We wrote about Louise Yamada back in November 2008 at a similar frightful moment in the market. [Nov 21, 2008: Fear Louise Yamada] Well... she's back.Louise Yamada formed an independent research company in 2005 - Louise Yamada Technical Research Advisors, LLC ("LYA") - to provide the same in-depth and thought-provoking research that clients had come to expect during her 25 years at Smith Barney (Citigroup) as a top-ranked "Institutional Investor" technical analyst.
As Managing Director and Head of Technical Research for Smith Barney, Louise Yamada was a perennial leader in the Institutional Investor poll, and was the top-ranked market technician in 2001, 2002, 2003 and 2004.
Back then we wrote
Louise Yamada has been one of the technicians to nail this downturn (certainly, best technician on the planet pound for pound); she appeared on Fast Money last evening and if we continue to follow her calls, we have nothing to fear but... everything. Actually her S&P 600 target does coincide with a lot of potential things I can see; what is troubling is the call for a potential move to S&P 400.
With fundamentals meaning absolutely nothing and the rise of the machines on Wall Street, I think technical analysis has really taken the reigns - and it is something that becomes a self fulfilling prophecy. When people ask me about technical analysis I give an example - if you saw a trend that every time it was 90 degrees in Miami sweater sales jumped 40%, and you were a sweater salesman what would you do? Scoff? Or respect the trend while scratching your head, and get out there selling sweaters. Essentially technical analysis is the latter in my eyes - and the more people who follow it, the more it self fulfills.
Let's see what her latest appearance on CNBC's Fast Money brings us (only need to watch the first 4.5 minutes) She is consistent with her target but more troubling is the similarity to the Great Depression stock market - not just in the initial fall but how it is lining up in terms of the years after.... history doesn't necessarily repeat but perhaps rhymes. Seems impossible such a horror could repeat right? Just remember all the things you said were impossible a year or two years ago. But hey at least in the 2000s we have shorting and inverse ETFs to allow us some profits or at least hedging. Well perhaps not in 99% of mutual funds... but in some future products (hint hint)
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....what does she see going forward?
Unfortunately patterns in the S&P don’t translate into good news. Yamada sees a clear 10 year double-top and suggests we probably have further to fall.
“Now that the 2002 lows have given way we have further to go, she says. “The first targets are 6,000 in the Dow and 600 in the S&P and the second target, I hate to say it, could be 4,000 and 400.”
To support here thesis she points to trends that happened immediately following the Crash of 1929. Wealth destruction didn’t actually occur at the crash. It happened after a bounce in 1930 and lasted well into 1933.
If you’re looking for a survival strategy Yamada says it’s important to be holding cash. "And if you get into this market make sure it’s with a trailing stop."
Of course here thesis doesn’t take into account that the Hoover administration wasn’t nearly as aggressive as the Obama administration. Also Fed Chairman Ben Bernanke is a scholar of the Great Depression.
What's the bottom line? Let’s hope this time history doesn’t repeat itself.
7 comments:
Yup, I watched the show tonight, looks like down we go. I have been following Oscar in the live trading room trying to get some counseling. Many others too, but haven't resorted to star gazers yet. LOL.
I have been selling off JNJ, that sector has finally imploded after being a respite for such a spell. Buffett beat me to it, then the flock flew on the sound. Also, Obama policy will not be kind to the sector.
SDS short mid day today for a taste. For a trader, it is not good to hold anything overnight, the 3-5 day swing trades for me are pretty much over, with more gaps than in a rickety fence. I did short gold (DZZ) successfully and made some money with (DRR) a thinly traded double euro short the last few days, exiting today up a few notches. Sold half of DRYS, I'm sure you're feeling pain with EXM. So it goes.
Auto report tomorrow and Friday employment numbers will keep the embers hot.
As long as your hedged you can do anything; was down 0.1% today despite losses to just about every long position but 2.
key will be to lift hedges at appropriate time and let the bounce take one up. Timing will be the trick.
not a market for investing unfortunately - most smart professionals are "staying small" (high cash) and trading around the edge. Being "all in" in this market if your time frame is longer than hours is nonsense.
Is it just me or does the sentiment seem to be moving to the extreme right now. I may be overly contrarian here, but it seems like everyone is certain that we are going to 600 or 500 or 400 in the SP.
I don't have a feel for whether I am simply reading nothing but the minority opinions everyday, but it feels like the bandwagon on the short side is overflowing (I might just have cold feet and be afraid to keep shorting).
What are your thoughts?
Personally I am in your camp Colin. I'm just waiting for the hair trigger to turn fear to greed.
As you saw by actions today I'm tidying up the short side, going to less positions so I can exit quickly when the bells ring for bulls. Could be as early as tomorrow although I'd like to see a horrific morning to wash hope out.
I get worried when everyone starts sounding like me ;)
Re: "certainly, best technician on the planet pound for pound" ... Geez! How serious is that. She can't weigh over 80 lbs fully clothed!
Re: "Essentially technical analysis is the latter in my eyes - and the more people who follow it, the more it self fulfills." To a degree I believe that it has become more self-fulfilling, but TA was developed based on the actions of the market and individual stocks and trends and patterns go back as far as stock market history does - way before technical theory. I'm more of the opinion that trends and patterns develop as a result of actions of investors. Support and resistance are market derived. Still, program trading sure does its bit in reinforcing those levels.
jegan
Well.. Watched the video .. It's a must see. This lady is so smart. Boggles the mind. Hello DOW 4000.
On another note, next time some poster questions your take on TA... You can respond with what i just heard : At times program trading accounts for 60-70% of the volume.
jegan
On youtube search for:
Louise Yamada: We are in structural bear market for years!
She was right then. She is right now!
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