Monday, March 2, 2009

Louise Yamada - Sheeeee's Back

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)


....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.

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