Tabell’s Market Letter – September 16, 1983

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE -,-,, – ….,.-.,,..–…..— '-..—- ,…–'-;-,'S.e.-p-te-m-b.e'r.,,..1-6..,.;…,,19'8'-3…..,,'—, – – – – – .- We presented here last week a chart showing the existence of a potential breadth divergence. Such a condition exists when the market averages, consisting of blue-chip stocks, move to a new bull-market high without simultaneous confirming highs by breadth indices, which are based on the advances and declines of all stocks. Such a divergence is not, in and of itself, a bearish indication. In one sense, indeed, it is just the opposite, suggesting that the bull market WIll continue to post new highs for some period of time. It does, however, suggest the necessity of change in basic attitude since, on the record, the divergence suggests that most of the bull market's amplitude is over and that subsequent new highs are unlikely to be very different from previous ones. The table below documents this tendency for the eight previous bull markets. Everyone of them ended with a final breadth divergence which can finued from 7 to 30 months before the bull market finally ended. The table shows the date of each bull market's low, the fIrst date of the' final breadth divergence, and, finally, the bull-market high. The final three columns show the number of months the divergence existed, the percent of the bull-market move already complete at the start of the divergence, and the percentage move on the Dow after the occurrence of the diver- gence. The clear conclusion is that, once a divergence has taken place, much of the bull market is over, in terms of price movement if not in terms of time. Months of Subsq. of Move Bull Market Low Start of Final Diverfrence Bull Market High Diverg. C'1tl Move June 1949 161. 60 Feb. 1951 25571 Jan. 1953 29f. 79 23 —–r.; Sept 1953 255.49 Apr. 1954 420.94 Apr. 1956 521.05 24 62 24 -i—0et-.-1957 . ,. 4H-9 Ai-l959!h-&Decd,OOl 7-34r91 30 63 1-91…..,,–I1- June 1962 535.76 May 1965 939.62 Feb. 1966 995.15 9 88 6 Oct. 1966 744.12 Aug. 1967 912.97 Dec. 1968 985.21 15 70 8 May 1970 631.16 Apr. 1972 954.55 Jan. 1973 1051. 70 9 77 10 Dec. 1974 577.60 Feb. 1976 994.57 Sept 1976 1014.79 7 95 2 Feb. 1978 742.12 July 1980 915.10 Apr. 1981 1024.05 10 61 11 Average 16 'i3 IT In the current instance, if the breadth divergence persists, it would suggest that the bull market probably has a remaining life of one to two years. That one to two l'ears is likely, however, to be a great deal less exciting than the move from August, 1982 to June, 1983. Specifically, it would suggest that the ultimate high is likely to be no more than 10-15 above the 1240 level (1350- 1425), and that some two-thirds or more of the ultimate bull-market move is already complete. Having said this, some further facts must be noted. First of all, we do not, strictly speak- ing, yet have such 8. divergence. In Monday's rather weird action, a new intra-day bull-market high( 1262. 80) was posted by some two points. The Dow, however, did not close at an all-time high. All the data in the table above is based on closing divergences. Whether Monday's action qualifies is a moot point, but it is fair to say that any closing high posted over the near term would, \n fact, produce'a divergence condition. Secondry, it must be remembered that any existing breadth divergence is taken to be cancelled by the posting of a subsequent new high in breadth indices. There exist on the record, numerous cases of divergences which have been erased on a lagging basis a few days after they first occured. However, in the vast majority of all cases, this occurs within 30 days, if it is going to occur at all. In other words, any divergence which emerged at this point, if it were not erased within six weeks, would be likely to be the final one of the bull market albeit that the divergence condition might last for as much as two years. On the basis of breadth, therefore, any achievement of a new high by the Dow over the next few months should be accompanied by broad and persistent strength which would erase the resultant divergence within a fairly short period of time. Otherwise, we would have strong evidence that the market had reached a mature stage. AWT rjs ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL Dow-Jone Industrials (12.00 p.m.) 1217.1'7 S & P Composite (12 00 p. m. ) 164.64 Cumulative Index (9/15/83) 1999.09 No statement or expreulon of opinion Of ony olher matter herein contOlned IS, or 1510 be deemed 10 be, directly or Indirectly. en offer or the 50 liCitation of on offer 10 buy or sell any security referred 10 or mentioned The mOiler IS presented merely for the convemence of the subSCriber While we believe the sources of Ollr rnferma hon 10 be reliable, we H'I no way represent or guorentee the accuracy thereof no! of Ihe statements m)de hercin Any CIchon 10 be token by Ihe subSCriber should be bosed on his own ,nvesl'go!lOn and rnformohon Jonney Montgomery Scoll, Inc, as 0 corporation and ,Is offu;ers Or employees, may now hove, or moy later take, POltIOl'lS or trades In respect to any ecurltlC!s mentIoned In thiS or any future ISSUe, and such posdlon may be hfferent from any views now or hereafter e.pressed In thiS or any other Issue Janney Montgomery Scott, Inc, which IS registered with the SEC as an Invel1menl odvlsor, may give ad',ce to Its Investment adsory and cthel ctJstomr mdependently of any statemenrJ made m thiS or m any other Iue Further ,nformotlon on any senmty mentioned herem IS available an request