Tabell’s Market Letter – April 03, 1980

TABELL'S MARKET LETTER —— ————-. 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW VORl( STOCk eXCHANGE, tNC MEMBER AMERICAN STOCK EXCHANGE April 3. 1980 – – ;–;—— …… -..) .—-. – – -. In what must be considered normal technical action followil1g the classic intraday selling climax of March 27. the market has paused and given us some breathing space. The 17-point rally on the Dow on Friday. followed by the eight-point extension which began this week's trading. constituted a typical technical rebound. and demand. by and large. continued to manifest itself. albeit on reduced volume. for the remainder of the week. On an intraday basis. the Dow had recovered. by Wednesday. some 66 points from its March 27 intraday low of 729.95 to an intraday peak. so far. of 796.40. This constitutes a 35 recovery of the 188 points lost since the February 13 intraday high of 918.17. The task now at hand. of course. is to attempt to divine some meaning from the rather unpleasant six weeks that constituted late February and March. The first point to be made is that the decline was surprising. not in its occurrence, but in its extent. Signs of technical deterioration suggesting the probability of some sort of correction were evident in early February and were duly noted in this letter. At the same time we drew attention to this possibility. however. we also suggested that the maximum foreseeable downside target was somewhere around 800. As it turned out. this was off the mark by some 70 points. not the first time in our forecasting career that we have been taught an object lesson in humility. It is perhaps too early to reach conclusions as to precisely why the decline extended consider- ably further than technical portents would have suggested. A plausible reason. it seems to us. however. was the interjection of the metal-price collapse into a market whose major concern had been with interest rates and a credit crunch. The fact that the market this week ignored the arrival of a 20 ;–t current price expectations. It was perhaps trie unexPected silver crisis of a week ago which brought the Dow from its logical stopping place in the low 800's. a level at which it had been trading in mid-March. to the extraordinary intraday bottom attained on March 27. All this. of course. is past history. and it now remains to make some assessment of the probable future course of equity prices both over the near and the long term. In this regard. the most relevant fact at hand. we think. is the extraordinary oversold condition which prevailed as long as two weeks ago. Technicians have a tendency to point to oversold conditions when the market is declining. usually as part of some prayerful attempt that the de- cline may reverse itself. The greatest analytical value to be derived from such conditions. however. occurs once a significant rally. such as the one that began a week ago. has taken place. If such a rally is accompanied by meaningful breadth and volume (and we think such was the case in the recent instance). it is. at least. suggestive of the fact that the process of probing' for an intermediate-term bottom has begun. We do not think. in the present case. that the process will be a simple one or one which the market will undergo totally without trauma. Almost invariably. the record tells us. the process of forming a base involves. somewhere along the line. a test of the initial reaction lows. In some cases those lows have simply been approached. In many other cases on record. it must be noted however, the lows made on the initial reaction have been penetrated by a fairly significant amount. We would not care to suggest that such will not be the case in the present instance. It seems to us. in other words. that the market is now facing the necessity of forming a base. the exacLshape of which is so far-unclear-.–That process will. we think. -take time. and it would- be illogical, based on past precedent. to expect it to be over much before sometime this summer. As the formation takes shape. the ultimate upside prospects will become clearer. Dow-Jones Industrials S & P Composite . Cumulative Index (4/2/80) AWTsla 784.13 102.15 704.59 ANTHONY W. TAB ELL DELAFIELD. HARVEY. 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