Interview with Louise Yamada of Louise Yamada Technical Research Advisors, LLC. Full audio podcast can be heard on the Newshour page here and on iTunes here along with our weekly market wrap-up and Big Picture.
Major Sell Signals on All Indices; NYSE “Death Cross”
“We've been progressively more cautious and this month we became even more cautious…because we have major monthly sell signals in place for all of the indices… [H]istorically if we look back we got one of these monthly sell signals in January of 2008 and in June of 2000 so we tend to take them rather seriously. The next thing we are waiting for is a crossover of the monthly moving averages and we use a 10-month and a 20-month moving average, which would be a monthly death cross if you will. Everybody is talking about that...and the New York Stock Exchange just this week has been the first one to register that cross under of the 10-month moving average under the 20-month so that death cross is in place for one of the indices. I think that things are becoming much more fragile.”
Technical Bear Market
“There's a good possibility that we see a 20% decline, which is defined as a bear market or slightly more than that. Whether it's cyclical or structural has yet to be determined but for instance if the S&P, which is already down around 10%, were to come down another 10% you'd take it right back to 1600, which, ironically, is the breakout point through the 2000 and 2008 peaks, which was broken through on the upside in 2013. So a pullback to that breakout level would be a perfectly normal cyclical bear market in what presumably would be an ongoing bull market, just as we saw cyclical bear markets in the course of the 1982-2000 bull market.”
First Time Market Reacting Negatively to Easing
“[T]his is the first time that a continuation of easing, so to speak, was greeted by disappointment in the market… Whenever the Fed offers liquidity the markets tend to go up and interestingly here they've maintained some sort of liquidity by not tightening...and that's been greeted negatively for the first time I think.”
Monthly Sell Signals Abroad
“We have some monthly sell signals on a variety of the international markets and we're watching carefully to see whether that begins to spread to the rest of the ones that have been looking good. Japan had been looking good. Germany had been looking good. India had bindyeen looking good. But if we start to see that we're losing that leadership and getting sell signals for those major markets joining a lot of the other emerging nations, we would be raising our antenna a little bit more. I think that's definitely part of what was on Yellen's mind the other day.”
Gold to Hit $1000 if July Low Broken
“We have people that call us and get all excited saying it looks like gold is at a bottom. Well, remember, the greater the decline the longer the need for repair. It doesn't look like a bottom, it looks like if it rallies maybe you get to $1200; maybe you get to $1250… Now if we break the July low, we still have an outstanding target at $1000 which takes you back to the major support of the 2008-2009 period… On the other hand, you really wouldn't address the 2011 downtrend unless you got through $1400 and that's quite a distance from here so I can't get terribly excited about gold beyond a trade and I'm not even sure I'd play it for a trade.”
Not a Good Environment to Initiate Positions
“I have no problem staying in cash. Preservation of capital...this is not a good environment in which to initiate positions. I think you really need to wait and see where the dust settles. We have an enormous number of stocks that are down already 20-80%. The larger declines are obviously in the energy area and once you've had that kind of decline you're not going to go to new highs anytime soon. And that's a fair amount of S&P capitalization weight that's damaged and when you have that kind of damage it's going to take time before one is going to benefit on a sustainable basis by being involved.”
More Serious than 2011 Decline
“I would wait until we have evidence that all of these sell signals are false, which I don't think we are going to get. But the point is, time will tell. We would need to see the advance-decline line move to a new high; we'd need to see these monthly sell signals reverse, which could happen in a period of 3-4 months as it did in 2011 even though you had almost a 20% decline there for the S&P and the Dow but these signals are not only in place but the momentum is declining which did not happen in 2011...so I think we are looking at something a little bit more serious in this environment.”
Listen to this full interview 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.