Evening star., 1938-01-02
UPTURN EXPECTED
AFTER LONG DROP
Rebound of From One. Third
to One-HaIf of Decline
Believed Logical.
BY ARTHUR H. NORRIS.
Cambridre Associates Staff


such extremes Of optimism and pessim-
ism as did 1887. In the early months
OF the year such lowering clouds as
sitdoWn strikes, higher raw material
costs all around, Social Security tax
burdens, and adverse legislative devel-
opments failed to darken the gener-
ally rosy horizon as envisaged by most
investors confident Of inflationary
developments that would carry stocks
on to new highs in 1887 and beyond
BY March many commodities had
been bid up very sharply and the So
called commodity stocks-the cop
pers, rubbers, steels, etc.-were out
standingly strong-giving the appear
ance of a broad bull trend-where in
reality the general run of stocks did
little or nothing in the way of forward
progress during the first quarter.
1t so happened that the approx
mate top for the 1887 market was at
tained just about the time that Presi-
dent Roosevelt criticized the then
existing prices from certain commod-
tiles as too high" 1t would hardly
be fair to the President, however, to
blame him for the deflation which has
since followed. The facts were that,
at the time he spoke, both stocks and
commodities were in a high area, If
not in boom area. and that only
good excuse was needed to start them
tumbling of their high perch. It is
safe to say that if the President had
not remarked on high prices for Ger
tain commodities when he did, that
something else in the way of news
would have soon occurred to start
things going downward.
Sharp Rally in August.
From March until June the stock
market reacted slowly under the pres
sure Of offerings, only to rally sharply
into mid-August as general business
maintained its high level of the early
spring and prospects appeared good
for a good fall-particularly in view
OF the definite improvement in farm
income in 1887 as result Of the then
fairly good world prices and the
bumper crops in the United States.
Instead of pushing ahead beyond
the March highs, however, stocks in
general began quiet sag back toward
their summer lows. Just before Labor
Day there was still no apparent
reason for believing that the bull
market which began In 1882 had
already passed its peak. But when
early in September the summer lows
of 1887 were violated in sharp
liquidating movement, the burden Of
proof shifted from the bulls to the
bears. The insuing almost continuous
decline went beyond the immediate
expectations Of even the most pessi-
mistic-reaching low around lis
for the Dow-Jones averages on Black
Tuesday In october.
Forming q Base?
Since October there has developed
no definite trend upward or down.
ward-sharp rallies being succeeded
by self-canceIing dips back toward
previous lows. There is some indica-
ton in the MARKET action that it
was attempting the last two months
of the year to build up some sort of
a base from which more than pass
ing rally might develop.
That such a rally Is logical ex-
pectation after the terrific decline
suffered from August to October is
evidenced by study Of the l929-1932
down market-in which every impor-
tant wave of liquidation was partly
regained by following rallies of 40
to so per cent.
The Reverse Of 1888.
Then, too, the present situation as
the year closes, is not unlike that in
July, 1933-if the market, news and
background of that time be exactly
reversed. The essential similarities
in these two segments of the market
movement-one in the early stages
OF the bull market and another now
presumably in the early stages Of q
bear trend are indeed striking.
In July, 1888, the market, at 100,
had spurted SO points upward in
three months without a downward
intermediate correction. BY Novem-
Der. 1887, the market, at ia. had
dropped straight downward IS points
In four months without upward in
termediate correction.
The average individual stock in
July. 1888, had appreciated from so
to 100. Recently the average stock
had dropped from 100 to so.
In July, 1888, the chief topic Of
discussion In financial circles was
the inf1ationary Government policies
on business. Recently the chief topics
of discussion had been deflationary
Government policies on business.
In 1888 brokers loans had rushed
up $500,0OO.00O in three months,
whereas recently there has been =
drop of $500. 600 600 in the like neriod