Louise Yamada Technical Research Advisors, LLC

Louise Yamada Technical Research Advisors, LLC

February 1998

April 2000

2008  Events      

December 5, 2008: Program anchor Pimm Fox interviews Louise on Bloomberg TV's Taking Stock. Louise's bear market concerns are not assuaged by today's strong rally in the face of the worst job loss numbers in 34 years. "Even a prolonged bear market isn't without its contratrend rallies." Due to the recent high incidence of such rallies more positive evidence is needed before the market bottom can be identified.

A proprietary LY Advisors indicator, one which calculates the relationship between up volume versus down volume, has been heavily oversold since last May, even through the big rally days. An oversold reading on this indicator signifies ongoing selling.

Today the indicator turned sharply in the reverse direction on good statistics. Despite this improvement it is better to wait until the indicator emerges from the oversold condition completely before expecting to identify a rally that will sustain more than briefly. Traders should be aware that deep oversold readings, which are the empirical evidence of selling pressure, can last for a long time in bear markets.

The overall market picture still looks troubled. Both the S&P 500 and the DJIA have seen each recent rally (and potential bottom evidence) fail at a slightly lower peak. This progression of lower highs is evidence of supply -- price cannot rise to a slightly higher level because supply is being sold into the rally. We would like to see an establishment of consolidation, and then the resistance level of that consolidation being penetrated.

The recent pattern of sellers entering into each rally is characteristic of a downtrend, i.e., the failure of the rallies to get above the prior peak. In the study of supply and demand, which is the basis of technical analysis, this pattern represents aggressive supply. Contrarily, in a bottoming process or in an uptrend, higher lows are followed by higher highs, representing aggressive demand.

There is a scarcity right now of potential leadership candidates to take the market higher. Some industries and sectors have outperformed during this down market but that only means they have gone down less. In contrast, in the 1980s there was strong leadership in the Consumer Staples; in 2003 there were breakouts from 6-year bases in the Industrials and in energy which became the leaders for the past five years.

Now, however, there is a confluence of sectors rolling over together, which is problematic. The majority of stocks are showing topping patterns. Some of the Consumer Staples have held but it is selective and rotational; and for a while some of the selected medical stocks did well, as medical equipment; then as the Financials stopped going down these outperformers also declined. The acutely steep declines seen recently can probably be attributed to the bursting of the radical buildup of leverage over the last few years.

November 21, 2008: On Bloomberg TV's Taking Stock Louise is interviewed by Pimm Fox. Video of the interview is available at: www.bloomberg.com/apps/news?pid=newsarchive&sid=aKWwwiA8XViQ.

November 20, 2008: On CNBC TV's Fast Money Louise is interviewed by Melissa Lee. Text summary and video of the interview are available at www.cnbc.com/id/27829390.

November 18, 2008: Louise appeared on Bloomberg Radio's Surveillance in an extended interview conducted by Tom Keene and Ken Prewitt. Podcast of the interview is available at: www.bloomberg.com/tvradio/podcast/surveillance.html.

October 13, 2008: Interviewed on-site in the Mumbai TV studios of CNBC, Louise covered a number of topics noting, in particular, the likelihood that the Bombay Stock Exchange SENSEX30 would soon close below 10,000.

October 1, 2008: As the U.S. Senate debates and prepares to vote on the revised Paulson bailout plan, Louise is interviewed by Liz Clayman on Fox Business News TV. Stressing that she is making a long-term call of a decade or two, Louise notes that the price of gold by rising to $1,000 in March of this year had already achieved one-third of her long-term target of $3,000.

The recent pullback-consolidation appears to be part of the de-leveraging in the overall market and is probably healthy. If gold holds above 840-850, but particularly above 740, then there will be the need for a period of a long consolidation before the metal will be ready for the next advance.

There is a serious problem with the dollar, which has been in a six-year decline. Not totally removed from the bailout issue, the dollar has broken below a 34-year support level at 80. The dollar's current kickback rally may be more of the sign of the dollar being the least worst currency because the Euro makes up 57-58% of the dollar, and has been weak.

Upcoming pullbacks should be viewed in the context of the possible revaluing of the Chinese yuan and the increased printing of the U.S. dollar; the debasing continues. One might start re-accumulating the gold ETF or even gold coins.

Outperforming sectors today relate to Consumer Essentials, whether it is Household Products or Packaged Foods. These are areas that have not received much attention over the last few years. They have inched up without the meteoric rises in which leverage has been a factor.

September 29, 2008: Following the steepest point drop in Dow Jones Industrial Average history, Louise is interviewed by Tom Keene on Bloomberg Radio's "On the Economy". Audio of the interview is available here.

June 30, 2008: The Barron's article -- Why the Rout in Financials Isn't Over by Robin Goldwyn Blumenthal -- discusses Louise's views on the continuing difficulties in the financial-services sector, noting that "Yamada has been predicting trouble since late 2005", which was when Louise began writing about the technical evidence of deterioration in the Financials sector.

The full text of the article appears here (requires Barron's or Wall Street Journal subscription).

June 27, 2008: In a 10-page interview by Kate Welling published in Welling@Weeden, Louise discusses many topics including, among others, the current convergence of secular and cyclical downturns; "looking for inflation in all the wrong places"; declines among stocks that have been market leaders in the cyclical bull run since the 2003 bottom; commodities in a rapidly developing world; the future of oil and the dollar; and her thesis of a bifurcated market.

The full text of the interview is available at: welling.weedenco.com (subscription required).

June 27, 2008: On a day on which the Dow Jones Industrial Average moved briefly into bear market territory, Louise is interviewed by Melissa Lee on CNBC TV's Street Signs. The almost 20% declines of the Dow and the NASDAQ from their October highs are concerning enough but Louise and her LYA team have an even lower target for the Dow of 10,000.

This downside target is a measured move from the larger head and shoulders top at about 14,000 with a neckline at 12,000. It is difficult to place a time frame on this measured move to 10,000 as there have been many little rallies throughout this deteriorating period since mid-2007. Technical improvement in the indicators would be necessary, however, for this target to change.

Louise's downside target for the S&P 500 is 1,175. To approach that target the index would first have to break the March low; but if the index moves back above the May high that would abort further downside at this point for all the indices. With the NASDAQ the level to watch is 2,000. The Russell 2000 index has formed a tremendous top and there is potential for the Russell to go through 600 or even lower.

With respect to the concept of capitulation, many analysts have pointed to the increase in the VIX. Louise believes that with the VIX it is difficult to say how high is high enough to indicate capitulation. The volatility we are seeing in terms of the unwinding of the margin debt is just beginning, being now in a position very similar to early 2000, and a much larger unwinding process may yet remain. So if the VIX hasn't reached levels that people are anticipating at this point, and markets continue to come down, it may reach those levels later. One should also watch the SDS (Double-Short S&P 500) which is more directly related to the indices than to the options.

June 23, 2008: Louise is a panelist at the Forbes Investors Advisory Institute Financial Round Table.

June 20, 2008: In an interview by Eric Schatzker on Bloomberg TV's Market Pulse, Louise assesses the possibility of the S&P 500 index breaking its mid-March lows of 1273 and 1277 -- and says there is a good chance of that happening.

From a technical perspective, the character of the rally that has taken place over the last three months has not been strong. There has been very little volume on the demand side and most of the volume has been on the declining days. Only about 30 % of the New York Stock Exchange stocks are above their 200-day moving averages -- that has to get above 50% in order to sustainably support a market rally. All of the other indicators have remained more or less on oversold.

Since about mid-2007, there has been a continued deterioration in the S&P 500 index, not the least of which has been the Financials which topped out back in early 2007. Starting in early 2006 Louise's LYA team started picking up warnings on the Financials and began advising clients to move away from them.

The timing of the decline in the S&P 500 is probably not that clear; the decline is a slow erosion similar to what happened in 2000-2001. The LYA team has long-term momentum signals in place - if the index breaks 1273 the next target would be 1175.

Regarding a recent projection by the Royal Bank of Scotland credit strategist of a decline to 1050 by year-end, Louise explains that from a technical perspective specific projections are not made so far in advance because the precise where and when are not known. Louise does feel that there is a good chance that the 1175 target will be achieved "and then we'll have to see how the market reacts, and evaluate the underpinnings of the technicals to determine the next step."

Louise has been very bullish on the price of oil going back to 2004. Oil has achieved all of the LYA team's targets up to 135, and now could go to 140 and 150. LYA has statistical targets over the decade that could take the price of oil into the 200s.

There is currently nothing about the pattern of oil that suggests we are looking for a major pullback. The critical level of support is now 120 in terms of defining whether or not oil is moving into a consolidation. Barring a break below 120, a progression of higher highs and higher lows is in place defining an uptrend.

In answer to the question of what is now the key resistance level for oil, Louise responds: "There isn't one." - just the recent high between 139 and 140.

Regarding the price of gold which has fluctuated recently, Louise notes that gold has rallied almost 70% and was probably due for the pullback that we have seen. As long as gold holds above 850 to 852 that would define a consolidation that should take gold higher over time. Gold may well still be in a consolidation phase but Louise is bullish on gold and the LYA target of 1,000 has been achieved, with outstanding targets as far as 2,000 and possibly higher over the decade.

June 19, 2008: Interviewed by Bill Griffeth on CNBC TV's Power Lunch, Louise reviews three-year charts for the major indexes. The Dow Jones Industrial Average shows the evolution of a very slow deterioration. At the 13,000 level the Dow had formed a "head and smaller shoulders" top with a measured downward move to the achieved March low of 11,740. Now extending a longer horizontal line (neckline) at 11,740, one can see an even larger "complex head and shoulders" top, with the measured move extending down from the neckline to about 10,000, a decline that is not out of the realm of possibility.

The S&P 500 shows a similar but less exact head and shoulders top pattern. The recent three-month rally in the S&P failed right at the resistance level of this top, which is exactly what one would expect. The slightly down-sloping perspective of the S&P 500 would suggest that there is still distribution taking place.

The NASDAQ, relative to the other major indexes, has been showing some signs of strength. The current question is whether the NASDAQ will fail at the resistance level of its recently-formed top and then take the index lower.

On the question of whether stocks move inversely to the price of oil, Louise notes that, despite the continuing, long-term rise in the price of oil, stocks have done very well for the last five years. Right now, however, the price of oil is at an extreme. The 120 price is the important support level defining an uptrend. A drop below 120 would be the first point at which some supply might begin to come in; and the price could then come back to 110.

Oil is in a long-term uptrend and has achieved all of the LYA team's targets to 125; and there may be a 140 target. Statistically there are LYA calculations that take the price into the 200s. Louise does not expect oil to go appreciably lower from current levels.

Video of the interview is available at www.cnbc.com/id/15840232?video=773976060&play=1.

May 17-18, 2008: Mumbai TV airs extensive interview of Louise in CNBC Special Series on Technical Analysis that was prepared for broadcast in India.

May 2, 2008: Louise is interviewed on CNBC TV's Power Lunch by Bill Griffeth and Melissa Lee on trends in commodities. Specific topics include the CRB Index, wheat, gold, oil, the U.S. dollar and the 25-year shift of market capitalization out of the Financials and Consumer Discretionary into the new leadership. Video of the interview is available at: www.cnbc.com/id/15840232?video=729345948&play=1.

April 18, 2008: In an interview by Betty Liu on Bloomberg TV's Starting Bell, Louise discusses the technical posture of the Citigroup (C) stock. In the last half-year C has lost 50% of its value--such a steep drop takes time for repair. The stock now looks like it is trying to stabilize and could experience a kickback rally, possibly taking it toward 30.

A chart of the last five years of the Financials relative to the S&P 500 looks like a double top versus the 2000 peak leading to the sector's current decline which Louise believes is now a structural bear market for Financials. Structural bear markets last a long time as time is required for distribution to occur. This Relative Strength break below its 2001 and 2002 lows presents a profile of a six to seven year top. A return of C to its previous highs is not likely in the near future as most rallies will be met by disappointed investors trying to sell. Louise does not rate C a buy at this time except for attempting to catch a kickback rally.

While volume on the New York Stock Exchange has recently been low, Louise points out that much of today's stock trading now takes place off the NYSE, or "off-Board". A study started by Louise in 2005 shows that off-Board volume has grown from 15% of overall volume in 2001 to over 65% today. So while NYSE volume has been somewhat flat, the growth of off-Board trading has boosted total volume. Strong volume is needed for the market to rise; recent overall volume, however, has been lackluster.

Today's equity market is a hybrid comprised of domestically-oriented stocks that are in structural bear markets, such as the Financials and Consumer Discretionary, and then the leadership stocks in the Industrials, such as Rails and Energy, that are rising. Even some Healthcare names have been in a structural bear market with Pfizer, for example, in a structural bear market since 2000.

This hybrid market is experiencing a push-pull effect together with a major shift in capitalization. Many large cap stocks are in bear markets and are holding the indexes lower while the new globally-exposed bull market stocks, many of which are smaller in capitalization, are rising.

The market might advance here if there were a kickback rally in all of the deteriorated sectors simultaneously with the advances that are starting to take place (after a cyclical corrective phase) in the new leaders. A caveat to this scenario is that the up-to-down volume relationship has been very poor and has been unable to get out of oversold, which means there has been selling into the rallies up to this point.

On specific stocks, if Google moves up today through 475 the rally may continue but, after such a steep decline as Google has experienced, a period of consolidation is usually needed before the stock can achieve new highs. Pfizer and Dell remain in structural bear markets but Halliburton is starting to look intriguing and is moving up.

April 15, 2008: Louise gives an extensive interview to Mumbai TV for a CNBC Special Series on Technical Analysis that will be broadcast in India in May.

April 2, 2008: Appearing on Bloomberg TV's Final Word, Louise continued her cautious stance on the markets, notwithstanding the potential of kickback rallies.

March 10, 2008: Interviewed by Bill Griffeth on CNBC TV's Power Lunch, Louise discusses the current price of gold. Video of the interview is available at: www.cnbc.com/id/15840232?video=680345089&play=1. [For full screen, right click video box and select Zoom/Full Screen.]

March 3, 2008: A summary and video of Dylan Ratigan's interview with Louise is available at: www.cnbc.com/id/23450058.

February 27, 2008: Louise is interviewed on Vinny Catalano's "Beyond the Soundbite". Parallels between today's markets and previous markets are covered, along with other trend topics. A podcast of the interview is available at: beyondthesoundbite.blogspot.com (enter "Louise Yamada" in the Search Blog box at the top of the page).

February 6, 2008: Appearing again on CNBC TV's Fast Money, Louise is interviewed by Dylan Ratigan. Working with a monthly chart of the S&P 500, Louise looks past short-term ups and downs and notes that there is a long-term structural problem with the current market that is very reminiscent of market action in 2000.

In 2000 a long-term, 20-month moving average of the S&P 500 was violated, as was the support level -- an extended bear market period followed. Today, after a 5-year advance, the S&P is again breaking the 20-month moving average and breaking the support level, leading Louise to be extremely cautious on the equity market. "It doesn't hurt to have some cash."

These patterns differ from a single, brief instance of the 20-month moving average being violated and then quickly snapping back above the moving average to a new high without any break of support. The more complex patterns of 2000 and today include sideways movement with lower highs being put in place, showing that people are selling into the rallies, including the rally of the past week.

Such selling into rallies is advisable -- Louise and her team have structural sell signals on the domestic equity market. The sell signals apply also to global markets. Distribution patterns can be seen in the global equity markets, both the developed markets in Western Europe as well as the developing markets of Asia, although the Asian markets have been later to arrive at the distribution pattern.

The distribution may be an across-the-board de-leveraging process under way (as investors unwind leveraged positions), and it may be advisable to stay out of the way. "We would rather be out of the market wishing we were in, than in the market wishing we were out." Many breakouts have failed after they tried to move up through resistance - these are false breakouts.

Some investors (such as mutual funds) have to stay invested in the market and for these investors relative outpeformance can be a helpful indicator. A chart of Consumer Staples vs. the S&P 500 shows that Consumer Staples, even as price rose, had been underperforming in 2007 while Materials, Energy and Industrials were advancing even more. Now, however, the sector has started to outperform.

Of course, relative outperformance does not guarantee that price will go up. Stocks can also go down less than stocks in weaker sectors. So for those who have to be in the market, this sector provides a defensive haven.

Louise's final chart shows the relative performance of the Financials sector vs. the S&P 500. An enormous, multi-year structural breakdown has occurred. Whether the stocks are Banks, Consumer Finance, or REITs, these are areas for selling into strength.

On a specific stock recommended on this show months ago, Cisco Systems (CSCO) has tried to move up but has disappointed in a weakening market environment. If Cisco falls below $20 one must cut loss and sell.

Video of the interview is available at www.cnbc.com/id/23031631.

January 21, 2008: On a day when European and Asian stock indexes sold off sharply, Louise is interviewed on Bloomberg TV's Starting Bell by Matt Miller and Betty Liu. Noting that as far back as November Louise had been calling for the current sell-off in the U.S. market, Miller asks if today's carnage in foreign indexes will carry over to U.S. markets. Louise states that, given the breakdown in U.S. stocks over the past week, such a carry-through to the down-side is probable.

Examining a chart for the S&P 500, Louise points out that, starting from the index's 2002 low, each time the market has sold off the S&P 500 index had held at a slightly higher low. Starting in March of this year through October, however, the pull-backs have not held at higher levels, showing that demand is weakening. In last week's sell-off, the last level of demand has been violated, meaning that some sellers are willing to accept less money to get out. The distribution that has taken place over the past almost a year - in terms of the Advance-Decline Line; of the deterioration of the New Highs vs. the New Lows; and of the lack of volume - suggests that with this break-down we are probably headed for a bear market.

This break-down pattern also appears in the Dow Jones Industrial Average chart and in charts across the globe, although some indexes broke down earlier than others. The NASDAQ too is on the verge of a break-down although it has out-performed in the sense that it was one of the last to break down, just the way the Asian markets out-performed the European markets - the best, so to speak, go last.

The length and depth of this slump can only be determined as it evolves. The threshold of twenty percent off the high, which would define a bear market, comes in for the DJIA at 11,331 and for the S&P 500 at 1252. Average bear markets run around 35% down, more or less.

The current market has tracked identically the 1932 to 1937 market. The bear market that started in 2000 does not correspond to the 1966 to 1982 bear market (which was horizontal around the pivot low with inflation and rising interest rates). Under Elliot Wave Theory, the principle of alteration-of-cycles suggests that the current bear market should be like the prior cycle of 1929 to 1932 which carried deflation, falling rates and a crash.

No exact bottom can be projected. The support breaks that have just taken place over the past week or so, and a little earlier in some other averages like the Transports, plus what is happening in the global markets, are just the initial break-down.

Regarding specific stocks and commodities, American Express (AXP) has broken under a support level - a dramatic break of the 5-year up-trend and of the support levels that were put in place over the past year. The chart for AXP looks as though it has initiated at least a correction, if not a bear market stage.

The Citigroup (C) chart shows a secondary top in the period 2002 to 2007, not reaching sustainably higher than 2000. Despite a little false break-out this past year, Citigroup's chart shows evidence that a secondary distribution has been taking place over 5 years; and the 2000 support level has already been breached taking C to a new structural 2000 bear market low.

Some stocks have stayed in a structural bear market since 2000. Citigroup may be one example; General Motors (GM) may be another. Since 1998 to 2000, the General Motors stock has experienced lower highs and lower lows. Each time the stock has tried to rally GM has been met with supply - with people selling into the rally. The stock then falls to a new low -- so GM is still in a structural downtrend from the inception of its bear market. The chances of the General Motors stock rebounding may be limited by competition from $2,500 cars.

Home Depot (HD) has also not made it back to its circa-2000 high. The stock's secondary rally from the 2002 low never rose above the resistance levels that had been in place during the 2000 to 2002 decline. So there has been secondary distribution and now HD is breaking down again.

Schlumberger (SLB) is in a group that has been in a structural bull market -- but Schlumberger has just had a very severe pull-back. There is nothing yet to suggest that SLB is in a structural bear market. The stock has gone up at such an accelerated rate that it could come down even more and still be within its bull market up-trend.

The chart for Copper may be showing technical signs of an economic slowdown probably being underway or being discounted in advance. Copper has had a distribution pattern; any break between 320 and 300 is an important level. There was an initial dip that took Copper below the prior points at which demand came in over the course of the year. Now the rally is failing to get to new highs. Copper is probably looking at lower levels.

A structural bull market in gold was initiated in 2002 when the metal broke upwards through 300 and broke also its 22-year down-trend. Gold's recent decline may be just a pullback although it may go as low as 850 or 800. The next resistance level on a short-term basis is 900. The structural progressions in the gold bull market may last anywhere from a decade or two to more. Having broken a 22-year bear market, gold may now be in an up-trend that could last a couple of decades. Louise has a target of 1000 and thinks conceptually that gold could go to 2000 or 3000 over time, over decades, taking into consideration the weakness of the dollar. Platinum has moved up at a little more accelerated rate; Silver has lagged. Gold is more the benchmark of correlation to the U.S. dollar.

Interviewer Matt Miller, noting that Louise and her team called a big rally in Oil back in 2004, asks if the rally will continue. Louise explains that Oil's recent dip in price does not change the up-trend. Oil's breakout through 40 in 2004 broke up through a 24-year plateau. There was also a multi-year step-up in oil in the 1940s which never went back to the old lows. This was followed by a similar 24-year plateau, and then a multi-year step-up in the 1970s. Louise suggested in 2004 that oil is now in another multi-year step-up with an outstanding target at 124, notwithstanding a possible pull-back toward 80.

January 19, 2008: Louise discusses current market conditions with host Al Korelin on his syndicated radio show that is focused on asset-based investing and macroeconomics. Audio of the interview is available at kereport.com, click on January 19, 2008 and see segments 4 and 5.

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Louise Yamada Technical Research Advisors, LLC
P.O. Box 286829
New York, NY 10128

Phone: (212) 944-6200
Louise Yamada Technical Research Advisors, LLC
P.O. Box 286829
New York, NY 10128

Phone: (212) 944-6200
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