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Elaine Garzarelli, Garzarelli Capital president, breaks down what's moving the markets and gives her outlook for the year to come.
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And in less than two years joining us now.
-- and gas -- rally research president's Elaine.
Garzarelli thank you for joining us -- it is so great to have you on because I loved reading your notes.
And it was fantastic to -- because it feels that the markets are are very vulnerable but you are extremely bullish basically.
Citing only two reasons not to be a buyer in this market.
May if the Fed starts tightening and if the -- -- at 181000 none of which are high prices go I don't underneath our I don't -- -- anytime soon.
This is a Green signal for it right it is.
I have about twelve indicators on the stock market and they range from zero to a 100%.
And the reading currently is 80% they'd need to go down to thirty.
To be a major bear market signal and to 43%.
To be -- correction signal of ten to 15%.
And that's where they were last year when we had a 20% correction in 2011.
And the other 20% corrections that we've had.
But just today Elaine we got a warning from a treasury official saying that we could -- an impact on the banks from their exposure to -- to Europe and we have the situation.
Going on with Iran and will Justine -- -- so many things to keep us from investing at this moment in time well I think.
The market is now focusing on the domestic economy that was the major reason for the big decline that we had last year.
And there are really three things that I look at to.
To tell me -- the correction is coming that we should may be -- enough for.
And that would be junk bond yield to the ten year bond yields and that has been drifting downward to Bloomberg financial conditions index has been -- for the last four months strongly.
The EC our -- leading index comes out weekly has been on real -- And each one of those turned down about a month to three months before the correction you Begin.
Now my valuation work suggest that and PE based on where interest rates are now that's on the -- the treasuries.
Should be around seventeen.
-- doesn't think.
This that would be fair value but it's we're selling now below thirteen.
And I would say -- fifteen that's likely this year.
And that gets -- to the number that you quoted earlier 151000 on the -- also it's no big stretch from here that's only 16%.
Is -- thing -- -- years superstar status was cemented at a time when everyone was bullish.
And you saw things -- else saw.
Do you think that you get to a point that -- becomes a little bit frothy -- -- we probably can't say that because of volume volume has been pretty light but.
It seems like at least with stocks like an apple everyone's gotta be in and everyone wants to be in and perhaps that make sense of the overall market.
Well.
Sentiment indicator right now it is neutral.
If it gets to be very bullish flight 99%.
That proceeded in 1977 -- every -- I presented whether it.
I don't it hasn't since 1977.
And and the Fed wasn't tight there and we had a bear market in the S&P 500 not in the small cap area.
But I think you'd have to have the Fed tightening and you have to have overvaluation.
Maybe 2030%.
Before 2000.
The stock market was 45%.
Over valued.
-- but that's not going to tighten the big question is will they continue to print money but.
You mentioned oil prices gasoline looks like it could be something of a while -- this year certainly there's a great chance of hitting for all of a gallon.
That -- -- -- at least the domestic economy in its tracks also.
Another flood of mortgage foreclosures and things like that things that got us in this position in the first place my.
And I think housing is -- definitely bottomed out relevant statistics we look at her turning up in the last three weeks.
Mortgage rates are at a historical low at this point so mortgage rates go up that would be a problem if oil goes up 235.
Dollars a barrel that could be a problem if the Fed tighten that could be a problem.
It's a little ways away from that I don't see anything less.
Take a look at some -- do's and don'ts consistent great advice for our viewers I mean basically might it take a -- don't be defensive.
This is not the time to be defensive and take any market pull back.
As a gift.
What are you a -- -- if you're not going defensive.
Well the areas in the economy that are going to grow the strongest.
Two or three times greater than real GDP which will be about 2% this year in two and a half percent next year our consumer durables.
Industrials.
Computers.
And housing.
And exports so those of the areas you wanna be an -- their.
Very easy ways to play these you can buy and sell all day long exchange traded funds.
-- why would be be industrials that includes General Electric includes Boeing and includes all the big industrial companies like cat.
XLK.
Technology.
Apple IBM.
Cisco.
Financials look excellent 2.0 depo -- was on earlier and we worked together -- Lehman brother area and I agree with everything he said about financials I think they look fabulous right now.
And -- -- -- -- fan of these big baskets VC TF baskets as opposed to straight on equities ending at what point would you be a buyer individual companies.
Well I don't do that on the sector strategist so I just stick with the sectors and my feeling is that if -- sector does well.
You can really throw a dart semiconductors are gonna do well all the stocks go up maybe a little bit different in degree but.
The way the market moves it's 40% the industry.
Elaine Garzarelli it is great to have you on -- Charles mentioned you're a legend in this industry.
Analyst thank him as some analysts activists that interview and take some notes because he gave some really great ideas frank you hear there's a lot of land related.
