Tabell’s Market Letter – August 27, 1976

— '- TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMSER AMERICAN STOCI( EXCHANGE -..- ,,-'',' — . – … – August 27, 1976 ;!o . – .;- After five straight sessions of decline through midweek, the stock market made an – attempt to turn on Wednesday, posting an almost 8-point rally. This rally failed to hold in early Thursday's trading, however, and a plunge Thursday afternoon dropped the Dow to a new closing low. We think that the level of prices, 960-970 on the Dow, at which the current fluctua- tions are taking place, is not entirely without significance. To begin with, the trading range in which the market has stagnated since February has been defined to date, at its lower end, by the June 7th cloSing low of 958.09 which was accompanied by an intraday low of 951. 70. The index posted a cloSing low of 960.44 on Thursday and an intraday bottom of 956.37 on Wednesday. The trading range parameters thus, for the time being, at least, remain in effect. It should be noted that indicies other than the Dow were, as of this week, in far less danger of having their prior lows penetrated. The prior intraday and closing lows for the S & P 500, for instance, had been 97.97 and 98.63, respectively. On Wednesday that index never moved below 100.43 and re- mained at Thursday's close at 101.32, comfortably above its lowest level of last June. The same can be said of our Cumulative Index of all New-York-Stock-Exchange-listed stocks. It bottomed in June at the 575-577 level, and closed on Thursday at 596. This action reinforces the supposi- tion that the Dow may, in fact. be distorting the overall market picture. An elementary technical technique for smoothing time-series data, such as a market index, is the use of moving averages, and, as many investors are aware, a 200-day average is . commonly cus ed to. smooth-the-act-ion 0fthe-D0w-and-s'imHa r-indicatorsl'he-us eof-thi's,particula r length is not a matter of convenience but has demonstrated practicality in terms 6f past market cycles. In any case, at recent lows, the Dow, at least, had declined to just about the level of its own 200-day moving average which, as of Thursday. was at approximately 956. It is a not uncommon event, especially late in a bull market cycle, for a secondary reaction to carry to or close to a 200-day moving average before resuming an upswing. Again, the action of the S & P 500 and the Cumulative Index is superior. The former index at around 101 is comfortably above its 200-day average of 99.34 and the Cumulative Index even more comfortably above its 200-day figure of 576. The most significant facet of the current levels of the Dow, however, lies in their ,relationship to the long uptrend which began from a low of 577 .60 on December 6, 1974 and carried to a high, to date, at least, of 1011.21 on July 12. Regular readers of this letter will be aware that it is our pra ctice mathematically to fit a trend to long upswings such as the one just defined. Thus, in terms of mathematical best fit, the Dow has been rising at a rate of .86 points per day over the past year and one-half. The bulk of closing prices have fallen within a statistically derived trend channel some 84 points wide, the lower limit of which is now at around 967. Thus, a decisive penetration of that level would move the Dow below the channel and would call the entire upswing into question. It should be noted at this stage that, in the terms we are talking, the penetration, in order to be cons idered decis ive, would have to move well below the lower limits of the channel and remain there for a protracted period of time, say, two weeks. ' , We ,noted,in,this-space,as far bacbasJuly,2nd'that th'erehad'be'enln'the'pas't-only— 18 occurrences of a trading range similar to the one that has contained the DJIA since February. We suggested then that the current impasse could continue until as far as October 6th without setting any new records for longevity. It has, of course, continued for almost another two months since we first did the study. However, the critical levels of most major indices and especially the Dow at the present moment suggest that the dilemma may be solved fairly shortly one way or the other. Dow-Jones Industrials (1200 p.m.) S & P Compo (1200 p.m.) Cumulative Index (8/26/76) AWT/jb 962.43 101.33 596.18 ANTHONY W. TABELL -DELAFIELD, HARVEY, TABELL No statement or expression of opinion or ony olher matter herein onlolned IS, o 15 10 be deemed 10 be, directly or indirectly, on offer or the soliCitation of on offer to buy or sell any security referred to or mentIoned The moller IS presented merely for the conve('lInCE of the subcrlbef While 'f'Ie beheve Ihe sources of our Informa lion to be reliable, we In no way represent or guarantee Ihe accuracy Ihereof nor of the statements mude herein Any oc;tlon to be tolen by the subscriber should be based on hiS own Inveshgatlon ond ,nformotlon Janney Montgomery ScOll, Inc. oS 0 corporoTlon, ond Its offICers or employees, may now hove. or may later toke. poslhons or trodes In respect to any secUrities mentioned In thiS or ony future Issue, Qnd such position may be different from any views now or hereafter expressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS regIStered WITh the SEC as an Investment adVisor, may give adVICe to I'S mvestment adVISOry and othe, cuslomers mdependently of any stalements mode In It-liS or m any other Issue Further ,nformat,on on any security mentioned herein I' aVailable on request