This may seem as yet another gloomy outlook for US Stocks and for that matter stocks in general, however, its source, Louise Yamada, is by far, one of the most highly regarded technical analysts, globally, and with a superlative track record. Though she is a technical analysts she confirms that supply is still outstripping demand for stocks, and as long as their are less buyers than sellers, the Dow could sail through 6,000 to her secondary target of 4,000.
Here, she is covered by CNBC, Bloomberg, and Barrons:
Louise Yamada, the doyenne of market technicians, says the market "looks awful" and is calling for a primary target for the Dow of 6,000 pts, and her secondary target at 4,000 pts. She is one of the most widely followed technical analysts working today. Click play to view (transcript provided below if you can't watch now)
Melissa Francis (CNBC): You have said, "Hope is not an investing strategy."
Louise Yamada: Yes, thats true. I think there's a lot of hope that things won't go lower. I'm inclined to agree with prior comments that there's not a lot to see that we have bases; that we have accumulation under way. Basically, what's happening in the stock market as with everything that we follow in price is the study of supply and demand in the marketplace.
What we see is that the rallies are all being met with more supply, whether its mutual fund closings, whether its hedge fund closings, whether its people just trying raise some cash because they're just unemployed, there seems to be a very consistent supply coming into the rally attempts.
MF: You say you think we're going to go through 6,000?
LY:I think so. I think one of the things that we've been concerned about is that as price was approaching the 2002 low, that that 2002 low represents a 10-year support and its very familiar to what we have been seeing over the past year and a half, a lot of the overall sector work in 2006 and 2007 when the financials were creating this 10 year top and finally broke the support of the 2002 low.
The implication of the 'bigger the top, the bigger the drop,' is very real, and its always for reasons that we don't always know, because the market is a discounting mechanism. But, it was clear at the time that what was happening in a 10 year breakdown, was very different to what was happening in 1998 financial crisis, or 1990 which were very small, and we said the implications here are greater than are being perceived.
And the same thing now could be said of the equity market with the break below the 2002 low. It concerns us greatly. You have 15 of the Dow stocks that are already broken below their 2002 low. Over the past year and a half, forget the teenagers and the toddlers that many of those stocks have regressed to, but you know, I disagree with the comment made about, "You could buy a stock at $2 because it's like an option, but recognize that if you do that and it goes to $1, you've lost 50%.
MF: Louise, I know that you say that your next target after that is 4,000. You also say that Buy and Hold died a long time ago. A long time ago, you know, people who bought and held until the market hit 13,000, 14,000 did okay. Why do you think it died a long time ago?
...If they sell, If they sold. But a lot of people didn't. And therein lies the problem. People that bought in the 80s and 90s held through the 2000 crash, and then were in it again, for what has turned out to be a double top; perhaps a 10 year double top; many are still holding on.
I think its important to recognize, when the distribution starts to occur, the way it did for technology in 2000, and recognize that the Dow replaced stocks with Microsoft and Intel, right at the top in 1999, and Dow is a price-weighted average, so the larger priced stocks carry a lot more weight.
MF: So you're saying that you have to be vigilant, and be awake, and sell stocks, now be a hog, and sell your stocks when you've made a little money. Or you're saying you've got to be a day trader, that buying in your 401K is gone.
No, i don't think you're a day trader buying in your 410K. Technical analysis really helps people understand about when the structural run is over, in a sector or in a stock, just as in the 1973, Avon Products went from, 200 to 19. In 1986, Digital Equipment went from 200 to 19. There are ways to identify those breakdowns.
Enron, we were getting out under 60. There is an important characteristic of supply, that makes itself evident in a major top.
MF: Gotcha!, Louise Thanks so much.
Listen to Louise Yamada, on Bloomberg discussing "shocking" state of the market.
http://media.bloomberg.com/bb/avfile/Economics/On_Economy/vppvUAwxq75Q.mp3
And from Barron's, Friday, March 6, 2009
http://online.barrons.com/article/SB123631957962750593.html
The eponymous head of Louise Yamada Technical Research Advisors points to broad market measures' breaking their 2002 lows, which would equate to around 800 on the Standard & Poor's 500, as the key indicator of the market's overall trend. (The S&P 500 closed down at 682.55 Thursday, down 30.32 or 4.25%.)
In other words, after the dot-com crash of 2000-02, stocks rallied only to give back those gains, and them some.
That's important, Yamada explains, because following the Crash of 1929, the great loss of wealth didn't come in the initial decline. Fortunes were wiped out among investors who had tried to pick a bottom during the initial phase of the bear market of the early 'Thirties.
"You never know how low is the low," she remarks. Yamada sees the downside risk on the Dow Jones Industrial Average in the range of 4000 to 6000 (down from 6,594.44 Thursday) and 400 to 600 on the S&P 500.
Given the widespread talk of "capitulation" (See Thursday's column, "Not There Yet?") the desire to pick a bottom seems as strong as in the early 1930s. Consider a market bellwether such as General Electric . It traded at 30 last summer and had fallen below 13 at the worst of the November's rout. But it's been cut in half from those former lows since then.
While prices plunge, Yamada observes investors have far less they can count on. Buyers of preferred shares in banks, which offered them seemingly bond-like protection, are being turned into common stock, which puts them on the front lines to absorb losses.
Louise Yamada, founder of Louise Yamada Technical Research Advisors, was formerly Senior Technical Analyst, Vice-President for Research at Salomon Smith Barney, where she was responsible for sector analysis of the U.S. and global markets. She writes for widely acclaimed reports, including Portfolio Specialist, Market interpretations, Japan Portfolio Strategist, Latin American Strategist, Group Spectrum, and special research Trends reports. Her work has been the subject of two featured interviews in Barron's. A graduate of Vassar College, Ms. Yamada teaches at the New York Institute of Finance and frequently appears as a guest on CNBC.
