Interview with Louise Yamada of Louise Yamada Technical Research Advisors, LLC. Full audio podcast will air this Saturday on the Newshour page here and on iTunes here along with our weekly market wrap-up and Big Picture.
Current market "very frustrating"
"It's been a very frustrating environment. I'm even looking at the intra-day moves today and we've gone plunging down and surging back up and now it's going to a new low. It's got to be very frustrating for the average investor because it's certainly frustrating for the professionals. But basically if you look at the overall pattern of the S&P or the Dow, the barely 4% pullback we've had so far, assuming it doesn't get much worse, has been holding at a higher low than the lows were put in place January through February and that might augur well unless we see price come back down to about 2000 on the S&P and support on the Dow would be around 17,000. So, as long as we're in that trading range let's say above those support levels it remains constructive."
Good sign: Breakouts in small- and mid-cap stocks
"If we were to move sideways for a period of time that could be very constructive. What's interesting here though is that the S&P mid-cap and small-cap indices have moved decisively to new highs. And that's quite impressive considering the overall sideways, up and down environment. That might be something that's giving us a lead to what'll happen next. I think that Yellen was very clear—there were so many commentaries about how unclear she was—I don't think she could've been any clearer about exactly what they're thinking. But taking patient out is almost irrelevant, they're going to watch the data and basically the Fed has given us this entire 5-6 year bull market run."
Energy weighing on the S&P though market breadth still positive
"The breadth of the market has been doing fine. It has been moving with the overall indices. What has been a little less encouraging is the fact that we haven't seen an expansion in new highs that could well be because we've had so many bear markets in the energy patch and that's a decent weight in the S&P 500 and those aren't coming back anytime soon to make new highs."
Bottom fishing in energy not allowed
"Well, the healthcare sector has definitely got to a new relative strength peak along with price so that has continued to do very well for us. The financials are much less encouraging; they're sort of hugging a downtrend line that's been in place in relative strength since 2013. The info-technology sector has done well—it's a slower upward progression but nevertheless the relative strength has been holding well. Consumer discretionary came to the fore over the past month and it's selective within the group but nevertheless it seems to be doing well. What's been a little bit disconcerting is we can't seem to get the industrials to outperform so I think that this is an area in particular where we are going to see—and possibly consumer staples too—some of the translation of the very strong dollar into many of these companies that have global exposure and are going to have to deal with revenues coming in at lower levels in depreciated currencies. I think energy is a place not to bottom fish—I would not be bottom fishing in energy at all and utilities had a very severe pullback trying to stabilize here. I think if you look at utilities overall, it's pulled back right to a breakout support level so as long as it holds here, you're welcome to continue to enjoy those yields. Telecom has been underperforming but there again you have yields and as long as the prices remain stable in these sideways consolidations for those who need income, it's the place to be. But I think healthcare remains the leader and it's not just the biotechs, although those are a big weight, the pharmaceuticals some of them are doing quite nicely too, like a Bristol-Myers."
14 years of low interest rates?
"When we look these long-term trends as reversing from a now 34-year declining interest rate cycle (from falling interest rate cycle to rising interest rate cycle), the transition because of the deflationary forces that have been preponderant, generally take from 2-14 years. If we think about 1932 and we didn't see interest rates start to rise until 1946 after that bear market low of 14 years. So it shouldn't come as a surprise that we may have been in a bottoming process since around 2008-2009, but I wouldn't like to see the 10-year for instance go lower than what it was in 2012 because that would in fact start to dissipate what has been looking like a basing process."
Dollar needs to "take a rest"
"I think the dollar certainly should take a rest here. It's had quite an impressive breakout. October of 2014 is when it lifted through its four-year base and then went through the 2009 peak a little bit later just before we entered 2015 and now you've pushed through the 2005 level and you've come right up to where it was in 2003 so I think definitely we could use a rest but if we go back a little farther in history, the last time we saw this extended move in the dollar was in the 1990s from 1995 to 2000 and 2001 even, which obviously ended up in an overall bear market for equities but let's not forget...the dollar rose for quite a number of years and continued to be accompanied by a bull market in our equity market which was very interesting."
Robots - all your jobs belong to us
"We may be in the next phase of the technological revolution in the sense that things are still able to become so much more efficient and one of the things that I find distressing is that the advancement in technology is replacing so many jobs with robotics or simply greater efficiency with things that can be done with software that unless people have a really good education we're going to see problems under the surface in terms of employment. So education remains absolutely key in this advancing technological globe let's say because it's going to affect all areas. Even China has turned to robotics which for a country with enormous population it's going to be difficult for some of the people that have been finding jobs to continue in those jobs."
Nasdaq back at tech-bubble levels - no reason to panic
"It's an aging bull market—there's no question about it. And it has been a Fed-induced bull market that's probably been one of the easiest ones we've seen in our lifetime. We've had only one time prior when a bull market exceeded 6 up-years in a row and that was in the 1990s when you had 9 years of advances. Year-over-year each year ended up over 9 years. And that was a period where the dollar was rising at the same time that the bull market remained in place and of course part of what took that bull market out was not only the excesses in technology, and I think people are saying that the Nasdaq is close to where it was in 2000 and doesn't that mean that it's a top...well, things are very different now in the technological arena than they were in 2000. 2000 you had price earnings ratios up to 130 and you had stocks that were doubling, tripling, and quadrupling that didn't have any earnings at all and here we are back at 5000 after having broken out of this 10-year base and consolidation in the technology sector and you know the bigger the drop the longer the need for repair. We felt when we moved out of that 10-year base back in 2013-2014 that we could argue that the Nasdaq was moving into a new bull market and so far the PEs are relatively reasonable."
Tread gingerly
For stocks that are extended, "take some profits, raise your stop losses but you don't have to be out of the market completely. We do have stocks that appear to be coming out of bases. We don't have an enormous number that are looking like tops at the moment so tread gingerly. Let's put it that way, tread gingerly."
Listen to the rest of this interview on Saturday with esteemed market technician Louise Yamada along with our weekly market wrap-up on the Newshour page here or on iTunes here. Subscribe to our weekly premium podcast by clicking here.
