Bonds: ‘We are now in the new rising rate cycle,’ technical analyst says

LYAdvisors Managing Director Louise Yamada joins Yahoo Finance Live to discuss her technical analysis on a new rising rate cycle and the outlook for Meta stock.

Video transcript

JULIE HYMAN: 10-year yields are falling this morning as traders look to the end of interest rate increases, but our next guest says the yield trend is actually higher if you consult the charts-- that's what she does. LYAdvisors managing director Louise Yamada joins us right now. Louise, what a pleasure to see you. It has been a while. But I thought it was important--

LOUISE YAMADA: Thank you, Julie.

JULIE HYMAN: --to talk to you right now because of what you're seeing in terms of the charts here. And as I said, people are now looking to when the Fed is going to pause. What are the charts telling you about what's going to happen with yields?

LOUISE YAMADA: The charts are telling us very distinctly that the 40-year trend of falling rates has come to an end. I sent you one chart, which you may have there, showing the downtrend from the 1981 yield peak having been broken in December. And that's a pretty definitive rate. 40 years says a lot in technical analysis. But the other interesting point is that the MACD or the momentum indicator on a monthly basis-- there it is. You can see it now, the break in the price of the yield at the top of the chart. And the bottom of the chart is the momentum indicator, the MACD.

And for 40 years, it remained flat until December when it broke out through that resistance level. These are major technical statements. The bigger the base, the higher in space. Historically, interest rate cycles have run from 22 to 37 years. This one, probably due to the pandemic disaster, ran 40 years. So we've set another record in terms of how long this interest rate cycle has lasted. And we think that we are seeing a definitive turn toward higher rates. That doesn't mean the Fed can't pause. It doesn't mean, rates can't pull back the 10-year toward 2 and 1/2%.

But the point is with these max advances and pullbacks is characteristic of a new uptrending cycle. So as long as we don't put in a new low, we think that this cycle for rising rates has just begun. And historically, what's very interesting, the last cycle-- I don't know if you're able to pull up the second chart, which really--

BRAD SMITH: Yeah.

LOUISE YAMADA: --is reversed into the price of the bond. So you see the current cycle on the right, but flipping rates so that it represents price. And notice again there, on the upper right, the break of the uptrend. And on the left-hand side, you see the last rising rate cycle from 1946 to 1981. And each time you have back up in rates, you have the-- I mean back up in price of decline and rates at each of those green circles or arcs, if you will, but you never had a chance to get in again and make money in terms of the price of the bond.

So I think this is the time to be cautious. It's giving older people a little bit of interest for a change. And I think especially for the younger traders, they have to know where they are in the long-term cycle.

BRAD SMITH: So just to synthesize the charts, which you've so brilliantly compiled for us here, Louise, you would say that this and what we're seeing right now in the environment are kind of emitting some sell signals? Or--

LOUISE YAMADA: You mean very short-term? On a long term basis, we are now in the new rising rate cycle from a high technical evaluation that could last decades. And actually, if you look at the second chart-- I don't know if you have it there-- basically, we're OK in terms of the market if it wants to go higher. But I think Powell was right. Growth perhaps continues in certain stocks, but it may be slower. And the other thing is we should wait until--

BRAD SMITH: Louise, do we have you?

JULIE HYMAN: Oh, it sounds like we have lost Louise's signal, unfortunately, but what she was saying was so interesting because it's obviously so counter to the sort of conventional wisdom here, what we have been seeing play out in the markets. That said-- oh, I think we have Louise back there. Louise, do we have you?

LOUISE YAMADA: Oh, I'm sorry. Where did you lose me?

JULIE HYMAN: We lost you right at the end, I think only at the end of what you were saying. I do know that Brian Sozzi wanted to get in here and ask you--

BRIAN SOZZI: Louise.

JULIE HYMAN: --and switch gears a little bit if you don't mind.

BRIAN SOZZI: Yeah, a big fan. Long time admirer of your work, Louise. A lot of investors on our platform are trying to make sense of this move in Meta's shares. Do you think, just what we heard from them last night, fundamentally, sets the stock off the beat--

LOUISE YAMADA: Oh, you're skipping right to Meta? Well, you know, technically, the bigger the top, the bigger the drop. The bigger the drop, the longer the need for repair. You've had a little bit of a turn here off the low from December. Generally, you need a little bit more backing and filling.

And if you look at the chart from a monthly perspective, you get into the 180, 200 level. You're running up into resistance, quite a bit of it. So some people may decide that they'd like to get out or take less of a loss or take a quick profit. I'm not sure that I would consider this stock running back to new highs anytime soon. But you could have a further round. Obviously, there's a lot of hype over it at the moment.

JULIE HYMAN: Indeed, there is. We'll see if it lasts. Great to see you, Louise. Always nice to catch up, and we should do it more often. LYAdvisors managing director Louise Yamada, thank you.

LOUISE YAMADA: Sorry for the re-- pauses.

JULIE HYMAN: This is part of our-- this is part of our new world, Louise.

LOUISE YAMADA: New environment.

JULIE HYMAN: Don't worry about it.

LOUISE YAMADA: Julie, thank you so much.

JULIE HYMAN: Thanks. Take care.

LOUISE YAMADA: Appreciate it.