In last week’s Technician podcast, Financial Sense Newshour spoke with the well-known “Godfather of Technical Analysis,” Ralph Acampora.
Ralph is a pioneer in the development of market analytics and has a global reputation as a market historian and a technical analyst. He is the former Director of Technical Research at Kidder Peabody and Prudential Securities, a published author, popular lecturer and a leading international expert, consulted by prominent financial experts and journalists worldwide.
You can listen to his entire interview with Financial Sense Newshour by clicking here (starts at 18:10) or in iTunes here.
Ralph, the stock market has been going up double digits every year. We’ve had corrections along the way, but every time the market comes roaring back. What keeps pushing U.S. stocks higher?
“I think…it’s the economy that has taken us to new highs. The economy is super strong. I’m very excited about that… What we need to see now…we need to see new highs. If we get new highs, then the market is totally in gear again… I love what’s happening, but I do think it’s a little too much too fast.”
Rather than fearing corrections, shouldn’t investors view them as a healthy process of a bull market—that is, as long as the primary trend is still positive? Otherwise, if stocks climb too quickly, then you have to worry about a bubble forming.
“Yeah, exactly. I don’t know what your definition of a bubble is. Bubble, for me, is when the public is really in the market and haphazardly throwing money at it. But I don’t think we’re there yet. But yes, it is steep and I think the market is a little ahead of itself. But I’m not going to fight momentum. I’m going to enjoy it.”
When you see stocks like Intel, Cisco, or Microsoft breaking out again after being in a bear market for ten, twelve years, does that simply reaffirm that we are in a long-trending bull market?
“Well, you mentioned a bunch of old names that I like to talk about and, yes, they are actually playing a game of catch-up to the rest of the list. And I think there is more to come in stocks like that. Again, I say on a short-term basis they’re probably a little extended, but any kind of weakness, if I were long term… Somebody asked me the other day, “If you were putting fresh money into the market would you chase this market?” My answer is, “No. I wouldn’t.” But if I was already in the market in the names that you’re talking about I would just grin and bear any kind of correction because I think there is a lot more upside left in those names. And I would throw into the hat names like Bank of America, which I think is around . GE, which is like or . Those are old names I think over the next several years that are really going to have great upside potential.”
If you look at many of these large blue-chip tech companies, take a stock like Cisco for example, which has been moving up lately, it’s still nowhere near where it was thirteen years ago and has a lot more sales and profits today.
“Exactly right. That’s the catch-up game that’s unfolding now and will continue to unfold. I think the old high in Cisco was back in 2000. What is it, 27 today? What a nice long term play that is.”
Yeah, and stocks like GE which were much higher thirteen years ago.
“Yeah I think even if it just got back to its 2007 high, that would be around -; and it is -25 today.”
How about the bearish argument that both the Dow and the Russell 2000 are underperforming compared to the S&P 500? Does that concern you in any way?
“Yes it does… As we are having this conversation, the Russell is challenging, believe it or not, its recent high made in November. And that was somewhere around 1190 and the Russell is 1182 right now. So I’ll wait and see. I will give it the benefit of the doubt. But if we’re in January of 2015 and I see the lack of new highs [in all major indices] that will concern me for a correction, but just hang in there for a while.”
So, when we do see the next market correction, as long as the trend line is in place, would you use that more as a buying opportunity than anything else versus let’s say the end of a bull market?
“Well it depends on what trend line you are looking at. But yeah… What we don’t see are massive top formations or…heavy liquidation in most areas. Some areas yes…obviously in energy and things like that where I think there’s still more downside, but when you look at industrials, health care and financials and things like that, they still look very good. What I would not want to see, and I’m just keeping my eyes open in the next month or so, is that they falter at the old highs and they don’t make new highs. If they do that then we can make a case for maybe this market having more than just a 4-5% pull back; maybe 10-15%. But I need the evidence first.”
In a bull market there was a lot of talk we went for the longest time Ralph without a 10% correction. Are there any technical rules that you’ve seen in bull markets that say you have to have so many 10% corrections after you go up so long?
“No, I don’t think there’s a rule of thumb on that but it is amazing this market. I’ve been doing this almost fifty years and I’ve never seen a market so hated by so many people for so long. It’s actually amazing and the scary part of it is they’re not getting a correction. You know the 10-15% correction you’re talking about. I just flip the coin over and say, why aren’t we getting a 10-15% correction? And the answer is the economy, which is I think a lot stronger than most people have anticipated. And you got to give the market credit, and you’ve got to give the economy credit. Globally, we’re a leading country and it remains that. Now, it will be very interesting in this seasonal period if the German DAX makes a new high. It’s having a good day today and the French CAC is up 3% today. We need new highs in those indexes. If we don’t get new highs in the next couple of months, I’ll be concerned about Europe again.”
You just mentioned something that has been absent in this market and that is the public. And if you take a look at the last decade Ralph, who would have thought four or five years ago the United States would become once again a major energy producer. You take a look at the problems in Europe or the problems in Japan and, as we often say, we’ve got the best looking house in a global neighborhood; yet the pessimism and disbelief is at the highest levels we’ve seen. You would think it would dissipate some after two or three years of double-digit returns. But it hasn’t.
“No, it hasn’t. And that’s what makes me encouraged longer term because the naysayers keep regurgitating the same concern and the market keeps pushing higher. You know me, I never fight the trend and the market is saying that the United States is probably the best place to be invested the next several years…”
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