Tabell’s Market Letter – May 21, 1971

TABELL-S MARKET LETTER —— —– j 909 STATE ROAD. PRINCETON NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANOE, INC MEMBER AMERICAN STOCK EXCHANGE – May 21, 1971 We suggested in last week's letter that a downside penetration of the 930-940 range, which had contained the Dow in early May, could produce a decline to around the 912 level. The penetration, 'unfortunately;'taCfk-plcrceb-eforeth8 cletterwa sii1the' hand s of omost'read ers; with–th-emarket'break – ..1…… ing sharply on Monday morning and posting, ultimately, a IS-point decline. Reaching of the downside target of 912 was accomplished with equal alacrity. This occurred some time between 11 and 12 dclock on Tuesday whereupon a brisk rally was staged, reaching an intra-day peak of 931. 42 on Thursday. An attempt to forecast the market environment for the remainder of 1971 finds post-war market history offering a variety of models. Not all of these are clear-cut bull and bear markets. Examples of these two phenomena abound, of course, but there are equally frequent examples of markets that fit into neither category. Reviewed below are some of the shapes the market for the rest of the year might take. 1) A Continued Bull Market. This must remain, by all odds, the most probable market assumption. An impressive array of fundamental and technical arguments can be marshalled in its favor. The most plausible point-and-figure objective for the Dow remains 1065, and the market remains locked firmly within the confines of the uptrend channel in which it has held since last May. The vast majority of technical indicators are now precisely where the textbooks tell us they ought to be, somewhere in the middle stages of a major upswing. And, from a time point of View, the less-than-one-year age of the present rise is mere adolescence for bull markets as measured by post-war standards. A continued advance similar to those of 1958-1959, 1963-1964 or 1967 must, therefore, remain the most likely forecast model. 2) A Major Bear Market. This, on the basis of evidence currently available, is the least likely probability. Distribution exists but, most assuredly, at this pOint, not of the magnitude to suggest a — major drop-on the order of 1962-i966or 1969-1970- ParadoxiCally, the more the maikefwere-to-dr6p- C from these levels, the greater would become the certainty that a buying opportunity was being presented. This leads us to the third probability. 3) A Surprise Decline. This is a not-uncommon phenomenon, consisting of a sudden quick drop in the averages which is, equally quickly, erased. The most obViOUS example was 1965 where, in May-June, the Dow dropped over 100 pOints in 33 trading days and then recovered to stage the final dynamiC upthrust of the 1962-1966 bull market. We are probably early in the game for this one, but it could occur, and its probability would be signaled by a drop below the 900 level. As suggested above, if such a drop were to occur at this stage, all downside targets suggested by current distributional tops would be reached, and a strong buying opportunity would be presented. 4) A Protracted Trading Range. This has been a fairly-frequent occurrence in the past, often lasting for considerable periods of time. Such a trading range can have either an upward or downward bias. For example, after a two-year bull market into September, 1951, the market spent the Fall of 1951 and most of 1952 swinging sideways back and forth. The bias in this case was upward with each swing producing a modest new high. The whole thing was capped off by a modest 13 decline in 1953. 1955-1957 produced another market of the same sort with a somewhat more bearish bias. The April, 1956 high was later twice equalled but never exceeded and the period was culminated with the major decline of 1957. It is, in our view, not inconceivable that we might be entering into such a period, with our 1065 objective being reached or approached some time on one of the upswings. 5) A Selective Downswing.The.market from.the Summer. of 1959-through the Fall of 1-960 ,is-the best example of this one. As measured by the average, it could be called a bear market, with the Dow dropping well over 100 pOints over a nine-month period. It was unique, however, in the fact that a great many stocks totally ignored a major decline in the averages and went sailing ahead to new high territory during the entire period. Evaluation of relative probabilities of the above market environments leaves, in our mind, only one sensible investment policy at this point — a continued fully invested position. Such a position was uncomfortable last summer due to fears of a continued bear market. It is uncomfortable today in view of the 300-point rise which has already taken place. Nonetheless, the evidence, at the moment, suggests that it is the correct one. Dow-Jones Industrials (1100 a.m.) 923.83 S&P (1100 a.m.) 101.22 AWTmn ANTHONY W. 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