Tabell’s Market Letter – November 25, 1977

—————-, TABELL'S MARKET LETTER ., 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 , DIVISION OF MEMBER NEW YORk STOCK eXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE November 25, 1977 Overbought and oversold are terms often used by technicians to describe the recent short-term behavior of the stock market. There are various techniques commonly utilized to measure the existence of these conditions, but In simplest terms, extreme overbought and oversold states signify noth, – -Ing-inore'thafithe fact'that the-markeCh-as- b;eninoving up or downwlthahOvenDrmal momentum and Yireadth. Tracking short-term overbought and oversold conditions Is a useful exercise In two respects. First of all, It helps us to gauge the short-term direction of the market and, secondly, perhaps even more Importantly, such measurements have Implications for the market's longer-range direction. Paradoxically, In this respect, both extreme overbought and extreme oversold conditions possess bullish longer-range Implications. this can be Illustrated by the chart below which shows the Dow since January, 1970. together with one commonly-used short-term Indicator, a ten-day total of dally advarces minus dally declines expressed as a percentage of Issues traded. — ——!'.;;'r;o;O;r;;N;E-T;O-P;'F;E;R;EN;CEOF-RO-V. ;OE-C-. -Q;SP;ER-C;EN;T;RGE OF-;TO;T;.-IS-SU;ES;;T-;P-OE;O-;- -. o III 1/ III Id '\ h I … ' . 1'9) 11511 1'973 1191 1916 11911 As the chart quite clearly shows, extreme oversolds, below minus 30, tend to be char- acteristic of the final decline In major or Intermediate-term corrections. The lower solid line on the chart, drawn at this level, was penetrated around the major lows In 1970 and 1974 and, also, at the Important Intermediate-term bottoms of 1973 and 1975. As we discussed a few weeks ago, we were somewhat dis- appOinted at the failure of this Indicator to move lower than minus 22.3 at the October low, thus failing to register the oversold condition characteristic of a bear market climax. ,. Just as the terminal drops of bear markets tend to reach extremes, so do the Initial ,up- . . swings of ,long-term bull markets ;-'Thus;' as,the chart again 'shdWthe extreme' oversold con'dTt!OnSmen— tloned above tended to be followed by equal extremes In the opposite direction when the market first began to move ahead. Most recently, following the moderate oversold of late October, the Indicator reached a high of 23.4. This Is Interesting, since It Is the best level reached since early 1976 and suggests that the current rally has displayed more vigor than any which has occurred during the past two years. It did not, unfortunately, approach historic peaks, and, to date, It remains well below the 30 level attained In late 1970, early 1975 or early 1976. Further strength from these levels, however, or another sharp rise following a modest correction, could produce an extreme-overbought condition and, were this to occur, It would have to be construed In a bullish sense. DOW-Jones Industrials (1200 P. m.) 841.48 -s & P CompOSite (1200 p.m.) 96.38 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (11/23/77) 677.46 AWT/jb No stalement or expPl!Slon of opinion or any other moiler herein contOlned IS, or IS to be deemed to be, directly or indirectly, on offer or Ihe sol'C.lal,on of on offer 10 buy or sell any security referred 10 or menl,oned The molter , presented merely for Ihe converlencc of the subsctlber While -Ne believe the sources of ovr informa- lion to be reliable, we In no way represent or gvarantee Ihe accuracy thereof nor of Ihe statements mode herein Any act,on 10 be loken by the subscllber should be based on hiS own investigation and ,formation Janney Montgomery Scali, Inc, os 0 corporation, ond ,Is offICers or employees, may now have, or may later lake, posll,on5 or trades In respect to any seuntles mentioned In thiS or any future Issue, ond such pOSit' on may be different from any views now or hereafter el'pressed In this or any olner Issue Janney Montgomery Scoll, Inc, wnlch IS registered wltn the SEC as on Investment adVISor, may give adVIce to Its ,nvestment advisory and otnel customers Independently of any stalemenis mode In th.s or In any otner Issue Further information on any security mentioned herein Is available on request