One on One With Louise Yamada of Louise Yamada Technical Research Advisors
Wednesday, October 18, 2006
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SUSIE GHARIB: Our market guest tonight believes the Dow can close at 12,000 and still go higher, but it depends on some important conditions. Joining us now to explain, Louise Yamada, managing director of her own firm, Louise Yamada Technical Research Advisors. Hi, Louise.
LOUISE YAMADA, MANAGING DIRECTOR, LOUISE YAMADA TECHNICAL ADVISORS:
Hi, Susie. Thank you.
GHARIB: All right. So the Dow can go higher based on certain conditions that have to be present. Tell us what are those conditions?
YAMADA: Well, one of the studies that we do each month is to review the Dow components and we have had targets based on what we call directional movement. In other words, if all of the Dow stocks achieve their individual potential, the Dow could achieve certain levels. The first one has been achieved. It was around 11,800 and the next one is just over 12,000, around 1270 and if we were to see all of the stocks continue to improve and some may not, there are some that are a bit inert, we would have a target around 12,399 so let`s call it 12,400.
GHARIB: We saw today as we just reported that IBM had a lot to do with the move today and the Dow was up more than 3 percent. But how do you rank the other Dow stocks and more importantly the broader market?
YAMADA: Well, I think that recognize that the Dow is going to new highs on the back of a limited number of its components. Only 10 are in up trends and of that, maybe three or four are at all-time new highs over this period that the Dow has stretched into new high territory. So we`d have to see the participation of all of the ones that are already in up trends plus the contribution from some of the others before the Dow could go significantly higher, let`s put it that way.
GHARIB: Louise, you specialize in technical analysis. So when you look at your technical indicators, whether we`re talking about the advance- decline line or new highs and lows and up and down volume, what are those indicators telling you about the overall health of the market?
YAMADA: Over the past couple of weeks, we`ve seen a distinct improvement in the indicators which had been quite negative from the May through August/September period. The improvement has come in place of the advance-decline line at a new high. The new highs versus new lows has achieved close to their high levels and the up-down volume ratio, in other words, the up volume versus down volume on a daily basis has improved quitenicely and we would want to see that evidence of demand continue to come into place.
GHARIB: Is there anything among your indicators that concerns you?
YAMADA: Not so much the individual indicators apart from volume which we would like to see continue to increase as the market goes higher. But some of the historic relationships have been a little bit unsettling in the sense that this has up to this point been a leadership of small and mid cap stocks. It`s possible that the contra trend move which has brought the large cap stocks to the fore recently may be temporary in which case it may have a little bit of a hold back on some of the large cap names. And the Dow Jones Industrial Average although it is price weighted, if you look at the individual stocks, they qualify one by one as more or less large capitalization stocks. And they have come to the fore in this interim period where the small and mid cap stocks have taken a rest. Now we`re starting to see a broader participation, which means that some of those old leaders are coming back to the fore.
GHARIB: OK. That`s all very good insights for the investors who are watching. Thank you very much.
YAMADA: Thank you.
GHARIB: We`ve been speaking with Louise Yamada of Louise Yamada Technical Research Advisors.
