Tabell’s Market Letter – January 25, 1985

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 924-9660 January 25. 1985 —– –The. o,rrnerly-subtlelmpvovementwhlChhlld-bcen–undcrlying -mo.rketctlondurmg..thre-;Fall-of 1984 and which became more cVldent as the 1984-5 year-end rally extended iilfo -January-, finally became totally obvious this week as stock prices reached newall-time highs. The above statement wIll. we suppose. not be fully official untIl such time as the laggard DowJones Industrial Average which remains some 20 pomts below its November, 1983 closing peak of 1287.20 finally follows the more broadly-based stock-market indicators mto new high ground. The Standard & Poor's 500. however, in reachmg the 175.23 on Monday.bettered its previous all-time high of 172.65' by a considerable margin and subsequently tacked on another couple of points in later tradmg. For those who are infatuated with round numbers, the New York Stock Exchange Composite, which had never closed above 100, surpassed that level on Monday. and the Standard & Poor's IndustrIals find themselves flirting with the 200 level as against a preVIOUS hIgh of 194.84. The Dow-Jones TransportatIOn Average, it is true. despite its superior performance in recent trading remru.ns, at around 603, a hair's breadth below Its January, 1984 closing level of 612.63. Nonetheless, we feel that heraldmg a new stock-market high this week IS hardly premature. Breadth action, which was one of the major precursors of improvement in the fIrst place, remams superIOr. We noted last week that weekly breadth had moved to new high territory. Daily breadth, which had been outperformmg the market whIle remaining below previous highs, thIS week bettered its peak of January, 1984, achieved when the Dow was selling at levels slightly over current ones. and its previous bull-market high, made in June, 1983, is not that far away. The year-end rally, whether measured in terms of the Dow or the S & P, has almost achieved the 10 status which has, in the past. tended to signal good market years. Thanks to the San Francisco 4gers, even the Super-Bowl indicator, for heavens sake, IS favorable. In short, It may be said that bul- market conditions exist. As we have suggested in previous letters, the eXIstence of such conditions at this stage poses some problem for those of us obsessed with cycle indentIfication. These questions center around whether the present upswmg is the first leg of a new bull market which began on July 24 last year at 1086.57 or is an extension of the upswing which began at 776.92 on August 12, 1982 and was interrupted by a 1.4-monthJliatus .duringhlch''-the-populai'–3.JJ-exages…failed.dochieve–the-'-new-'-highs-rnost-of-t-hem-at-t-am—–\ ed thIS week. This argument, we admit, has some of the flavor of medieval scholastic discussion regarding the number of angels who could dance on the head of a pin. It is of something more than purely academIC interest however. If a bull market began at 1086, a 60 advance from that level, equivalent to the August, 1982-November, 1983 advance,lOuld suggest something in the mid-1700's on the Dow as an absolute minimum obJectIve, WIth targets well over the 2000 level certainly within the range of plausibility, (There eXlst past bull markets which have scored gains of well over 100.) By contrast. a 100 gain from 776 would put the Dow at only 1550, and, of course, it would be plausible to expect that an extended bull market migtt end well short of that target. Abandoning theory for a moment, plausible conservative objectives for the DJIA, based on point-and-flgure work, appear to exist in the hIgh 1300's to the low 1400's. The most important point to remember perhaps. is that under current conditions, a high volume advance accompanied by breadth and momentum confirmation, the most unlikely eventuahty is a sudden reversal to the downside. We all know that markets do not go up forever and that at some point and from some level, the present advance will top out and turn down. Such a reversal, however, will almost certamly be accompanied by a protracted period of noticable deterioration. This is something to be worried about when it occurs Until such time, however, the only sensible posItion would appear to be an aggressively invested one. It is a time, in other words, when market timing should take a back seat to the problems of stode selection. This will, as always, in the months ahead, present some rather thorny problems. Over the past year, leadership has centered on consumer /defensive groups, food, soft drinks, and tobacco, for example. and on the fInancial area, banks, insurance companies, and utilities. There exists some eVIdence, admittedly highly preliminary at thIS stage. that the former group may be losing some degree of ItS upside momentum. However, there IS no evidence that the market recovery will not contmue to be fueled by strength in the consumer-spending sector. It appears entirely possible, for example, that retail and leisure-time stocks may pIck up the mantle of leadershIp dropped by the consumer-product producers. Meanwhile. relative strength in the fmancial sector suggests continued above -average price action. Prospects for contInuatIon of the bull market will be importantly affected by two other major sectors. One of these IS energy, and current technical patterns here, with a few notable exceptions, suggest that little near-term leadership is likely to come from this area. The other sector WhICh could contribute new fuel to the bull market's fire is, of course, the severely depressed hIgh-technology /overthe-counter universe. RelatIve strength here has picked up In recent weeks. It is, however, diffIcult to determine, at this stage, whether this is due to a fundamental trend reversal or simply to a deep oversold condition coupled with high volatility. AWT rs Dow-Jones Industrials (12 – 00 p. m.) 1270.76 S & P Composite (12 00 p. m.) 176.88 CumulatIve Index (1/24/85) 2288.48 ANTHONY W, TABELL DELAFIELD. HARVEY. TABELL INC. No statement or e..presslon of OpiniOn or any other mailer herein contamed IS, or IS to be deemed to be, directly or Indlrec1ly, an ofter or the soliCitation of an oller to buy or sell any security referred to or mentioned The mailer IS presented merelyfof the convenience of the subscnber While we believe the sources of our Information to be reliable, we In noway represent or guaranteethe accuracy thereof nor of the statements made herem Any action to be taken by the subSCriber should be based on his own Invesflgallon and mformatlon Delafield, Harvey, Tabell Inc, 8S a corporation and ItS offIcers or employees, may now have, or may later take, posillons or trades In respect to any securities mentioned m thiS or any future Issue, and such position may bc different from any YICWS nowor hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabell fnc which IS registered With the SEC as an mvestment adYlsor, mavglve adVice to Its mvestment adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further mformatlon on any secuflty mentioned herein,s available on request