Now the irony is both times I posted those entries she had just appeared on CNBC's "Fast Money" show. And the market put in a near term bottom and began a furious 20%+ rally within a week of her appearances. Note to self - buy the worst stocks possible, preferably under $3 the next time you see Louise Yamada on Fast Money.
I scoured the internets and I came upon two pieces via Barron's from the last week. Let's see if the cattle call of bottom callers have her changing her mind. (We also have a special appearance by David Rosenberg who is not just an ordinary pundit but actually called much of this carnage while most were whistling past the graveyard) What I find hilarious is how expensive this market is, yet earnings don't matter in a market that is ruled by technicals!
From an article Tuesday - The Bull Case: Not Proved
- You'd think that passing the one-month mark since the stock market embarked on its 25% run would occasion some sort of celebration. While sentiment gauges have followed the averages higher, many market pros are unconvinced this bull is the real thing. "It's given me a headache," says Louise Yamada, the doyenne of market analysts and the eponymous head of Louise Yamada Technical Advisors. (I'm glad I'm not the only one)
- From a technical perspective, Yamada says the stock market can enjoy a very substantial "kickback" from a deeply oversold condition, as it has in the past month. (we called this the reversion to mean, or "rubber band" a month ago - and said it would be a wicked snapback; we just had no idea it would be without any rest on the way up - but new accounting rules, quantitative easing, and Tim Geithner taxpayer handouts help I suppose) Indeed, the averages have seen a substantial number of rallies in the bear market, most recently the move off the November lows into early January, which met the technical definition of a bull market with a 21% gain.
- Yet, as vigorous as this latest move has been, Yamada points to various technical factors that cast doubt that it is the start of a new bull market. The charts show that perhaps only 10% of stocks are trading above their 200-day moving average. That measure is a widely watched indicator of a medium-term trend; as long as the current price is below the 200-day moving average, it's hard to argue that a sustained uptrend has started.
- Similarly, many stocks and averages still remain below their downtrend lines. Until they move above that downward sloping line traced by the progression of highs, the current move still looks like a bounce that could reverse when that downtrend line is hit.
- David Rosenberg, Bank of America-Merrill Lynch's chief North American economist also takes note of suddenly sunning sentiment readings. The surge in the American Association of Individual Investors' sentiment gauge has brought it "close to levels that kyboshed the last bear market rally that ended in the first week in January."
- Looking at fundamentals, Rosenberg points out the market's five-week recovery has pushed the trailing price-earnings multiple based on reported earnings to a record 100 times, double where it was during the tech bubble. (ride 'em cowboy! just remember that is "backwards looking")
- P/Es for consumer discretionary stocks have expanded to post-2002 highs as the group has rallied nearly 40% from their March lows. That sector's gains have come in the face of a record $20 trillion contraction in wealth; a record 3.3 million jobs lost since November and a 3.2% annual rate of decline in real "organic" personal income. (buy consumer discretionary stocks - the consumer is "back")
- "As best we can tell, the market is now pricing in $70 of earnings (operating) [for the Standard & Poor's 500], which would represent a 75% surge from where we are today. Not likely, in our view," Rosenberg concludes. (we're not in Kansas anymore) Top-down market strategists are looking for anywhere from $39 to $57 a share; using the midpoint of $48 puts the market multiple at a dearer 17.5 times.
- WILL THE UPTICK RULE SAVE the stock market again? Back in 1938, the original establishment of the uptick rule helped to reverse the 49% drop in the stock market over the 1937-38 period, according to Louise Yamada, the highly regarded head of Louise Yamada Technical Research Advisors
- The government has intervened in all sorts of ways, Yamada observes, ranging from the TARP, arbitrary switching of bank preferreds for common, agitation over executive bonuses and outright restrictions on shorting of financial stocks. All of which "has fundamentally changed the rules of the game," she adds. "Hence, nothing is as it seems!" (it's all magic Louise! The government can fix it! Why we even had a somewhat free market economy all these years is beyond me - just hand the keys to the Nanny State. Remember, it was all the accountants fault!)
- Be that as it may, 1938 still serves as an analog to the current market for Yamada. Until 1942, stocks endured a frustrating trading range until putting in a solid low around what was, in hindsight, the turning point in World War II.
- As during that period, the stock market now can experience short, sharp surges. In the current move, Yamada notes that the Dow Jones Industrials and the Standard & Poor's 500 have broken above respective 10-year support levels of 7286 and 777; rallied into the support levels where the averages broke down last November; and moved above their 50-day moving averages. All are positive developments from a technical perspective. (Boo Yah?)
- But, she adds, these seem to be mainly bounces within the larger downtrend. (no Boo Yah) The averages remain far below their major downtrend lines from last year, which along with the more important 200-day moving average (the intermediate trend) "pose formidable resistance ahead."
- What would it take to make for a bona fide turnaround? Yamada would like to see a penetration of downtrend lines in the S&P and Dow and a break above their December peaks. Still, the 200-day moving averages and downtrend lines from peaks of a year ago present formidable resistance.
- As for numbers, "the first step is 945" on the S&P, a significant distance from Tuesday's close of 815.55. "I'd be a lot more comfortable with 1012," which also seems miles away but was where the S&P traded in early October -- after the Lehman Brothers bust.
- "What you'd really like to see is the 200-day moving average turning up, and then some backing and filling," she continues. That means a considerable period of healing, as opposed to the hopes for a sharp recovery off of the early march lows.
- "You can't fix in six months what's happened over six years," this long-time student of the market points out. (that's not what the pundits on financial entertainment TeeVee have been telling me the last 18 months - I would never go against the ever accurate punditry. Green shoots! Mustard seeds!)
- Ultimately, Yamada remains concerned about the technical damage wrought by breaching of the market's 2002 lows, which could make the recent advance a "bear trap." The current market differs from other major turning points, as in 2003 or 1982, which had major groups that had gone through long consolidation periods. But, Yamada concludes, bottoming is a process, even if it turns out the low is in place. "This has been a serious decline," she says. "It will take more time to repair."
So it looks like we have yet to turn Yamada - her resistance to Kool Aid is futile. She will assimilate.
8 comments:
Whats a PE of 150 when you are already at 100? Green shoots!!
That's operational PE
Over the years we've moved to pro forma which excludes many adjustment like say... massive handouts to executives via stock options. That's now imaginary and does not count against the company. While the money is real, the penalty to the company is imaginary.
Just imagine if we used operational PE like old days - might be at S&P 300. It really would show how companies are now run off as wealth generators for the few at the top.
Thankfully we've all agreed to wink wink and only use pro forma.
I suspect over time Yamada will be right; when she first came on TV with her calls no one paid her any attention. Then many months later after the market tanked, people remember to get her back on TV because she made the "call". All of a sudden she is the go to pundit; she saw it coming and there was no luck involved! So they bring her back to TV just when the market has gone down forever and lo and behold she is wrong as the market screams higher several days later. Classic.
Actually both times she appeared on CNBC the market made intermediate bottom within a week :)
Thanks TM.. Saved me the time looking up her recent thoughts. Part of the problem with prognosticating is that people don't specify a timeframe for their guesses. So someone will say we're in a bull market... But maybe they're on a weekly plan. Louise is much longer term. Her view spans years.
TM
That's my point....they trot out the person who made the "call" many months ago and of course, it is the bottom. In other words, she was so smart (i.e, lucky) many months ago, so now we bring out to tell us what to do now, and of course, she is off by a country mile.
another Dr. gloom Peter Schiff doesn't seem to buy the mark to market accounting changes either. He feels modeling the value of MBS on cash flow basis is going to cause the banks to write down soon again in future when they realize the cash flows on these MBSs are also going down.
I have been following Louise Yamada's prognostications for many years, and I consider her to be in the rare "genius" class. She doesn't do short term. She sees the big picture and gives specific, hard number recommendations to buy or sell based on her chart readings. She recommended buying Gold when it was $300. She predicted oil would hit $150 a barrel before anyone else even recognized it was in a bull market. She said buy bonds years ago, and she has said to continue to own them, as interest rates have hit historical lows (meaning the bonds went higher). And she called the bear market years, literally, before it happened.
I would not bet against her. She is far more often right than wrong.
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