Technically Speaking, July 2019

We are still talking about trade battles with China and an arguably inverted yield curve. Yes, there are other perennial thorns in the paw (Iran and North Korea) but they don’t have much market moving history. As June ended, we got a trade battle truce and the stock market soared. Imagine what will happen if something actually gets done!

I still have a problem with calling the yield curve inverted, as most of it is upward sloping. Only the three-month bill is out of whack as I write this on July 1 and that is rather tied to the Fed. Will they cut, or won’t they? Before the trade truce, fed funds trading had a rate cut for a certainty for this month. Now? Maybe not so certain.

What I can see that is problematic is that the entire curve shifted lower compared to a month ago. And a quick scan of some global debt shows a lot of fractional, and even negative, benchmark yields. All that cannot be good.

Yet gold is backing down to test its breakout. Again, I am writing on July 1 so you all will know how that went.

Bitcoin. Again. Technical analysts’ paradise, investors’ nightmare. When the prices for retro Air Jordans on the StockX sneaker exchange are more stable than the “currency of the future,” I like to watch from afar. The lyrics of Bob Dylan dance in my head – “When will they ever learn? When will they ev-er learn?”

This month, we have an interesting white paper excerpt from TrendSpider about their new raindrop charts. It attempts to give the TA a feeling for how the day or hour developed, similar to market profile, although chartable like candles. However, volume is incorporated as in a VWAP.

This month’s member interview is Les Williams, CMT, who has been active in the association for many years and in many roles. My own CMT certificate was signed by him when he was the Chair of the Admissions committee.

And the Millers are back with the fourth and final installment of their series on copyrights. Again, this is an important topic for anyone who publishes books, newsletters and even blogs.

We’ve got three Chapter speaker reviews from Atlanta, Denver and Minnesota. Our regular association member news. And a little career advice for newbies urging everyone to write, write, write, no matter how green you may be.

Michael Kahn, CMT
Editor

What's Inside...

President’s Letter - Reflections on the Association Year 2018-2019

Looking back on the last 12 months, I think we’ve logged a solid performance at the CMT Association.   

A...

Read More

Why Aren’t You Writing?

When anyone asks me what they can do to get ahead in their chosen field, I have but one word...

Read More

Copyright Basics, Part 4

This is part 4 of a four-part series.

Creative Commons

In our previous three articles on copyright basics, we mentioned...

Read More

Atlanta Chapter Speaker Review

 

What a turnout!  About 40 members and guests filled the room at the University of Georgia Terry College of...

Read More

Member Interview with Les Williams

Please tell us what you do professionally.

I am a portfolio manager and technical analyst.

How did you get there?

...
Read More

Denver Chapter Speaker Review

 

The Denver Chapter was very excited to host Will Geisdorf, CMT of Ned Davis Research at our June meeting....

Read More

Raindrop Charts ™ - Summary White Paper

Please see the complete white paper here

Compare Raindrops to other chart types here.

...
Read More

Minnesota Chapter Meeting Review

 

Jim Paulsen presented to the Minnesota Chapter on June 18, 2019.  Jim is Chief Investment Strategist for the Leuthold...

Read More

President’s Letter - Reflections on the Association Year 2018-2019

Looking back on the last 12 months, I think we’ve logged a solid performance at the CMT Association.   

A few highlights that come to mind:

  • Opening our India Office under Joel Pannikot
  • Hosting a successful Symposium in New York
  • Organizing our Committee Governance Framework
  • Launching the Digital Badging verification system
  • Relaunching “Technically Speaking” under Michael Kahn, CMT
  • Focusing Board activities with our Strategic Direction

I want to thank our staff, committee volunteers, chapter heads, speakers, members, and Board for putting in the time to grow our organization and “Raise the Bar.”

Next year looks equally busy and challenging. We will continue to expand globally, hold mini-Symposium activities outside the U.S., and develop our content delivery platform for members. Remember, it is our goal to Motivate, Inspire, Connect, and Educate members!

That said – look for a way to get involved and contribute to our growth:

  • Join in Chapter activities
  • Sponsor a CMT Candidate
  • Plan to attend a Symposium next year
  • Consider presenting a Webinar
  • Volunteer for a Committee

Lastly – please provide us with feedback on what we are doing and how it is working for members. Call or email when you have a compliment, or a complaint. Make your comments constructive and help us improve because we are all about making this organization better each day. I’m actually surprised that we don’t have more feedback from members, who are typically a vocal group. I’m always available, so reach out and be heard!

I’m looking forward to the coming year and I hope you are too! Let’s make the next 50 years notable and strong for the CMT Association!

Invest and Trade Well.

Contributor(s)

Scott G. Richter, CMT, CFA, CHP

Scott Richter, CMT, CFA, CHP is a senior portfolio manager for Westfield, which manages over $4B in AUM.  He is the lead portfolio manager for alternative assets and is also responsible for investments in the energy and utility sectors.  He was formerly...

Why Aren’t You Writing?

When anyone asks me what they can do to get ahead in their chosen field, I have but one word for them – write. It does not matter what field you are in; technical analysis or auto detailing. And it does not matter if you have a doctorate degree or are a newbie right out of high school.

True, the more experience you have and, arguably, the more schooling you have, the more likely you can put a few ideas on paper (yes, old school) that will have value for someone else. But everyone has something to say. Everyone.

At first, you probably will have an audience comprised of your mother and spouse. Keep going!

The idea is to hone your writing and professional skills while you build up a body of work. Do you think that an employer might be impressed with the blog you’ve been writing for the past year? Or that you’ve gotten an article published in your industry magazine? That last one was foreshadowing.

Here’s a secret in the publishing industry. The online 24/7/365 world is starving for content. Of course, most of the time they don’t want to pay you but that is not why you are doing this. There are a gajillion websites willing to take your content in exchange for “exposure.”

It does not matter if you don’t even get that exposure. You will be able to say that your work appeared on XYZ.com and SeeHenBeZee. And who knows? Maybe someone will see your article and ask to quote you or – shudder – ask if you’d like to be interviewed to discuss your analysis.

It does not matter as long as you are developing your style, improving your work skills and building up a portfolio of publications.

Was there was some research you did in school that you can turn into an article? Do it!

Did you read something in a trade magazine and have thoughtful comments? Write them!

And please don’t tell me you do not have a Twitter feed or a blog.

Here’s a crazy idea – write an article for the CMT Association newsletter that you are now reading. We are also starved for content. And what better venue for expressing your views on markets and analysis?

If your article sucks, so be it. It won’t run and we will still love you. But what if it is at least coherent and makes a real point? You will have your first published piece.

So this is a call for all CMT Association members to submit something on which they’ve been working. A new chart type. A new way to look at stochastics. Why bitcoin is the biggest scam ever to plague the investment world. Go ahead, blockchain lovers, prove me wrong – in an article, of course.

Calling all members – and that includes fresh out of school, wet behind the ears, newcomers. Write something!

Contributor(s)

Michael Kahn, CMT

Michael Kahn, who holds a Chartered Market Technician (CMT) designation, is a seasoned financial services strategist, analyst, columnist, educator and speaker.  Michael has been working with charts and technical analysis since 1986. He is the author of three books on technical analysis...

Atlanta Chapter Speaker Review

 

What a turnout!  About 40 members and guests filled the room at the University of Georgia Terry College of Business to hear a presentation featuring former CMT Association president Craig Johnson, CMT, CFA.  Some key insights from the meeting include how the Advance/Decline line is different depending on the year at which you are looking.  Decimalization changed the structure, as it is easier to advance or decline based on 1 tick, vs an eighth prior.  Craig pointed out that he prefers to use a 26-week new high vs a 52-week high.  He also explained how the third year in a Presidential election usually plays out, and that Microsoft might be included as a staple in the near future instead of being grouped in technology.   

Contributor(s)

Paul Wankmueller, CMT

Paul Wankmueller, is Director of Business Development at Martin Fund Management. He began his career in commodities by working as a research analyst for Michel Marks and 816 Partners immediately after graduating from Monmouth University. With Michel’s recommendation, Paul went on to...

Member Interview with Les Williams

Please tell us what you do professionally.

I am a portfolio manager and technical analyst.

How did you get there?

It all started with a course in statistics where moving averages were applied to inventory control. The charts shown reminded me of stock charts and I applied moving averages to them. Then I took a course in entrepreneurship where our challenge was to brainstorm a product or service, incorporate a company and run with it. My group incorporated and registered with the State of Texas as a money management firm. I’m not sure if my degrees in accounting and psychology helped but they didn’t hurt.

In the early 70s, I was a partner in an accounting firm when IRAs were introduced. We encouraged clients to open IRA accounts and saw the opportunity to establish an RIA firm in addition to a property management company.

Who was an early mentor in your career?

I did not have a hands-on mentor as I was self-taught; John Murphy’s work helped me pass the CMT exam. I sat with the first group to take the exam. My charter number is 104.

Other influencers were Norman Fosback, Marty Zweig, Stan Weinstein, Sherman McClellan, Robert Colby and Thomas Meyers, Ned Davis, Phil Roth, James Bianco, Paul Desmond, Phil Erlanger, David Upshaw, Bob Prechter, Thomas Bulkowski, Louise Yamada, Tom Dorsey, and John Bollinger.

What book/author was most influential in helping you understand TA?

Technical Analysis of the Futures Markets, by John Murphy.

What do you like to do when you are not looking at markets?

I enjoy ballroom dancing, travel and reading. While in the military many years ago, I flew a light observation helicopter on my first assignment in Viet Nam and the UH-1 (Huey) on my second.

What brought you to the CMT Association?

I was proselytized by Ralph Acampora and John Brooks. However, the opportunity to rub elbows with, relate to and learn from other technicians, newsletter writers, authors and attend seminars was quite appealing.

What it the most useful benefit of membership for you? 

Aside from networking, I enjoyed serving the association as treasurer, CMT exam question writer and grader and committees chair for finance, education, admissions, nominating and ethics.

I also have fond memories of annual seminars, especially the laser light show provided by speaker Walter Deemer when the projector failed. Walter danced two laser pointers on the wall.

The Oct. 19, 1987 seminar in New York was another highlight. Prior to introducing each speaker, the MC would announce the current Dow reading. The first reading was down 125. I thought he meant down 1.25. I had gone 100% to cash on the Thu. before and thought I had blown it.

Speakers came to the podium all bent out of shape. During the day, fewer and fewer attendees remained. One speaker, I’m pretty sure was Alan Shaw, came to the podium, threw his papers in the air and sighed, “there goes my presentation.”  

The president of the association was Bob Simms. His lunch date cancelled and he asked me to join him at a restaurant that backed up to the American Stock Exchange. He could not sit still. Fortunately, this was before cell phones, and I was able to enjoy our visit over lunch.

Contributor(s)

Les Williams, CMT

Biography coming soon.

Denver Chapter Speaker Review

 

The Denver Chapter was very excited to host Will Geisdorf, CMT of Ned Davis Research at our June meeting. Will’s presentation, entitled “Wall of Worry,” gave a thorough update of NDR’s macro positioning. At a high level, Will says that the U.S. economy is unlikely to enter a recession in the near term, so any market weakness is expected to be limited. However, the trade war limits the prospect for global economic recovery.

The team at NDR has a great perspective on the markets, best encapsulated by Ned Davis’ saying that “if you can’t quantify it, don’t pay attention to it.” As a result, NDR doesn’t use Fed policy as a variable in its models. However, the impacts of Fed policy are key drivers of many of their models.

One relatively unique dataset that Will shared was the breadth of manufacturing Purchasing Managers’ Indexes (PMI). Each PMI is a survey that measures corporate sentiment for future sales and can be a leading indicator for GDP. By looking at the share of PMIs above 50, Will measures the number of economies that are in expansion. Breadth has just fallen below 50, indicating that the escalation in the trade war has been negative for the green shoots that had been developing. Rather than inducing weakness, Will sees greater odds that this will only delay the start of the next expansion, as global central banks will be more likely to set policy that is accommodative.

Inflation is a risk; U.S. hourly wages have risen faster than core CPI. Additionally, median CPI has been consolidating within an uptrend. Will expects housing prices to remain firm and the housing shortage could be a key driver of the increase in CPI. This could help push 10-year yields towards NDR’s fair value calculation of 2.4%.

The investment implications are that, if the US stays out of recession, the 2018 Christmas lows were the bottom. A trading range is a real possibility. Watch for breadth and trend improvement before getting overweight equities.

Will’s presentation included 31 slides that covered every key facet of macro analysis.

Contributor(s)

Jason Meshnick, CMT

Jason Meshnick, CMT, is the Director of Product Management at Markit Digital, a division of IHS Markit. There, he creates well-known market analytics including the CNN Business Fear & Greed Index. His past career included work as a principal trader, market maker,...

Raindrop Charts ™ - Summary White Paper

Please see the complete white paper here

Compare Raindrops to other chart types here.

There are many different styles of charts used by financial analysts to illustrate changes in price action over a period of time. However, most of them do not contemplate trading volume with any level of granularity. We propose a novel solution to this problem – new type of chart, one that combines volume and price data into a single visualization while also filtering out some of the noise like arbitrary open and close prices. We call this new type of chart the Raindrop Chart

Abstract

The Raindrop Charts ignore artificial breakpoints, such as open and close prices, to instead illustrate price and volume movement instead of just the price change. 

Each bar, known as a Raindrop , has two sides (Left and Right), covers a fixed period of time (such as one hour), includes four key data points (Left VWAP, Right VWAP, High and Low), and finally, has a body constructed out of a modified volume-by-price histogram.

Concept

Raindrops tell the full story, not just a summary of it. For example, since each Raindrop has two sides, Left and Right, you can see how both volume and price flowed between the first and second half of the period. Compare this to simply knowing where price was when a new candle opened or an old one closed.

The amount of volume is illustrated by the width of a Raindrop at any particular price level, which will vary based on the volume of transactions traded at that price level. The width on both sides of a Raindrop is plotted using the same scale to make them easy to visually compare.

Construction

To construct a Raindrop Chart, the following steps must be undertaken:

  1. Decide on the period you want to build your chart on (e.g., 60min.) Then, select the first period — i.e., Mon 08 Oct 09:30 – 10:30 am EST.
  2. Get the second half of the candle’s period (i.e., last 30 minutes of a 60min candle). Build a Volume at Price histogram for this candle (use the most granular data you have, such as 1min candles or tick data).
  3. Rotate the histogram by 90 degrees (minding direction of a price axis).
  4. Re-paint this histogram as Area chart. This Area chart will comprise the right-side piece of the Raindrop.
  5. Repeat the points 2-4 for the first half of a drop’s period to get the left side.
  6. Join left and right pieces together to form one Raindrop.
  7. Put a mass center point on a price level. This is the same as the volume-weighted price.
  8. Paint a vertical line to illustrate high/low range of a drop that indicates the price range.
  9. Paint dash lines on both the left and right sides, each of them illustrating a Volume-Weighted Average Price for respective half-period.
  10. Color each Raindrop. For Raindrops where the Left price is greater than Right, color it red. For Raindrops where the Right greater than Left, color it green.  Raindrops where both the Left and Right are equal are colored blue.
  11. Repeat of rest of your periods until the chart is complete.

© 2019 TrendSpider LLC.

Contributor(s)

Ruslan Lagutin

Ruslan Lagutin is the CTO and co-founder of TrendSpider and has spent his entire career working in the charting and technical analysis industry, with time spent at both eSignal and TradingView. TrendSpider is a Chicago-based startup focused on building software that improves...

Minnesota Chapter Meeting Review

 

Jim Paulsen presented to the Minnesota Chapter on June 18, 2019.  Jim is Chief Investment Strategist for the Leuthold Group and formerly held the same title at Wells Fargo.  He presented a broad market view covering fiscal and monetary policy, interest rates, and equity indexes. 

His main theme was the “3-Gun Gooser,” a trifecta of fiscal, monetary, and credit stimulus which presents today as high deficits, a Federal Reserve tilting toward lowering rates, and low long-term Treasury rates. 

The stimulative environment comes during a moderately valued equity market, with trailing S&P 500 P/E multiples in the 52nd percentile and forward P/E in the 67th percentile historically.  Although Paulsen said he was nervous about the 10-year-old recovery, the inverted yield curve, and overstaying in the friendly equity environment, his tone and body language were very bullish. 

Paulsen viewed the recent slowdown in earnings and the economy as a lagged response to 2018’s monetary tightening.  Jim’s forecasting with interest rates and currencies points to upcoming positive economic surprises.  Most traditional recession indicators are absent except an inverted yield curve.  However, an inverted yield curve has a spotty record forecasting upcoming recession: a better indicator has been fiscal policy. 

All 10 recent recessions were preceded by fiscal tightening, and there’s no push for fiscal discipline today.  Jim feels inflation is a risk, but one that is currently subdued.  A primary inflation driver is wage inflation which typically turns late in a recovery.  He feels that wage inflation is headed to 4% but notes that even with low unemployment, low GDP growth dampens wage pressure.  Whenever long-term rates start to rise, Jim says they could rise far because current long-term rates are depressed due to inflation premiums taken out of rates as yields moved towards zero.

Contributor(s)

Mahesh Johari, CFA

Mahesh Johari is an independent investor based in the Minneapolis area. He holds degress in mathematics and economics from the University of Illinois and the University of Arizona.