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TABELL'S MARKET LETTER 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 August 28, 1992 The market weakness which has characterized August so far comes almost as a relief in an equity environment which, for 1992 , I dte-t least, has generated little exclt-mellt. To be su, the tren.d for the firs! five months of the year -vas tortously upward. The. – – year-end rally began on December 10 at 2863.82 and (with a not-unimportant six-week pause in March-April, of which more later) had, by June 1st, produced an almost-20 advance to 3413.21. However, the advance, by almost any measure, was tepid. Breadth peaked in February. Until recently, the Standard & Poors 500 had lagged well behind the DnA. And most investment managers had difficulty duplicating even the action of that average. It constituted, therefore, almost an event when, on Monday, the average managed to close a whopping 5.42 down from its June 1st high and almost 5 below where it had hegun August, the month's peak having heen reached on August 3rd at 3395.40 It was the market's third biggest fall since the low of Octoher 1990, exceeded only by a couple of 6-plus declines in January and October- December of 1991. DOW JONES INDUSTRIAL AVERAGE MID-1991 20 POINT INDU The drop. however, was not without technical significance, as the 20-point cbart of the Dow above should illustrate. As the chart shows. the advance from the December low was in a VIrtual straight line almost to the 3300 level. The March-Apnl pause lD a narrow lOO-pOlDt trading range looked as if it might be ready to foster a correction, and, indeed. that bane of technicians, a false downside breakout, took place. April and May, however, saW another sharp runup. The 3400 level was first reached. as noted above, on the first day of June. After stalling in July, the average made another run at 3400 in August (accompamed, finally, by an all-time high in the S & P 500) but failed to make any further progress. Now the Dow has moved fairly deciSively below ItS June-July low. and the potential top fonnation is fairly broad. The one constructive element that exists IS that March-April trading area at 3300-3200 which could wrnd up providing support. It was. indeed. after a fairly deep penetration into that area that the market bounced in the latter part of this week. If 3200 is cannot hold. however, the likeliest pOSSibility would be a probe of the late-1991 trading area at 3000-2850. This could be a somewhat less-than-pleasant experience. Against this background, there exist, in our view, a number of further negatives, not the least of which is the pronounced downward bias of the month of September. We mentioned above the fact that breadth peaked back in February. This means that there now eXlSts a divergence of 138 days, something that, historically. has not boded well for market prospects. On the plus Side, breadth acted sufficiently well Ln early August so that, even after having retreated, our druly breadth index remains comfortably above its lows of Apnl and June. Such short-term positive divergences, however. tend to have limited significance. From a valuation pomt of VIew, we find the S & P 500 selhng, at yesterday's levels. at almost 24 times trailing 12-month – earnrngs, and 18 times estimated results for 1992. The pie ratio IS a more modest 15 if we apply it to estimated 1993 results, but there is some room for doubt as to whether the consensus estimate for 1993 is attainable. given the anemic nature of the recovery to date. A glance at yesterday's paper, for example, shows durable-goods orders down sbarply from a year ago. With this sort of phenomenon nOW becoming commonplace, can one expect corporate profits of record proportions in 1993 This diatnbe sounds more pessnnistic, perhaps, than It 15 intended to be. It needs to be stressed that our own experience include plenty of markets whtch have found themselves in a worse technical condition Our intent. simply, is to raise a few caul10n flags in a market whose 1992 dullness may have lulled investors ANTIIONY W. TABELL. CMT DELARELD.HARVEY,TABELL Dow Jones Industrials (12'00) 3263.83 Standard & Poors 500 (12.00) 414.38 Cumulative Index (8/27/92) 7518.58 '- No statement or expression of opinion or any other matter herein contained is, or is to be deemed to be, directly or indirectly, an offer or the solicitation of an offer to buy or sell any security referred to or mentioned. The matter is presented merely for the convenience of the subscriber. While we believe the sources of our information to be reliable, we in no way represent or guarantee the accuracy thereof nor of the statements made herein. Any action to be taken by the subscriber should be based on his own investigation and information. Delafield, Harvey, Tabell Inc. as a corporation and its officers or employees, may now have, or may later take, positions or trades in respect to any securities mentioned in this or any future issue, and such position may be different from any views now or hereafter expressed in this or any other issue. Delafield, Harvey, Tabell Inc., which is registered with the SEC as an investment advisor, may give advice to its investment advisory and other customers independently of any statements made in this or in any other issue. Further information on any security mentioned herein is available on request.