Tabell’s Market Letter – June 14, 1968

Walston &Co. Inc. FILE Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges OVER loti OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER June 14, 1968 The silly season is with us again — has been with us for some time in fact – and it is, we suppose, time that due note was taken of the fact in this letter. We refer, of course, to the tumultuous activity and wide gyrations in a variety of what have come to be known as 'swinging' stocks — most of them on the ASE and Over-the-Counter, and engaged in wild, improbable businesses that very few people understand. The above paragraph opened this letter just eleven months ago on July 14, 1967, and it can equally well be used again today, for the same thing is happening again — redoubled and in spades. The Amex is boiling,and the frenzy in the Over-the-Counter market has, -un- believably, become even ,greater than last Summer's. To this familiar scenario .has been ad- ded a skyrocketing new issue market recalling the famous Don1t-go-broke-go-public motto of 1961. We are, as the financial pages seldom tire of telling us, in the midst of another era of unbridled and, to a great degree, senseless speculation. There is a common chain of reasoning running through all this. The chain runs (1) speculation is rampant; (2) speculation is bad; therefore, (3) we should worry about the stock market. A host of factors give rise to this chain, not the-least of which, we suppose,are the Puritan ethic and a remembrance of the events of the 19301s. The lesson is a valid one, but it can be oversimplified. To the technician, the relationship between periods of high speculative activity and stock market tops is a complex one and one best examined in the terms of numbers rather than emotion. There has, indeed, been an historical relationship between speculation and stock market peaks, yet the correlation is difficult to lchanging somewhat in recent years — a fact which does no n has been the task of stock market prediction any easier. At least until recently, most indices of spec e ai- tended to be so-called leading indicators. In other words, they be the popular averages. The table below shows the time of the peak in the – nes strial Average for the six major . market tops of -the past-32 years, in -three-widely-used indices of specu lative, confidence, total NYIE basis), ratio of Amex volume to NYSE volume, and the Standard & Po 1 Index. As the table quite clearly shows; through 1961 at least, s c i 1 – had a well-defined tendency to peak out in advance of the market. Dur- – -, – er words, it was profitable not to worry about specu lation, but rather to a 0 eculation coming to an end. A period of three to six month of reduced exuberance 110 g an outburst of enthusiasm generally constituted a pretty re- liable sell signal. This ationship was reversed, moreover, in 1966 when most indicators of speculative confidence peaked out after rather than before the Dow-Jones. Peak in Peak in Peak in Ratio of Amex Peak in S&P Low- DJIA NYSE Volume Volume to NYSE Vol. Priced Stock Index June, 1946 April, 1946 January,1946 February, 1946 January, 1953 February, 1951 July, 1952 January, 1952 July, 1957 May, 1955 March, 1957 April, 1956 January, 1960 April, 1959 March, 1959 March, 1959 November,1961 September,1961 June, 1961 May, 1961 February, 1966 I\pril, 1966 February, 1966 April, 1966 What then of the current speculative phase We are inclined to guess that the present phase may ultimately peak out, not as did 1966, but in a manner similar to the prior market tops. The continued market strength following a speculative upsurge has, generally in the past, been caused by a quite understandable phenomenon — the movement of speculative mone into investment-grade and! or cyclical issues. Thus, the Dow average, composed of such issue , has tended to reach its zenith at a later date than the more speculative indices. All of this generally takes place at a time when market breadth is deteriorating and when cash reserves in the hands of investing institutions have been fully expended. By contrast, at the moment, cash reserves are still at close-to-peak levels, and breadth has been unusually dynamic rathe than static. If this theory is correct, we can recognize the current speculative lunacy for what it is, without drawing overly-pessimistic conclusions as to the investment climate for the months ahead. Dow-Jones Ind. 913.62 Dow-Jones Rails 265. 58 ANTHONY W. TABELL WALSTON & CO. INC. AWTamb Thl8 market letter i8 published for your convenaence and mformatlon Rnd Is not an offer to sell or a soliCitation to buy flny diSCUSsed The in- formatJon was obtained from sourees we believe to be reliable. but we do not guarantee Its aCCUrac)- Walston & Co., Inc nnd Its officers. directors or employees may have an interest In or purchR8e and sell the securities referred to herein WN801