Interview With Louise Yamada: Masters in Business (Audio)

stocks for close to forty years. She spent twenty five years at City Group, eventually becoming their managing director. UM worked with many of the legends in finance, including Alan Shawn. We had a really interesting conversation about how people use technicals to help their investing and their trading. UM. We don't really get as many technicians UH in in the

studios as I've liked, as I would have liked. I've previously spoken to Jeff de Graff, whose name basically is refers to technicals, as well as Tom Dorsey, Paul Desmond. Pretty much that's it. For the people who are full time technicians, I know they're out there. They work at various funds. Um, there are a number of people I'd like to get Allen Seawan here, I'd like to get John Broken here. Their number of people I'd like to

sit down and talk with. If you are a trader, if you work as a person who is a fundamental analyst and would like a little more insight as to why stocks and sectors and markets sometimes do what they do, then the technical side might provide some insight as to the timing of of how things happen. Um. That was part of my conversation with Louise uh. If you are interested in technicals, if you like anything on the more wonky side, then this is going to be for you.

With no further ado my conversation with Luisia Mata. We know each other for a long time. I've been a fan of your work for a while. But for the late person, explain what is technical analysis? Well, technical analysis is really the study of supply and demand in the marketplace, whether a stock is under accumulation, or whether a stock is in an uptrend or under distribution or in a downtrend.

So so let's unpack that a little bit under accumulation generally means big institutions are accumulating shares on an ongoing basis, Distribution is the opposite, and simplistically on a price basis, because what we're following is price. We're not following any fundamentals. You're just following the price. Accumulation simplistically looks like a smile, and distribution simplistically looks like a frown. In other words,

you've had a stock cell off. It's come down for a while, it's going sideways, and then all of a sudden it starts going higher. Um you also reference the phrase trends. Tell us what a trend is. Once a stock moves out of an accumulation pattern or a distribution pattern, it moves into an uptrend from an accumulation pattern, or

into a downtrend from a distribution pattern. And basically a trend up trend is a higher high followed by a higher low, higher low following a series of steps higher than the trend, even the pullback is above previously exactly, and and a downtrend is and that represents demand. Somebody's coming in to buy that stock without letting it fall below the prior low. So it's had a nice move up, it starts to soften the price comes down and someone says,

I want more of this, that's a good price. They step in and that creates a floor on the price. The ceiling is the opposite on the down trends. It could rally, but only so far be sellers come out exactly. And is it fair to say what you're describing is just a battle between buyers and sellers, between supply and demands. Absolutely, so, how does this differ from fundamentals, Well, fundamentals doesn't follow

the stock price at all, doesn't care about it. Looks at peas, look at earnings, could look at credit, it looks at all those uh fundamental things about the company, the the quality of the company, etcetera. But it's really interesting is that, if you think about it, the difference, well,

I think we're going to get to that. But the difference is that, for instance, if you're at a cocktail party, you can guarantee someone that you're never going to buy a stock at the low the day it records record earnings, and you're never going to sell a stock at the high the day it cuts the dividend, because you have this discounting mechanism where people smarter than you and I

are taking action on the price of the stock. In other words, markets are somewhat efficient, and a lot of the news that eventually comes out is either partially or fully reflected in the price before the news itself is released. That makes plenty of sense. So Ralph A. Himpora once said something very interesting, and I full disclosure I took the course with Ralph last century is when I did it. Fundamentals tell you what to buy, Technicals tell you when

to buy. That's right, discuss that. Yeah, I think that that's particularly valid from the perspective of value investors, because value investors may go in too early. They may go in as a stock is still completing its downtrend and shame stocks get cheaper. Yeah, and then they have to hold it through this entire you know, finish the decline

and hold it through the entire accumulation pattern. I always suggest that value investors keep a watch list, and then when the pattern starts to look like there's an interest out there for that stock, is the time to start accumulating it. Well, who is going to be the buyer at the lows of not the value investors aren't they helping form that? But not all of them follow technicals. So some will be early uh and and means that their capital is being put to work and not seeing

much of a return for a while. You like being a little later in that smile because you're not tying up capital while it's going sideways are going down. Why do these charts actually work? That's a tough question. It is a tough question. Um, Sometimes they don't and certainly not. But when technolo analysis is making you money, what's the

narrative rationalization behind white charts actually are effective? Well? I think because you are watching what other people are doing with their money, basically, and when they stop buying, you start to see a frown developed, so to speak. And uh, and then you see a support broken. I mean, there's the whole seven questions. Has a has a stock um had a move of substance that would reverse We're gonna We're gonna go through all seven questions in a few minutes. Um,

let me ask you one quick question. What do most people misunderstand about technical analysis? I think, well, first of all, a lot of people call it voodoo. I mean, it has such names for their patterns as head and shoulders and double tops and flags and triangles. And everybody thinks that that could be just ridiculous, but it should be considered a tool in the investing process, and it's a

valuable tool. You have the fundamentals and you have the technicals, and as I said before, you know you the technicals are going to help you when the fundamentals could be fabulous and the price starts going down or breaking through support, and that's a warning that's something to come in the fundamentals. They're not mutual. They're not mutually. I'm Barry Ridhults. You're listening to Masters in Business on Bloomberg Radio. My guest this week is Luisia Mata. She is a technical analyst

and runs the research shop Luisia Matta Technical Analysis. Let's talk a little bit about the modern era and and how you. You came to technical analysis sometime last century. I was working for a gentleman named Guy Ortmann who had taken the Technical uh Analyst class at the knee of Alan Shaw, and he urged me to also take the class, which I took with Ralph A. Kampora. You you worked with Alan Shaw for Quoite a while. I

definitely did. He was my mentor and um I got into technical analysis because I was picking stocks and watching them go up and watching them come back down. And I finally called a broker and I said, how do you know when to sell? And what was the broker answer? And he said he sent me some newsletters on technical analysis. I think the main one was Grandville at that point. And uh, so I went to the Finance Institute and I took the first class with Ralph A. Kampoor and

Alan taught the advanced class in his chart room. And uh during that period he offered me a job. So you must have been one of the better students in the class. Well, let's hope. So the fascinating thing about that era And I heard this from Guy Ortmann, and I heard it from Ralph Acampora, and I've heard this about Alan Shaw, never from his mouth directly. Um, they used to do these charts day by day, by hand, by hand. Point and figure charts. Absolutely we had, and

regular charts. Regular supplied them, not just the XS and os, but the regular charts that we see. Honest people used to do those also every single day by hand. I've walked into rooms with people manual charts on the wall. Right, It's amazing. We had a whole library on a on a turntable with all the New York Stock Exchange stocks, which we plotted each one point intra day reversal by hand, and then that got translated into what people call the

three point. But what people look at as a three point today is not the classic three point, which is derived from the one point and gives you a much broader sense of accumulation and distribution. So let me ask you um an obvious technology question, how much do we lose now that we no longer do this, or at least most of us no longer do this by hand? Just anyone can punch up a Bloomberg terminal or anything else.

What is lost when when we've given up the manual drawing of charts and and can simply call one up anytime we want. What's missing is the degree of a top or a bottom. Now you can obviously see that on a chart, can't you don't? Yes, you can, but you don't necessarily see the same breadth and volume of

that's spread. I guess trying to describe the Yes, when you're looking at it day by day, you're noticing things that you don't see if you're just letting the computer draward for you right in nineteen we saw these tremendous two year tops, and in the Bristol Myers and all the drug stocks in in merk we saw it in the consumer goods Capital Coman, Campbell Soup and Hershey Foods.

I mean, these were tremendous two year tops that led us to the understanding that something very different was coming about. A lot of people aren't aware of this, but if you're looking at individual stocks and individual sectors, the broad market started rolling over long before technology topped out. Oh definitely, that was the last one. And I gave up the ghost long before the drop in the Nasdack, so that

that was an interesting warning sign. So other than just the technology, what is the difference between the modern era of technico analysis and what people used to do years ago. I think that what's happening today is you have more and more traders, and more and more people are extremely short term oriented. I mean they're looking at the trees and not the forest, and I think one of the important things is to understand where that short term price action is taking place in the larger trend of this

stock or whatever it is. Your So, so let's talk about time frames. What what do you look at in terms of various time frames, and how the length of the chart, be it minute by minute, daily, weekly, monthly, affects your interpretation. Well, I like to look at all of it. The short term is really is really daily noise. I think. I don't disagree. I find I really don't want to look at anything less than a weekly chart because the day to day action is is so random, yes,

and almost almost irrelevant. The weekly is where I start, and then I also like to see how that week is progressing within the longer term monthly profile. And also I watched the mac d's the momentum indicators for this, So define what mac D is I think of the average person listening, Well, it's the difference between two moving averages. Am I going to get into the formula? So you could take a shorter term moving average in a longer term moving average. It's it's a really a second derivative

of a smooth line. Is that a fair way to the short and when one line crosses over under the other, you get a buy signal or a cell signal. Now, there's been some controversy in some quarters that have said the golden cross the death cross. Some of these have really been abused by amateur takes. I'm glad that you brought that up, because you're you're absolutely correct, and from our perspective, we have only considered the very long term

crossings as valid. You're going to get the fifty day moving average in the two day moving average crossing back and forth themselves all the time. Even within an uptrend and a little pull back, the fifty day may pulled down below the two temporarily, and I think that that is a it's misleading to the average investor um weekly. Okay, maybe you look at it, but you have the same

frequency of turnover. It does warn you that some kind of a correction or consolidation may be coming into play, but again it can be within the context of an uptrend or downtrend. I like the monthly and we've done some back testing historically, and the monthly momentum is has a very good history of pegging the cell signals at tops and getting you in a little more safely in

the bottoms. So what to moving average would you use on a monthly Well, for our we use a ten months and a twenty month moving average, and when that cross takes place, that's that's the Golden Cross or the Death Cross. I'm Barry Ridholts. You're listening to Master's in Business on Bloomberg Radio. My special guest today is Luisia Mata. She is the founder of Luisia Mata Technical Research Advisors.

She spent twenty five years at Smith Barney, eventually becoming managing director of the Technical Research Group, and has been Institutional Investor ranked for a number of years. Let's talk a little bit about women on Wall Street and what it's like. I've sat with people like Liz Anne Saunders and Michelle Myers Um and they've told the story of how they've actually seen the industry change over the course

of their career. What what was it like as a woman doing charts and technical works when when you began, well, when I began, I was really just interested in learning, learning technical analysis and working with the group I had. I have tended to stay out of the political frame, uh and the administrative frame, to be perfectly honest with you. So perhaps I'm not as aware of what was going on in the early years in terms of being a woman an list on Wall Street, but there were many

women doing technical analysis. Bernadette Murphy certainly was one and Gail do dex or partial. Yeah, Um and um, it was probably more. As the twenty five years progressed that I realized that to a certain extent, it's very rare. There aren't a lot There weren't a lot of women more today. But still it's a relative. Numerically, it's it's not a big percentage of of technicians are women. So let's talk about how Wall Street has changed over the

past thirty forty five years. You've been a Dennis into the Street for a while. How has the the job opportunities and how women are treated on Wall Street changed over the past few decades. Well, I would say we're starting to get certainly in technical analysis, we're starting to get more more women interested. There's a part of the Market Technicians Association that has a group of women that is trying to encourage them and act as mentors to bring them forward. Um. I'm not sure to what degree

it's changed. I think one of the things, Um, it can slip. Let's say there can be slippage. Because a classmate of mine at Vassa wrote the book called The Good Girl's Revolt, which was the discrimination suit that women brought against Newsweek in the late sixties early seventies, and when the case subsided, it went back to normal. So as long as there's attention, as long as you can focus on it and continue to to push the careers

of some of these women, I think that's great. And as soon as the attention fades, history tells us you're some progress might be allowed. It's gotten into the government hierarchy now, So I think that the future of women now is probably more palatable. And I'm even hearing a possibility that one day we might have a woman president

that that's actually a genuine Post's see how that works out. Yeah, Um, so you left, you left the street, you left the business in order to set up your own independent shop. What was that like? Well, City Group in two thousand and five disbanded the entire technical research. Yeah, Kitter had already done it. A lot of the big firms had done it. You know. We can talk about the potential as to why they did it, but the point is they did. So we had a month or two to

pack up and get out. We were essentially retired out, which was fine, um, but the clients, um really rebelled and yeah, it was quite an upheaval there and complaints, and one client offered her office as they all said, you know, we want you to stay, we want you to come back, and she offered her offices to us, which we used during the week. And then as we finally got set up, we had a client who gave us a couple of subscriptions upfront, which helped us open

our doors. It was it's got to be very gratifying when people say, we know they closed the department, but we think your value added right here, let's do this. It was very gratifying. And the kindness that came through in a business where you don't often see kindness that that that's really quite interesting. So that was how long ago to and we left in February and February March and we started up in October. That's a pretty quick

turn around. Six months you're up and running. How much of the thinking behind kitter And City and other groups closing their technical group is that, hey, everybody has, if not a Bloomberg terminal, they have access to Internet charts. Everybody's a technician these days. Yes, that's probably part of it. I think that because you had the financial crisis, there was the money aspect to it as well. I mean,

the technical departments were expensive, perhaps two to maintain. I also think that there was, and this is my theory, that there was a problem from the legal perspective of the fundamental recommendations of stocks that we were putting on seals in two thousand and that was that was problematic. I mean, you think about the poor broker. He gets the fundamental guy telling him to buy in the technical guy telling him to sell. What are you're gonna do?

You listen to the technical guy and you wait for the fundamentals to to the fundamentals are still good. You wait for the price. Try to tell you it's a when versus a what question. Yeah, I'm Barry Rihults. You're listening to Masters in Business on Bloomberg Radio. My special guest today is Luisia Matta. She is a technical analyst and runs the research shop Luisia Matta Technical Analysis. Let's let's get into the nitty gritty of technicals a little bit.

One of the things I noticed in some of your work is you really like ratio. Tell us a little bit about how you use those. Okay, I'd be happy to. For instance, the dial Gold ratio which goes goes all the way back to the twenties, and the Dow or the stock market and gold tend to move inversely. So you have this incredible chart where the peaks in the Dow into seventies two thousand. You had the reversal from Dow out performance into a gold out performance. So the

gold out performed while the Dow was in a bear market. Um. But we use it even more significantly in the sector work. We use the monthly sector work and we follow the price of the sector and the relative strength to the SMP five hundred. You can do it. So when we talk about ratio, let's let's say we'll take the health care sector versus the SMP five. When that line is going up, the health care sector is doing better than the Bruin index. And when that line is going down, right,

it's doing worse. And you could look at every sector that way. That's exactly what we do. And the concept is you don't go into the market to underperform. So you want to look for those sectors or those stocks. If you want to put any stock versus the s and P five hundred in the ratio to find the ones that are outperforming. Or on the contrary, those that are on the verge of underperforming. And we do that with positive or negative divergences. And if I could give

the example, so we define what a divergence is. Okay, a divergence is if the price moves up to a new high and the relative strength fails to move to a new high, you have an indication that somebody is moving away from this sector and the relative strength is no longer outperforming. And in reverse, you can have a positive divergence in which the relative strength does not confirm the new low in price and actually puts in place a higher low, and that's an indication that perhaps the

sector or stock is ready to turn up. So, as an example, in two thousand and seven, we had a tremendous six year negative divergence. Six years. Remember this is the bigger the top, the greater the length of price. Evidence that something is on the verge of reversing is very important. Um, So we had in two thousand and seven, the price of the financial sector made a new high, but the relative strength did not. In two thousand and seven,

early the relative strength broke a six year support. In other words, the level that had held before now failed to put in place a higher low and actually broke the prior low, which is a big sign to us that something is about to change. And since it was six years, it's an important thing to watch. And if you had gotten out of the financials in two thousand and seven when we got that signal, you would have preserved about of the de line. And the financials really

got whacked in that period. They they fell, yeah, they they In fact, that's a big number. We saw the NASDAC drop almost eight percent. We saw the twenty nine crash. It's amazing how something falls eight percent a broad sector. Not a bad time to think about. And you know, when you think about even it wasn't the crash, the original crash that wiped out the wealth. That was, that's correct. And the crash moved price from three eight one to

one eight one. But when you broke down, when you broke down thereafter in in thirty one, um, you went from one and that that was even bigger. That's so so let me let me shift this up a little bit on you. Let's talk about some of these secular moves moves and I used the term secular to mean longer term, longer term not just not cyclical. Cyclical is the short intermediate term moves quarters a couple of years.

Secular can be dead in term. If you think as a secular bull market from two to two thousand, it had a lot of cyclical bear market interruptions, but continued on that uptrend. Each bear market interruption amazingly, including seven held at a higher low and eighty seven. People always talk about the three day but really eight percent was at plus move from top to bottom. I'm doing that

from memory, but that's bull ballpark. Yeah, it really had a huge run and then just rolled over um and we had a we had a structural breakdown and energy in two thousand and fourteen, in addition to which we had the monthly momentum cell signals. So you get cell signals from different indicators for the same sector or the same industry, you have to start paying attention. So so let's talk a little bit about that. You have a monthly breakdown energy. Anybody who's tanked up their car knows

gases really cheap. It's too and change for premium um in New York that's very inexpensive. What does this mean for oil prices and for how long? Well, that's a very good question. I mean, this was a this was a relative strength top that had been in place from two thousand and eight, and the breakdown was in two thousand and fourteen. Now we're starting to see that top right and and breakdown. Um, there's some stabilization coming into

energy right now. Whether it can follow through on this year long head and shoulders bottom reverse head and shoulders pattern that we're seeing, um, we'll see. But it looks as though it could continue to lift a little towards sixty. But it's not going to happen overnight. These are times long patterns. Yes. So let's talk a little bit about the current bull market. Um. I've had a number of people tell me, hey, this bull market is really old. Used to go back to oh nine, and here we

are it's seven years later. But I always learned that a new secular bull market starts from new highs and the O eight oh nine drop and then the eight O nine reversal, Well, that just gets you back to square one. Are we in a new secular bull market since since the new highs were made? Or is this a seven year old market that both Well, it's a

seven year old cyclical market. For sure. UM. We certainly argued that the breakout in was suggesting that we were in a new secular bull market advance and if we at some point get a correction here, it could be one that simply pulls back toward the breakout or doesn't have to pull back that far. UM, I think we're do. I mean, this is the longest advance that we've had

in a in a bull market since the nineties. Now, didn't we have a near correction late last year earlier for some of the indicators, for some of the indexes, but not not all of them. Right, So we're speaking with Luis shia Mata of Yamata Technical Research Advisors. UM, let's talk a little bit about technology. How has the advancement of all this computing power played into the world of technical played into it. It's made things happen faster,

It's been more frustrating. So are things really happening faster? Is and is technology at fault or I don't know whether you call it a fault. But the degree that the high frequency trading is what of the volume of the volume, that's very different from individual investors, UM having control over what's happening to the price um. Now we've had quantitative trading, we've had people crunching numbers to make

buying and selling decisions for a long time. This is this is really very different in a qualitative way, computers making instantaneous buys and cells, and it's not like it was when people were manning the terminals. And so what does that mean in terms of of price signals? How does it change things? I'm not sure we have the answer to that yet. We're certainly monitoring the price changes as we always have as classic technicians, but I will say that we have been seeing more and more false

breakouts and false breakdowns. And by that I mean you have a stock in prices going sideways, say between ten and fifteen, ten and fifteen, ten and fifteen, and then it goes to twenty and then it comes right back down into the ten to fifteen range again. So that would have qualified as a false breakout. And sometimes those consolidations can continue and maybe eventually you get a valid breakout, but sometimes we've seen them break to the downside and

enter a bear market. And so the h f T guys are are generating, possibly generating a lot of signals. So that's what we're looking at because that's what's different this decade than two decades ago. And that's a possibility. It's it's frustrating to say the least. That's that's fascinating. So let's talk about customers of yours who are on the bye side. Tell us about generally the value that

technicians bring to a bye side shop. Well, I think that most people in a bye side shop are looking at fundamentals, so if they don't have an in house technician per se. And I think more and more firms are having individual technicians. We've we've been certainly certifying more and more of them, and the big houses don't necessarily have them. Um, they can use us without having to hire somebody to do specifically technical analysis. We have been

speaking to Luisia Mata. She is the manager and owner of Luisia Mata Research Advisors. Be sure and stick around for the podcast extras where we keep the tape rolling and continue chatting about all things technical. Read my daily column on Bloomberg View dot com or follow me on Twitter at Rich Halts. We love your comments, feedbacks and suggestions right to us at m IB podcast at Bloomberg

dot net. I'm Barry rit Halts. You've been listening to Masters in Business on Bloomberg Radio, brought to you by Bank of America Merrill Lynch seeing what others have seen, but uncovering what others may not. Global Research that helps you Harness disruption Voted top global research firm five years running, Merrill Lynch, Pierce, Fenner and Smith Incorporated. Welcome to the podcast portion of our conversation. Louise, Thank you so much

for doing this. It's been a pleasure. Thanks. So. I know Louise for a long time, and and I kind of consider myself a jack of all trades, master of none, and I have found technicals to be very helpful to my way of looking at the world, looking at the markets, if for no other reason, I want to have a sense of what are the big institutions doing, and you

see their footprints in the charts. So let's let's talk a little bit about some of the things we didn't get to before, and then I'll do my favorite UM questions. On the broadcast portion, we were talking about the relationship between different markets, and uh we started talking about gold and and bonds. Tell us about that long term relationship between the two. Here when did gold and interest rates

top out? Well, the thing that's really interesting, As I said, interest rates have very long cycles, and um, the ten year um was in a very severe down down trend. Interest rates race, we're going higher exactly, and gold started a new bull market as the end of that interest rate cycle came into being. And once again here we have interest rates top out and around then gold topped out right and uh, and then you saw a long,

long down trend. But the gold started to come up in the mid seventies, which is when interest rates, which is when interest rates started going up. So it was the bull market and goals started as you moved into an inflationary environment, makes sense rates are going higher. There inflation, the price of gold is worth more. However, as race were coming way down, gold also started to lift into a bull market. Um, so it was arguing that it

was protecting against the deflationary environment. We did have a people forget I'm sorry two thousand and one to the dollar lost its value. Anything priced in in dollars like gold obviously is going to do well. And we had pretty robust inflation in the two thousands up until the crisis. That's a pretty good way to put a cap on inflation. Have the entire financial world collapse. Probably kills It kills

the disease and the patient at the same time. So um, let's talk a little bit about what you're doing now. How do you what do you look at on a daily basis? What do you think about each day when you sit down at your desk, Well, I look at I look at all these sectors. Number one, I'll look at them from a relative perspective, from an absolute perspective, from a momentum perspective. I'll look at stocks every week

or weekend. I will look maybe through the entire SMP five to just get a gist of what we're seeing in terms of are we seeing more and more tops? Are we seeing company by company, sector by sector? Yeah, exactly. And because you think of the equity market at least Alan Shaw always did as a triangle with the market at the and groups on one side, or sectors and stocks at the other. And he always used to say, if you didn't have any you didn't have enough time

to cover all three. The one you could eliminate was the market at the top, because if your sectors were showing strength, you knew which way the market should be going in the same thing for stocks. Makes makes perfect sense. Um. I actually met Alan Shaw at a event was it Bill Deaner was being honored not too long ago? And uh I begged him to come on here. Yeah, yeah, yeah, talked to me later and that was the last I heard him. I have two two guys I've been hunting down.

He's one of them, Alan shows one of them, and then Bob Farrell is the other. Oh, and they're both very secretive at this point. They've pretty much well, they've always been well known amongst certain folks on Wall Street, and I don't want to say press shy, but they this isn't necessarily their audience. I always try and convince them, we need you to have this conversation for posterity's sake, because my goal. You asked me how this came about.

My goal is to create a library and basically say, okay, here are the five people. Just learn everything these people did and how they became that way. And Alan's a wonderful storyteller. Wonderful storyteller, Alan, please make make an introduction. I will try and email him to get him out of Shelter Island. I'll I will go to Shelter Island. I'm happy to for him, I will, I will take the trip. Aside from the fact that Shelter Island is delightful, happy to stay at the Ram's head in or whatever,

but I'm happy to do that. I listen, I went down to Valley Forge to Vanguard. I'll go out to Shelter Island for Yeah, Well that way I'm sure he would do it. Really, I think, so done. Okay, Charlie make a note, will go into Shelter Island. Um. So, So you go through minor digression. So we you go through the sectors, you go through individual stocks. How much do you pay attention to the news? How what are you reading the papers? What do you watch on TV?

How important is the background noise to what you do? Well, there was a long pause right there. Yeah, it was a long pause because I tend to read the news late in the day and so's already happen. I read the Times in the Wall Street Journal on the train, not that I'm trading actively began my career, but I've always read it on the train on the way home, on the way home, never on the way into the Yeah, I find that my mornings are too busy doing looking or I don't want to be influenced by stuff I

know is old anyway what it affects you. So so that raises a related note. How important is psychology to technico analysis? Well, I think that the psychology is on the part of the investor, and what you're seeing him do is telling you where he stands if he's frightened, and you end up with a black hole. If we call these multi year multi point drops, which we've been seeing with some of the bad earnings again, I remember them in two thousand, like mad um and uh, and

the same thing for for the reverse. So so let's talk a little bit about resistance and support. So that was always explained to me in in what I took at psychological terms. So why does support exists? All right? If you have a stock that is trading between ten and fifteen, Basically the implication is that each time the price gets up to fifteen, somebody fundamentally perceives that company

to be fully valued and it sells off. And when it gets down to ten again, somebody out there perceives this come company as now at the point of value where they'd like to buy it, and that can continue for an extended period of time now as the price, and if the price moves up through fifteen, basically, it's suggesting that somebody out there perceives something positive about this company and is willing to pay more to own it, and that initiates the uptrend. We call it a breakout,

and it initiates the uptrend by the same token. If you've had a trading range of top, top can take on many configurations. It can be a v topic, can be a head and shoulders top, which looks exactly like a head and two shoulders. You can have a double top, or you could have a horizontal top. And if the ten dollar level of our example trading between ten and fifteen is violated, that suggests that somebody out there is willing to accept less to get out, and that's an

important psychological message that we're getting in that price. So here's how I recall having this explained to me when I was a young and you have a stock trading in that range. Let's use ten and fifteen, and people who bought a fifteen stock now goes to ten and they say, God, if I can only get back to fifteen, If I can only get to break even, I'll sell.

And so when the stock gets up back to fifteen, all those previous buyers are sellers there because they have a memory price, as memory is the expression, and when all those sellers are exhausted with there is nobody left who wants to sell it fifteen. That's how you get the breakout, and that's why there's no overhead resistance. The flip side of that was people who have been buying a ten and being rewarded. Hey, I boughted the tenant

went to fourteen, I sold it, it it came back. I bought it it went to and I began on a trading desk. So everything I learned took me a long time to unlearn it. But everything I learned about technicals and trading was in that context. Hey, at ten dollars, I'm rewarded. Therefore, my muscle memory is by the dip, by the dip, by the dip, and therefore, when the stock price comes back to ten, i'm a buyer. And once that's violated, oh this doesn't work anymore, and I'm

done now. I don't know if I'm creating a narrative on what you described, or if that's consistent with I think all three are consistent. You've got the fundamentalist who's you know, perceiving that something's changed in the company, either for the better for the breakout or for the worst for the breakdown. And you've got the person who maybe bought it at fifteen it went to ten and panicked and said, oh my gosh, hope it gets back to fifteen.

I want to get out. And then you have the professional trader who sees this range developing and says, gee, this is a great way to make money. I'll buy it at ten and shorted at fifteen, and that goes on and until the breakout of the breakdown. One of my all time best trades was a was a loser in Google, and I want to say it was it was range bound between one eight and two hundred, and you boarded one eighty and sold it a two hundred

and bought and shortly at two hundred. And this was going on for a while, and I remember being short Google. It broke out over two hundred and I covered it like two oh two or two oh three, and it just never looked back. And I was so pleased with that trade, not only because I was disciplined, but Wow, this really did what it was supposed to do. You know, it broke out of the range. I didn't station I had made it. You know what is two or three percent?

Who really cares about that? But I find that the nice thing about charts is it gives you a place to know for sure where you're right or wrong. It it's a error correction mechanism. If you don't like something and it's over a certain price, you're wrong. There's no arguing with the story. There's now no coming up with excuses. The prices the final arborter and I Voe has found not only that, but the risk management side of it really fascinating. And that's the thing. A lot of people

hold onto their losers and sell their winners. Classic rookie mistake. Hey, the old One of the things I learned early on that is wrong is, Hey, no one ever went broke taking a profit. Actually, you do go broke taking a profit, especially because you're not having big enough profits, and especially if you refuse to admit error and hold the losers all the way down. It's a it's a classic mistake. So so let's let's jump on some of the questions that we missed UM earlier, and then we'll do our

favorite questions. UM. So let's talk a little bit about the markets from a structural perspective. How do you, other than h f T, how do you see the structure of the market having changed. I don't think the structure of the market has changed, So it hasn't, I don't think so. So what is different today except for the high frequency trading that's the big one to get into. The plunge protection team, which maybe we don't want to

get into. No. I love talking about that because I think that you know, George Carlin used to tell a joke about Indian fighters, and he would say, and it's George Carlin, not me. It's not that Indians are bad fighters. Just because they started out defending Boston and ended up in San Francisco doesn't mean they're bad. So I always

say the same thing about the plunge Protection team. Hey, just because the NASDAC rolled over at five thousand and ended up at doesn't mean the plunge Protection Team doesn't exist. They're just really bad at their jobs. How and here look at oh eight o nine, the market down fifty seven. Wow, imagine how bad it would have been without the plunge Protection team. That's pretty bad. So is there a plunge protection team and what are they doing? Well, it's an

official entity. I forget the exact committee to ensure financial stability. That's right, Regan set it up, and I would say that probably they realize that they can't prevent some of those large downs, but they can hold up something that isn't necessarily got an enormous amount of selling pressure. In other words, we have these days that will you know, start down and end up or go down and end up. Maybe they're in there trying to um make everybody feel

better than it hasn't gone lower. I have no idea. When they come in, we don't know, but they buy futures I understand. Are wouldn't we see the footprint of what they're doing and wouldn't there be a giant paper trail? One would think, right? I mean, someone does insider trading for eight hundred dollars worth of options and it shows up on an SEC screen. I can't, you know. I am not a I tend to be a skeptical person

by nature. And when I hear people saying, well, you know, the FED is propping up, you know the plunge Protection team is propping up the market. How would they keep that quiet? I I I can't imagine that not a single person would leak it. There's just a million examples of things people try and keep quiet and it eventually gets out. I mean, forget it. Today the Russians are

hacking everybody in the Chinese are hacking everybody's email. If something like this was out, wouldn't somebody having a vest and interest in if for no other reason fame and fortune um for being the one who proved the plunge Protection team is in there doing what they're doing. So you don't buy that they're a big influence in the markets. Now. I think that they probably have an influence in the market, but I think they're probably selective. Now. In Japan, they

there is no secret plunge Protection team. Their central bank is literally in the market buying stocks and they've publicly said we're going to go buy stocks. What does that do to to markets and charts and what keeps the prices up? I mean, the Swiss Bank is doing the same thing. Huge positions in these apple and the Swissies are buying a lot of the government banks are buying stocks US stocks and what does that do for them? What does that do for everybody else? Maybe it gives

them a currency hedge. I mean, I mean, I have to ask the question whether inflation as they're not measuring it correctly, that well, we can we can talk about food and everything else. We wrote about this in the nineties, looking for inflation in all the wrong places. But I wouldn't be surprised as long as interest rates stayed load of negative of that. There's an interest in getting everybody into the stock market, and that that's where we'll see

the inflationary pressures in asset prices. In asset prices, well, haven't we seen markets up two? It's getting nosebleed territory, isn't isn't that um? And the same with bonds. So my argument about bonds has been there's a shortage of fixed income sovereign quality paper and you have a ton of buyers. That's what's been driving it lower. But is it really a currency hedge for the Swiss to buy? I mean, they must really like the new Apple seven,

the iPhone seven. What advantage do they get buying individual stocks or in the seats? You don't you know, I don't have a I don't have an answer for that. I wish I did. So let's talk about inflation. It's been said there's inflation in the things we need and deflation in the things we want, meaning TVs, techno anology, phones. They just keep getting faster, better, cheaper. Food went up appreciably last decade. The qust of housing went up. All right.

We wrote about this in the nineties and it was, you know, question of looking for inflation in all the wrong places, and it was not occurring in the capital goods. It's not occurring anymore in the capital goods arena because there's what we defined at the time is old tech

and new tech. And the new tech is what you're seeing in all these technologies and the huge breakout in the information technology sector which took place in You've had this huge relative strength and now the prices, you know, close to a new high, this time perhaps with earnings, which is telling very different. Yeah. I think technology is the new industrial complex. No, I completely agree. You reference

something off air. I want to talk about that. Microsoft, Right, So Microsoft one of the biggest companies still one of the top ten, what are they three or two these days? It's Apple, Microsoft, x On Mobile and Amazon are pretty consistently in the in the top ranks. Microsoft is one of the few companies today that was also one of the giants in the nineties. Explained that, well, it fits the concept of the bigger that dropped, the longer the need for repair. It had run up enormously, had an

enormous drop along with all the other technology stocks. So you had this huge drop from two thousand into two thousand and two. And basically the technology arena went sideways um for ten ten years before it broke out. And so that was enough of an accumulation that you know, steel ball, record and crane, and then then then plumber and the electrician and the and the carpenter came and did their work and the stock was of a to move out again. Now you mentioned didn't tell looks similar.

You mentioned of all the big tech companies from the nineties, most of them have not regained their prior glory or anywhere near it. That's true, but they do have incredible bases, and I suspect they're trying. Cisco is another one that you've got this long, long base. Um, they're buying some of the smaller companies, They're buying into new technology perhaps, and UH, I think that you know that it's just beginning. You're not buying an nvidio, So we're early stages of

the next bullmarket and technology. Those for those companies, Microsoft, Cisco, and tell who else in that space is uh is building a base that looks like it's getting ready to break out. Those are the three that come to mind, and those were all giant companies. Um, alright, so I I know I only have you for so much time. Let's um. Oh, you asked me a question before, before I get to my favorite questions. You asked me a question on the way in. How did you get into this?

How did this come about? Yes, so I've told it on air before. But the short version is I've been a critic of financial media and television and press for a long time, and the criticism has always been, don't tell a person what, don't give them a fish, teach them to fish. When you say by the cell that that recommendation is good for eight seconds and as soon as the next piece of news comes along, it's bad.

So I kinda when when Bloomberg said to me, hey, we have these great facilities, what would you like to do. My answer was, I want to sit down with experienced, successful, interesting people and find out how they got that way, and hopefully we all have something to learn from that. And besides, nobody else is doing long form deep dives into what makes someone successful, who were their mentors, what do they read, what do they do, how did they

become successful? And to my surprise, Bloomberg said, go ahead, go do that's try not to hurt yourself, kid pretty much. And it was a skunk works project for a long time, nobody was paying attention to it, and when no one was looking at suddenly became the most downloaded Bloomberg podcast I have. It's I say, it's the most fun I have all week. I get to sit down with people

like you and ask questions. Um. Last week was Bill McNabb, the week before that was am when damadoran at n y U. You know how often you get to grab these people and say, give me ninety minutes of your time. It's it's the single greatest scam in all of finance. And they're probably please. Well they also they all say, hey, nobody ever asked me these questions. But the fact that somehow I've managed to convince people to do. This is

I call it the greatest scam I've did. Damn it all well, because if anybody really knew who I was, they would say, how did this idiot get you? I am but having nothing to do with any of this. This is just fun for me. I genuinely enjoy this and hopefully that that comes across. I'm still hunting my White Wales. So I have Alan Shaw and Bob Farrell and then Ray Dalio and Jim Simons are also on my So. I went undergraduate to Stony Brook from mathematics

and freshman year of visit the campus. The chairman of the math department is Jim Simons. So I met him a hundred years ago. And by the way, if you would have met him in you would wouldn't give him forty two cents. He just looked like a you know, a chain smoking, bearded hippie. You would never give him a dime. And Ray Dalio, every time I watch him on the media, all I can think is that is a terrible format for him. Ray please come in. I promise it'll be fantastic. It's huge. I'm you Joe all

over the country. He um, he's a really sharp guy. Love his philosophy. I love his philosophy and how he's thought out the importance of transparency and responsibility. Really, it's a it's a hedge fund. Why is this philosophy? How did this develop? Nobody gives him time to extract anyway, I'm digressing. So I've I like the format because I get to ask people like you questions like tell us who your early mentors were, And you mentioned Alan Shaw?

I did. He was really probably my only my only mentor because as I said, I stayed I was pretty much of a cocooner. How long did you work with with Shaw for? Oh? Really? So that's really he retired and I took over the department. It was a very smooth transition. That was two and two. Yeah, so he's already he's been retired for fifteen years already. Huh. And you ran the department for five years and then independent exactly, and that's worked out pretty well. Yes, it's fine, Yeah, okay,

not you know, it's it's satisfactory. Let's put it that way. So, as you mentioned Shaw as a mentor, what other what other investors influenced your perspective? Investors not so much, Gail do dek was this traders economists that doesn't have to be investors. Um really just m hm alan really yeah and um so let's talk about books. What what are some of your favorite book? I read your book, of course, I don't know about favorite, but I read the Rheinhardt

and Rogoff book. This time is Different Years of Financial File. Really a little dry bit of a slog, but filled with fascinating decating Yeah yeah, and fascinating conclusions too. And Bretton Woods I'm getting into. I can never remember everything I've read. I love mysteries. Give us a mystery, by the way, Bill McNab and I walked out on science fiction, So don't feel the obligation to give me any mysteries. Somebody gives me a book, I'll read it ferristeen and

I remember, who can any mystery? You like? Mistress? Like myster you try and guess the end. How good are you? My wife is? My wife is always halfway through a book and she's like, yeah, I know who did it. I'm done. It ruins it for her if she if she could see it coming too soon. You gotta you gotta hide that. So give me, give me a mystery or two that you really liked. Well, they are all series that I'm trying to think of the names of the authors, Barry, I can't remember stuff anymore. Okay, let's

let's do another one. Um, how about on finance side, any books particular to finance that you like. I have read a lot of them, but okay, email them to me and I'll come up with a list. Um, I know you read McGee and let's talk. Yes, all the all the technical book, right, McGee and Hicky is the standard. What about any of the Well, I think that John Murphy's book on technical and books on technical analysis are very good primmers. What about stuff market magic? What about

your market magic? Well, that was something specific to the to the age in the beginning to want to order that on Amazon and I couldn't get it. Oh, you should be able to get it. I haven't made a penny out of it. Last I looked, it was three dollars or something for the paperback. Um, that was really showing how we I developed, you know, the concept that we were in a structural bull market. The second part

asking questions is still very applicable. I had a huge thing on water and how water was going to be a commodity of the century. I remember John Manley came in and gave me a bottle of water. He thought it was such a joke. Meanwhile, meanwhile, that's what we're looking at California. People don't realize. You buy a bottle of water in the store, think about it. So one turned on a tap and maybe they reverse us most purified it reverse us mosis that cost more than a

gallon of gas, then than equivalent amount of gas. In the mid nineties when I got all the statistics from the United Nations, I mean the Ogalala aquifer that supplies our entire green belt was part of the country. Yeah, it was already you know, half gone, and not even talking about the the water mains from there to here are are falling apart. I mean in Vermont the summer,

a lot of people they're wells dried up. I'm sure that's not just in Vermont, but some of the other aspects where looking for inflation and all the techno in all the wrong places. And then I did this whole formula on technology and why the intangibles have increased productivity. I don't think they're measuring productivity. Let's talk about that because you're you're preaching to the choir here. I think you know, I love I love George boxes line. All

models are wrong, but some are useful. When I look at some of the models, and be it employment and unemployment or um or productivity, it seems like as technology has gotten more and more integrated into society, the models are just completely diverging from reality. You can't look at the productivity of the old industrial sector or the old industrial worker because they're all being replaced by robots. What I did was come up with the first law of

thermodynamics really fits this whole argument. Energy equals heat minus work. Okay, energy equals heat minus work. The energy work minus heat or heat mind heat minus work. If energy is the equivalent to economic productivity, heat would be the intangibles the knowledge based technology advantage, okay, and which are not measurable, so we call them intangibles. Um, the faster the chip, the more heat that kind of thing, and work represents

the tangibles, okay. So now we have productivity equals intangibles minus tangibles. So we know in this new technological era, the work or the cost component are the tangibles, and that's much smaller because you have less than the industrial sector that we've been familiar with, and the technologically efficient corporations have fewer employees, they need lower costs, fewer in different raw materials, alt of technology. And that was the other thing we said. You know, technology is sand, air

and light. You know there are no old fashioned raw materials. The heat component, which I call the antimatter or the intangibles, is rising exponentially as a result of technology. So if we subtract something getting smaller the tangibles of the work from something getting bigger, the intangibles than the total energy rises exponentially. In other words, were just completely measuring this. We're not accounting for. Look, my office is fourteen people.

What we do with fourteen people today, years ago, I would have needed a hundred people to do it exactly exactly. So that's ten years ago was forty. But the one thing we have in factored in here is time. So we take another formula velocity equals distance divided by time. So the productivity that we just solved from the last formula becomes the numerator or the distance in our economic equivalent.

And we know from the first equation that the technology benefits of increased productivity significantly, and that technology has splintered the time factor, so you have the numerator gets dramatically larger from the reason aldo the prior formula, and the denominator becomes a fraction of the whole. So you're the time element is very small and your productivity is soaring.

But up it up. Yeah. And there have been numerous attempts to rationalize the old way of measuring, and it's just totally you know, you look at the total productivity, the total output of the country and the number of workers. Somehow they're missing the fact that this number of what what what are we coming up on an almost seventeen trillion dollar economy. Somehow this is not being appropriately. I don't know if it's the model, the conception, the execution,

whatever they're doing. Something is wrong. And the other thing is I don't think that we can expect inflation to rise in the same way because it's not a demand pull for the product. It's this incredible technological efficiency that side steps inflationary pressures. At the same time, you have global arbitrage between salaries, so that's a natural cap on people's salaries rising and inflation used to be something caused by rising salaries and too much money chasing too few goods.

That doesn't exist anymore. You know, you've got you've come to the you've come to the mean. I remember when they did the Clinton did the Mexican Canadian thank you the worst trade deal. So we we did a little picture of of a of a seesaw and we said, you know, with these trade agreements, we as in the United States, were at the high end of the wage and price scale. We're the only ones that had anything to lose. And so so now we've had this equalization. Where where do you go? Now, where do you go

for them? We have arbitrage the wage differences, right, that's right. So maybe Africa, maybe we started. I got I picked up something yesterday and it was made in Ethiopia. I'm gonna tell you all all those outsourced jobs, they're all all those manufacturing, they're all going to come back to the United States to save on shipping. I hope so. But but it's not going to be people. It's going to be where robots nation. You know, the big problem China is facing. And I've had this conversation with a

handful of prior guests. They have a billion something people, half of whom are still on the farms, and they're trying to move them into the cities. What happens when automation replaces these giant fox con and other factories. They're looking at a real You think social unrest is potentially an issue here, look at the issue that they're going to hitch. It's kind of hard to imagine. We have a population coming up that's the same size, if not larger than the baby boomers are a million, and there

are no jobs for them. Right The millennials are now bigger than the baby boomers, which is which is impressive. And now if they could start working and putting some money away and you know, then maybe things get back to normal. But the problem is the jobs. The interesting conversation I had Um I'm drown a blank on his name, speaking of no memory, who wrote He's an n y U professor who wrote the Sharing Economy. It was on he was on our show a few weeks ago. Um

are Run. I'm trying to remember his last name anyway, it rhymes with maroon aroun Um. He had suggested that this current generation is increasingly aware of the fact that they are solo practitioners. They're free agents. And the gig economy is something that everybody is sort of embracing because you're only if you're only making X as a job, that may not be your long term career goal. Well, you could sell stuff on very, you can drive a car, you can rent down an extra room, you could sell

stuff on you. See, there's there's a entire new sharing economy that is being used to supplement regular people. There's no there's zero security. It's a very different type of job. Um, except there's still demand for products and there's still demand for services, and as long as that demand continues, an economy is going to exist. It's just different than the one you and I are used to. And that transition always looks scary. Go back a hundred years, half the

country worked on a farm. Now it's what that transition was also very very scary. Uh, It's easy to get into a really pessimistic circle of it's all going to be robots, it'll it'll look like Wally and nobody, it will have jobs. Um, I'm hoping that that's not the final outcome. But but I digress. So so let's jump back to some of our UM other questions you had mentioned h F t S as a structural change. What

other shifts do you see coming along? Let let me ask you the question that's in my mind these days, the move from active trading to passive, the rise of ETFs. What has that done to the way people invest and trade. I've been trying to figure that out because if you have a basket of stocks and in E t F you are essentially preventing the individual movement of each of those component members. And to what effect that's going to have on the overall market is very hard to tell.

I was speaking with a portfolio manager friend of mine. We were together at Smith Barney way back, and she said, what they're doing is looking for companies that are not in any of the e t f s because they're very interesting. So you're screening out you're screening out the big ETFs. Anyway. Yeah, Yeah, that was a very interesting point because I'm not sure that I can give you a reason why the e t f s might have

a very different effect on the market. The Vanguard CEO told me that when you look at UM, when you look at e t f s, they're about fifteen percent indexes. Passive indexes are are something like fifteen of the i'm sorry, of the U S market of the global market as purchased by institutions, and five percent of the investible assets. It's smaller then then people realize. But in terms of how money is flowing in the direction, it's going. Clearly it's moving in the direction and has been for years.

We've had huge outflows from the mutual funds, but right now they're starting to see that much money going into e t F. So it's moving out of the funds and moving into the e t F, which is really interesting. That's just begun to start to equate. First it was, you know, pulling out completely um I. You have to wonder whether it provides a cushion under the market. It's certainly. My colleague Josh Brown calls that the relentless bid. It's that there is always a buyer in in the UM,

in the asset allocators in the passive vanguard. Again Bill McNabb said, it's not passive versus active. Where the changes. It's high cost to low cost, and you look at you want to on the sp you buy it on the Admiral Funds at at Vanguard it's six basis points. It's practically free. When you look at a lot of active mutual funds are one one and half two percent um that that is a huge drag on performance. And people have figured out, hey, I'm not a great stock

pick or a market timer. I might as well be passive and save on the cost. And that realization and it took the dot com crash, the housing crash, and then oh eight oh nine to sort of force a lot of people into throwing their hands up in the air and saying, all right, I'll just do this. We'll see if it lasts. I assume this is a secular change that has a way to run. But what what do I know? You're probably right? No, you're probably right.

So so let's talk about you a little bit. Um. What do you do to relax outside of the office other than read mysteries? Yeah? I well, now that I'm semi retired, I have more time. It's not seven week, so I do. I go to the museums, I go to the theater, I go to a movie. I dance, so I take dance lessons and there are several dance groups that I participate. Help you stay physically fit, physically fit lots of exercise that has to be good mentally

sort of exercise. Wow, that's pretty interesting. Um, So our last two questions my favorite questions. If a millennial or a recent college grad came to you and said, I'm thinking of going into technicals as a career, what sort of advice would you give them. Well, it's a great talent to have if you have any any If I don't know, you'd have to find a place for yourself, which would mean working with the money manager, I would think.

Um Otherwise, I would say, if you had any interest in doing fundamental work, learn the technicals and take it with you to any part of the financial world that you go. That's a fair answer. And and my last question, you said, you've been doing this for forty plus years. What is it that you know a about investing and technicals today that you wish you knew ten years, forty years ago, whatever years ago? There years ago? Um, well,

I didn't have any money thirty years ago. I just wasn't doing much and you couldn't trade when you were in research, so I never learned how to trade. Basically, I didn't do much of anything. But I think the what I would want to learn from the years that I've been in the market is to hold on to the major trend. My son always says to me, Mom, why don't you follow your own advice? And and so you were selling you winners too soon? And I know you weren't holding onto your losers, but you were selling

too soon. That's UH. I had Netflix for two points and that was that. How has it done since? Huge? Huge? Winter? Huge? Missed it? Follow your own advice? We have been speaking to Luisia Mata. She is the UH manager and owner of Luisia Matta Research Advisors. If you enjoy this conversation, be sure and look up an inch or down an inch and you'll see on iTunes and you could see nearly all of the other hundred and somewhat previous conversations

we have had. I would be remiss if I did not thank Taylor Riggs are Booker and Michael bat Nick, our head of research, for helping us put this conversation together. Be sure and send us your comments, suggestions and ideas at our email address that is m IB podcast at Bloomberg dot net. I'm Barry Ridhults. You've been listening to Masters in Business on Bloomberg Radio brought to you by

Bank of America. Merrill Lynch committed to bringing higher finance to lower carbon named the most innovative investment bank for climate change and Sustainability by the Banker. That's the hour of Global Connections. Bank of America North America member f d i C