Moreover, a great many of the v sted such downside breakouts are those issues on which market leadersl1iI,v.Pas c red during the June- Feb- ruary rise, issues in such industries as Ail l' s, Electronics, etc. It ap- more Qrobable toqaythan be in the process of being deglamour' pasLthat ' . .. – I To some, no doubt, . belated with Fairchild Camera (136'1/2) II, down from 216 n from 233 1/2, or Boeing (137 1/2) down from 182. However, e above their lows of w, most of these issues were selling at prices 100 mm. The investor who bought them at that time can happily I accept his profit. The Jo -come-lately should have been aware of the risk in the first place. What implicati;ns does all this have for the market as a Far less serious ones, we suspect, than many analysts are implying. For while the advance in the perform- I. I ance issues has been merrily going on since last June, high quality stocks have been en- ga!,red, as we all know, in their own private bear market. It is worthwhile to examine at this point just how far this bear market has carried. At this week's low, the Dow-Jones Industrial Average was selling at the same price earnings ratio it sold at at the 1962-low. Examination of the individual components of the Average, moreover, shows that twenty- three of the thirty stocks therein were selling at lower levels in relation to earnings than they had in June, 1962. This is hardly the fabric of which major market declines are made. In other words, what seems to be taking place is a distinct shift in market leadership. On the one hand, the best that can be foreseen for a great many leaders of the June-Februar rise is a technical rally back to heavy overhead supply. On the downside there appears to be very little protection against further substantial losses in the event of a continuous down- swing. On the other hand, in a whole host of issues, bases still exist to indicate substantially higher levels and any further moderate dips would bring these issues back to strong support. Such stocks are, generally, cheaper on an earnings basis than they have been in some years. The task of the investor at the moment is to adjust his portfolio to reflect these realities. Dow-Jones Ind. – 876.11 ANTHONY W. TABELL WALSTON & CO. INC. Dow-Jones Ra ils – 228.50 Thill market lelter III published for 'Our conveRience und mformallon and IS not an offer to eell or a solicitation to buy Rny Ile(!Urities discussed. The In ormation was obttuTlcd (rom sources we believe to lo;! reliable. but we do not guarantee its BCcurBP Walston & Co. Inc. and Its officers. dlredora or en1l'loyees may have an interest in or purchase and serl the secUl'Itles referred to herein. ' WN301 i – n,