Financial Sense Newshour recently 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 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 (excerpt below) with Financial Sense Newshour by clicking here or in iTunes here.
Financial Sense: We’re already halfway through the year and, when you look at the Dow, the return for investors this year on stocks is now slightly negative. Also, a significant concern for Dow Theorists has been the continuous breakdown in the Dow Transportation Average, which advocates of Dow Theory warn may be indicative of a larger selloff in the market. Ralph, does this concern you as well?
Ralph Acampora: Yes, it has for a while. Actually the Dow Jones Transportation Average made its peak on December 29th last year so we have five months of what they call a non-confirmation. Normally that says if you are a Dow theoretician, the market’s in a corrective mode. We have been correcting by going laterally. It becomes problematic if the Industrials start following the direction of the Transports. The first area to keep your eye on is the low that the Industrials made on March 11. It was around 17,627. We’re not too far from that right now. I’m not overly concerned, but if we start to break through that, then you start thinking maybe this is the beginning of a long overdue Dow Theory pullback. So far I am willing to give it the benefit of the doubt. I have been in the camp of looking for a correction and frustrated with so many other people. This could be the beginning of it. I watch it carefully. As I mentioned to someone not too long ago, when the Transports do not confirm the Industrials, just like the little light on the dashboard of your car, it starts blinking. You don’t have to pull over your car right away but you better inspect as there might be something going on.
FS: Outside of the Dow Transports, some of the smaller cap indices like the NASDAQ and the Russell have been doing well. Are there areas of the market that are still showing signs of strength?
RA: Absolutely. The semiconductor index made a new high the other day. In fact, there’s an ETF, I think it’s IWC … and it’s also acting very, very well. So to generalize would be a major mistake. For example, there are ten S&P sectors. Four of them look very good. One of them is technology, one of them is health care, one of them is consumer discretionary and the other one is financials. But that’s only four out of ten, so forty percent of the sectors are actually attractive. The other sixty percent are neutral to down so if you are entering the marketplace now you have to be sector and stock specific. The tide is not lifting all the boats.
FS: A lot of attention is being paid to when the Fed is going to raise rates and the impact that will have on the stock market. Do you see any opportunities developing or is this only a danger sign?
RA: If rates go up, that’s good for banks. Look at JP Morgan, Goldman Sachs, and Bank of America just sitting there at sixteen bucks. You buy that and put it away. You can’t really have a good major move to the upside without the financials and I think the financials are in play…
[Also] when Mrs. O’Brian opens up her statement every month and sees she’s taking some very serious losses in the bond market, she’s got nowhere else to go but stocks. That will be years of converting, turning from a large exposure in fixed income to a bigger exposure into equities. That’s why I think the secular bull market has many years to run.
FS: Ralph, you’ve seen a number of bull and bear markets. How would you compare this market to ones that have preceded it?
RA: I love to tell this story; in fact I have a picture of the man I’m talking about. The year is 1970; the man I’m talking to is Ken Ward. He worked for an old firm called Hayden Stone—you might remember that name. He was a technical guru in his day. I’m sitting next to him at this dinner and it’s like I’m sitting next to Joe DiMaggio. I was so excited. By the way, he was 80 years old in 1970. That means he lived through every bull and bear market in the 20th Century up to that date and wrote about it. So I lean across the table and I say, “Mr. Ward, what was the most difficult market you ever had to experience?” And then I said, “Oh, forgive me Mr. Ward, that’s a silly question, it has got to be the crash of 1929.” With a gravelly voice the old man says, “No. The most difficult market was the early sixties.” I said, “But Mr. Ward, it went up.” He said, “It sure did. We were all looking for a correction and it just kept going, climbing and climbing.” Sound familiar? ...
Here I am, 50 years later and I now understand what the man was talking about. The last year and a half for me has been very, very difficult because I haven’t seen a market like this. This is the most hated market I’ve ever seen and it’s persistent on the upside. I’ll gladly wait for a correction. But what we have in common with the early 1960s is low inflation and low interest rates. That’s the fertile ground that secular bull markets live in. I have a picture of him and me sitting there. I was 29 years old and I show that picture to everybody and I tell that story over and over again.
FS: That’s a great story and it certainly seems relevant to today. So, in sum, you are still long-term bullish on the market and think it will likely be higher in the years ahead. In the short-term, what are your thoughts?
RA: We see the Dow is down 184 points right now. Maybe we’re getting that correction. The Transports are down almost one percent again; there’s a lot of weakness there. I look at the Transportation Average and of course I look at the components inside, those railroads look terrible. I say to myself, I’m not a fundamentalist of course, but those companies haul things. There’s something wrong. I think we’re due for a little hiccup here.
FS: Given your long-term bullish view, are you seeing any potential correction ahead then as a buying opportunity for the stocks and sectors you like?
RA: Yes.
FS: Ralph as always, it’s a pleasure speaking with you. If our listeners would like to follow you, how could they do so?
RA: I’m on Twitter: @Ralph_Acampora.
Listen to this full audio interview with market technician Ralph Acampora on the Newshour page here or on iTunes here. Subscribe to our weekly premium podcast by clicking here.
For comments, suggestions, or technical support, email us at fswebmaster[at]financialsense[dot]com.
