Editor’s note: This was originally posted at All Star Charts and is republished here with permission.
This week [April 3-5, 2013] was the Market Technicians Association’s annual symposium. It’s easily my favorite event of the entire year. I’ve been going to this conference annually since 2006. Just when I thought that it can’t get any better, the Association creates the best one yet. If this is something that you haven’t attended in the past, I strongly suggest coming next year. Some of the top technicians on the planet come together in one place to share insights, strategies, and market wisdom. You can’t beat it.
It’s impossible for me to share everything from the week, but I will try and highlight some of the ideas and moments that stood out to me. Hopefully it will give you some idea of just how awesome the event was.
This year marks the 40th anniversary of the Market Technicians Association. The events kicked off Wednesday night down in the Financial District with a black tie dinner. Many former presidents and founders of the MTA got up on stage to share a bit of the history of technical analysis on Wall St. If it wasn’t for the hard work they put in back in the 60’s and 70’s, our generation of technicians wouldn’t have the opportunities that we have today. For that we’re thankful.
Art Cashin, a legend on the floor of the NYSE, received an award of recognition and shared some very thoughtful and humble remarks.
The two-day Symposium began Thursday morning with a panel discussion that included MaryAnn Bartels from Bank of America/Merrill Lynch, Rick Bensignor from Wells Fargo, and George Davis from RBC. It was great to hear their thoughts on the market and the value that technical analysis brings to investing and risk management. MaryAnn Bartels said now that they’re hitting all-time highs, she believes we’re in a new secular bull market in Consumer Discretionaries, Consumer Staples, Tech, Healthcare and possibly Transports. I thought that was interesting, but in my opinion, the best part of the panel was the moderated discussion led by MTA President Dave Keller where each panelist shared the biggest investing mistakes they’ve made recently.
MaryAnn Bartels was visiting clients in Mexico City in the summer of 2011 during the European crisis. She admitted not recognizing the climactic bottom that was being put in at the time. MaryAnn didn’t turn bullish as fast as she would have wanted and wasn’t able to tell people to buy. Rick Bensignor had a stock back in early November that was really beaten down. He thought a bottom was put in, came into work and said buy it at the open. Right away, the stock opened and gapped up huge. Within 45 minutes, it
was announced that the SEC was looking into that particular company and the stock closed down 14% that day. Then it dropped another 20%. This was a really important lesson in risk management. No matter how convinced you are of your analysis, risk management is the key to mitigating the unexpected. Finally, George Davis admitted to making a huge bearish call on
US Treasuries in early 2011. He saw evidence of market healing and yields started taking out big resistance levels. He figured it was time to make a big call on the bottom in yields. The Fed authorized another round of QE and yields ended up hitting new cyclical lows.
These are three of the best technical strategists in the business, and even they make mistakes sometimes. Risk management lessons are often the most painful ones to learn.
Dr. Jason Williams, son of legendary technician Larry Williams, presented in one of six interactive sessions focusing on the mental edge in trading. He recently published a book on how to adapt your personality traits to control emotions and make smarter investments.
Larry Williams brought together many successful traders, who each allowed Jason to perform custom personality tests to see if there was a correlation between personality traits and successful trading. As it turns out, the best traders consistently had low levels of anxiety. When asked what sort of anxieties they did feel, two answers were consistent throughout the test group (1) the fear of losing money and (2) the fear of incompetence, or lacking the intelligence to trade successfully. None of them had a goal of curing those anxieties. In fact, some of them even use their anxieties as a tool.
Williams cited a quote on fear from Jerry Rice, the greatest wide receiver of all time. At his NFL Hall of Fame induction ceremony, Rice said:
I’m here to tell you that the fear of failure is the engine that has driven me throughout my entire life. It flies in the faces of all these sports psychologists who say you have to let go of your fears to be successful and that negative thoughts will diminish performance. But not wanting to disappoint my parents, and later my coaches, teammates and fans, is what pushes me to be successful.
Fear is what drove him to succeed.
Another trait that stood out from this successful group of traders was a lack of confidence. No cockiness at all from this group. I think this particular personality trait says a lot. I firmly believe that if you think you know everything, this market will crush you. It is important to know that the market will do whatever it wants and doesn’t care what you think. That knowledge separates those who make money from those who don’t.
Maria Bartiromo moderated a panel with Ralph Acampora, Alan Shaw, Frank Teixeira, and Craig Johnson on the 40 year evolution
of technical analysis. I think the consensus seemed to be that the world is smaller, people are
smarter, and technical analysis is definitely much more widely accepted today than it’s ever been before.
Ralph Acampora thinks we’re in a secular bull market that can go for another ten years, but is definitely due for a correction. He is seeing some short-term cracks in the transports and small caps. What could change his mind? He said an 8-10% correction that doesn’t bounce back right away would cause him to reevaluate his opinion. If we correct, and then consolidate for 6 months or so down there that would worry him. But if that breaks, it could be trouble.
Frank Teixeira took home the crown as the funniest technician of the week. He thinks: “The trends in US and Japan are up, so you buy them… emerging markets not so much.” Alan Shaw, now retired, admits being happy he doesn’t need to navigate the current market.
Dr. Andrew Lo from MIT is always one of my favorite speakers. The man knows how to put on a presentation. I’m fortunate enough
to have heard him speak several times before and he always brings down the house. Author of A NonRandom Walk Down Wall Street, Lo explained that technical analysis, “empirically works”. He essentially invalidates what was once written about technical analysis in the famous book, A Random Walk Down Wall Street. It is nice to see technicians get their day with mathematical facts instead of just the opinion of some guy from New Jersey.
Dr. Lo went into what separates humans from machines. He described how one particular computer can process an incredible amount of data in nanoseconds. It is the fastest and most brilliant computer today. But even with its power, humans are still much better at recognizing and remembering patterns. He put up a picture of a squirrel. Right away we know what it is. The computer does not. He believes that the minute machines know how to do that and think for themselves, it will be the end for us. It’s a bit dramatic, but I get his point. You can teach a machine to do
a lot, but you still need a human brain to make subjective decisions. It was funny that Larry Williams would show the next day that market returns for quant funds last year dramatically underperformed everyone else.
Thursday ended with a bang. One of my favorite authors, Martin Pring, faced off with Uber-bear Bob Prechter in an inflation/deflation debate. Martin Pring presented first, showing a chart of US Commodity prices going back to the 1840’s. The average secular bull run is about 19 years. We’re just 12 years into this one:
US government bond yields (on the long end) have been declining for 32 years, which historically is longer than usual. But there is a very clean downtrend line that has been touched many times during this decline. This is definitely the line to be watching:
The Commodities vs Bond ratio has historically been a good leading indicator for yields. This chart shows that since 1850, when the ratio bottoms out, US government bond yields tend to turn higher shortly thereafter. The secular shift in rates has been preceded by a bottom in the Commodities/Bonds ratio 6, 2, and 8 years in advance. Currently, we are 11 years into a new uptrend in Commodities vs Bonds, but still no shift in yields:
Pring offered a number of great historic charts. But Prechter had more charts than I’ve ever seen in my life. All of them bring him to the conclusion that we should not only sell all of our stocks, but also sell bonds and also sell commodities. Cash, according to Prechter, is the only place to go. “I’m as bearish as I’ve ever been”.
Suggesting more of a deflationary period is ahead for us, here is his chart of Commodities (CRB Index) not responding to all of this quantitative easing. In other words, no inflationary impact, but actually the opposite:
Prechter isn’t a fan of gold either. I thought this was a fascinating chart of gold bullion compared to the known ETF holdings for gold. He is suggesting that the public has been buying this pullback in prices which represents “bear market buying”:
Margin debt worries Prechter as well. Here are two charts showing that margin debt has grown by 100 times in 39 years. This is now $75 billion greater than the sum of cash and available credit in all accounts. The problem here is the timing. He says that hedge funds are leveraged and Stocks are at historic highs, but in theory, they can still get even more leveraged:
Sentiment is a big problem for Prechter. In addition to the leverage, he’s worried that the NAAIM Survey of Investment Managers shows that the average manager is now leveraged on the long side for the first time ever. This is a new record exposure to stocks. Market Vane’s Bullish Consensus is now at extreme optimism, higher than it was at the Dow’s previous all-time high in 2007. Hubert Financial Digest’s Newsletter Sentiment shows the highest readings since March 2000 for bullish advisors, again higher than the 2007 peak. Hedge Fund net long exposure rose to a 10-year high in the fourth quarter of 2012. There are all-time record low levels of cash right now in mutual funds. Credit Suisse has a proprietary fear barometer showing record complacency. BofA Merrill Lynch’s Bull & Bear index is at record highs of extreme optimism. Insiders, on the other hand, are the only ones selling heavily. Vickers’ insider sell/buy ratio is now up to 9.2 to 1.
The Dow Jones Industrial Average is at record highs. But the Real Dow (inflation adjusted) has been making lower highs since 2000. Here, Prechter compares this action to the 1960-70’s period:
Prechter’s presentation continued with more and more charts. Student loans are bubbling – now approaching a trillion dollars up from just over $200 billion in 2003. US Real GDP is making lower highs since the 1970’s and is now near the zero level. New housing starts have only “recovered” back to levels that used to mark a low in the 60’s, 70’s, 80’s and 90’s. We see the same thing with Total New One-Family Homes Sold, “recovering” back to the old lows taken out in the crash. Government Plus Personal Savings as a Percentage of GDP has not recovered from the ’08 crash, it’s just hanging out near lows below negative 4%. A lot of charts that tell the same story – everything is bad and don’t walk away, run away from stocks, bonds and commodities.
Whether you agree with him or not, his charts were awesome. Here is a good one showing how much the public loves the Fed near market tops, but hates them near bottoms. “The Bernank” is labeled “The Hero” in a recent cover of the Atlantic:
The last thing Prechter mentioned which I thought was Interesting was the lack of belief that a deflationary period is coming. I talk about extreme sentiment all the time where if everyone believes something (or doesn’t believe it), then the market is vulnerable to act in the complete opposite direction. The Apple and real estate bubbles were two recent examples of this. Prechter showed the Google search results for various statements and questions, and I think his point is made rather nicely:
“the world is coming to an end” 4,510,000 results
“dinosaurs love to dance” 1,710 results
“plus equals minus” 48,700 results
“inflation for 2013″ 47,700 results
“deflation for 2013″ 5 results
“inflation will rise in 2013″ 50,200 results
“inflation will fall in 2013″ 7 results
After Robert Prechter’s presentation it was time for a cocktail. The MTA Symposium is great: the charts, the presentations, the learning – all good. But the best part of the whole week is the people. Through this blog, through the MTA and technical analysis, I’ve been able to meet some of the coolest and most brilliant people in the world.
Friday morning the symposium got started nicely with a bunch of the CNBC Fast Money guys telling war stories. Dan Nathan, Jon Najarian, Mike Murphy, and Anthony Scaramucci were grilled by technicians Katie Stockton and Craig Johnson. I have to say this was one of my favorite panels. I always appreciate when people admit their mistakes and are willing to share how they learned from them.
Scaramucci started with a great story. He was 26 years old working at Goldman Sachs and thought he knew it all, not just in the stock market, but specifically in the biotech sector (as an economics major). He put about $10,000 into call options as a biotech stock was going into phase two trials. He admits that the worst thing that could have happened to him did, he was right and turned the ten grand into $70,000. It validated his thesis that he knew something, even as a 26-year old kid. So what did he do? When the stock was going into the phase three trials, he not only rolls the $70,000 into new call options, but also takes his $40,000 savings and goes all in. He flew down to Washington, D.C. to watch the FDA say no to the drug and lost every single penny. To make things worse, he somehow was on margin and actually owed Goldman $35,000 more to cover his debit balance.
Mike Murphy has received a lot of praise for his housing bottom call 18 months ago. He nailed the bottom in homebuilders. The problem was his execution. He admits to listening to people too much and hedging his positions so that they barely made any money. If he had just stuck with his convictions, he would have and should have made a killing. Great call but poor execution. Lesson learned.
Jon Najarian shared a quick story about selling options towards the end of the day to please a very big customer. He went home with the position on at the end of the day because he felt he had to in order to make the big institutional client happy. He lost 2 million dollars on that trade. Lesson – make a trade and go home with it because you want to, not because you feel you have to. Chances are the other guy has better info that you do. And in this case, he certainly did.
Dan Nathan shared a story about getting bearish on Research in Motion back in 2003. The stock doubled and crushed him. Meanwhile, he also owned Apple which doubled that year. He laughed as he added that he sold that one.
Mark Dibble, Stewart Taylor and David Lundgren presented together on a panel to represent technical research from the buy side at an event that historically has been sell side driven. This presentation was great and I notice this shift more and more every year. The MTA started out as a small group of sell side analysts. The membership grew to include traders shortly thereafter. Then futures guys got involved. Now, any professional technician is welcome to be a part of the Market Technicians Association. Everything is interrelated and we’re all just looking at price behavior. One panelist was asked about the job opportunities for technical analysts on the sell side. The answer from the sell side analysts was that not only is it tiny, but it’s actually getting smaller. Every year at this event, I’m meeting more and more people on the buy side. It’s an interesting shift to see.
One item discussed in the discussion was how some of the top money managers in the world are going public with their use of technical analysis. In 2011 Steve Cohen was quoted as saying, “The slow grind up with stocks exploding higher is very bullish”. UK’s Anthony Bolton said, “To be too early on a stock can be costly. [Using charts] is a health check. It’s a bit like going to the doctor”. Professors at the University of Albany did a study titled, “Head and Shoulders above the Rest? The Performance of Institutional
Portfolio Managers who use Technical Analysis”. Larry Williams showed a chart showing the cumulative net return of institutional portfolio managers using technical analysis compared to funds that do not:
It was an awesome event. It always is. The MTA did a great job of putting it all together. These are just a few of the highlights that stood out to me during the week. If you’ve never been, you really should consider coming to next year’s Symposium. I know that I look forward to it every year. The MTA doesn’t pay me to endorse anything, I don’t owe them anything, I just feel that this event is the real deal.
I’ll say it one last time, the best part of the whole Symposium is the people.