The following is a summary of our recent interview with Ralph Acampora, one of Wall Street’s most respected technical analysts, which can be listened to on our site here or on iTunes here along with our weekly market wrap-up and Big Picture.
With the breakout to new highs in the S&P 500 and the Dow Jones Industrial Average, many bears believe this is simply a blow-off top in the stock market with a major crash just waiting around the corner.
One well-known technician that does not believe that to be the case, however, is Ralph Acampora who called the recent breakout "very, very impressive...and I think we have a lot higher to go," he told Financial Sense on Saturday's podcast.
Here's what he had to say:
Ralph, how significant was the recent breakout in the US stock market to new all-time highs?
"The significance is very high. Since 2014, we've seen almost a year and a half of churning and the bears had a very good case that there was a lot of supply overhead. Well, that's not the case now and I don't just see it in the leading averages—the Dow and the S&P—but I see it across the board with individual stocks. It's very very impressive and I think we have a lot higher to go."
How many times in your career have you seen a long drawn out churning process like we saw over the past year or so?
"The period that comes quickly to my mind is the 1994 period where for 12 months the Dow and the S&P 500 were locked into a, I'd say, 10% trading range and, under the surface, there was a lot of damage being done. At the time when I was writing, I called it a stealth bear market and we basically had that action in 2014, 2015, and the early part of 2016 where the market was in a tight trading range and, under the surface, we had a lot of damage. The Russell was down over 20% in that period of time. And coming out of that low in the late-1994, early-1995 period we had a very exuberant move to the upside, which led to the next four or five years of much higher prices. So I have seen it once like this."
How much of this is being driven by the hunt for yields because if we look at the sectors that are doing well, there's been a lot of money pouring into defensive areas and higher dividend plays like utilities, consumer staples, and REITs.
"I have to say with interest rates around the world at zero or close to it you have no place to go but these vehicles that you're talking about—high yielding dividend stocks and REITs and things like that, so I think it's a natural flow of money into that area and while we continue to have low rates I think those areas will probably do very very well."
Let's move away from stocks for a moment and discuss interest rates. Last week the US Treasury sold a 30-year bond at the lowest rate in recorded history. The same is true in Germany except in this case they sold 10-year bonds at negative yields for the first time ever. How much lower or much longer do you think this can go on?
"When people seek to buy bonds, bond prices go up and interest rates go down. I honestly don't see that ending but it doesn't necessarily mean that we are going to have much lower rates. I think we can stay in this area, maybe back up a little bit, but I think we'll be down in this range for a while. I don't see the environment changing."
Ralph, do you think one of the catalysts that could send the stock market higher from here is money coming out of the bond market given all the money that has flowed into bonds since 2009?
"Well, if you're talking about public money I think it will take them a little while to really digest what's going on. I think we have to be, I don't want to say a lot higher, but we have to be much higher than we are now to bring that public money off the sidelines and for them to turn their back on bonds and aggressively into equities. I don't want to say the public is always late but they have the tendency to wait and see until the trend is really established. It's the institutional, it's the I don't want to say smart money but I'll say the informed money that comes in earlier. So I would expect institutional money first and then maybe a year from now the public comes in and you'll see that. And, by the way, that all leads to this extending for a couple years."
What's your take on gold here?
"Well, I think gold after being in the doghouse for a couple of years has finally bottomed. And I think part of the recent strength has been the concern that people had for things around the world, you know we had Brexit and things like that. But, having said that, if gold backs down, which it is doing now on a short-term basis, I think that's a buying opportunity. I won't say you have to buy it today but I think the longer-term trend is favorable for gold and you can have rising stock prices and rising gold prices simultaneously. And I think over the next six to twelve months that will probably be the case. So, you're getting a little rotation here; you're getting gold backing off a little bit, which it should—silver has done extremely well—and even crude has backed off a bit, so I think in all three cases longer-term you'll see higher prices."
Listen to this full podcast interview with Ralph Acampora on our Newshour page here or on our iTunes page here. Subscribe to our weekday premium podcast with various guest experts, strategists, and book authors by clicking here.