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Technically Speaking, April 2013

LETTER FROM THE EDITOR

We open this month’s newsletter with a preview of the Annual Symposium. Larry Williams updates the idea of cycles in this article and presented insights into his
latest work when he spoke in New York. Also at the Symposium, Larry’s son, Dr. Jason Williams, offered insights into the minds of winning traders. We will offer summaries of the presentations in future issues and many presentations will be online, ensuring all members can access this information even if their schedule didn’t permit them to travel to the event.

We have been celebrating the 40th anniversary of the MTA with a look at its history. No review of the history of technical analysis and the MTA would be complete without a look at the work of Arthur Merrill, CMT. Hewas among the first to publish studies of various market behaviors, like seasonal tendencies in the stock market such as the end-of-month effect. In this issue of Technically Speaking we are reprinting his study of M & W patterns from a 1980 issue of the MTA Journal. Few analysts could duplicate this study today using readily available charting software. Arthur worked with a programmable calcualator, “it was designed for [the] T159 programmable calculator, and had 476 instructions,” and chart paper. Other examples of his work can be found in the Journal archives available on the MTA web site.

We also include some analysis of the current market. Keene Little, CMT, combines Gann with Elliott with other techniques in his work. Jonathan Beck takes an equally innovative approach. Both rely on techniques included in the diverse Body of Knowledge of technical analysis. Please let us know what you consider to be the most important topics in the field by emailing us at editor@mta.org.

Michael Carr

What's Inside...

LESSONS IN CHART READING

by Larry Williams

When I talk about cycles people usually think about time… perhaps a four year cycle, two year or even the decennial cycle. What I will be showing you are cycles about price…not time. That’s...

FOUR TECHNIQUES, ONE CONCLUSION ON THE MARKET TREND

by Keene Little

Editor’s note: this analysis was prepared after the close on March 28, 2013. They finally did it — they managed to get the SPX to close above its 2007 closing high (October 9th at 1565.15),...

THE TRADING METHODOLOGIES OF W.D. GANN

by Hima Reddy & Keene Little

As any trader knows, to trade successfully there need to be clear trading rules to follow.  Hima Reddy’s book The Trading Methodologies of W.D. Gann does a very good job of showing the trading...

HAVE GOLD MINING STOCKS BOTTOMED? A VERY BRIEF LOOK AT THE MARKET VECTORS GOLD MINERS ETF (GDX)

by Jonathan Beck

Note: This report was originally prepared in early March and was updated at the end of the month with this observation: As I mentioned in my March 7th 2013 report on Gold and Gold Miners, GDX may...

M&W WAVE PATTERNS

by Arthur Merrill, CMT

This was originally published in issue 7 of the MTA Journal in February 1980. Aim: Consider the zigzag movements of stock prices, ignoring minor fluctuations. Pick any five consecutive turning...

INTERVIEW WITH MUKUL PAL, CMT

by Mukul Pal & Amber Hestla-Barnhart

Editor’s note: Several editorial errors were made in last month’s issue when we originally included this interview. I apologize for those errors and this month we present the answers Mukul Pal...

HOW STATIONARY IS MY ECONOMIC NORTH STAR? THE STUDY OF DRIFT IN ECONOMIC BENCHMARKS

by Wells Fargo Securities, LLC. Economics Group

Editor’s note: In his interview, Mukul Pal mentioned that his firm combines statistical stationarity to generate performance cycles. He applies this technique to find cycles that are nested...

LESSONS IN CHART READING

LESSONS IN CHART READING

When I talk about cycles people usually think about time… perhaps a four year cycle, two year or even the decennial cycle. What I will be showing you are cycles about price…not time. That’s a big difference. I’m going to show you that there is a price pattern that cycles in and out.  This cycle has nothing to do with time. The advantage of these price cycles is they, will tell you (1) when the market is about to top, (2) when the market is about to bottom, (3) when the market is about to go into a trading range, and finally (4) the market is about to trend. All this can be gleaned by understanding the price cycles that take place every day on our charts. I’ll begin this lesson by showing how you can spot when the markets are about to top out. There is a reliable pattern that I’ve used

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Larry Williams

Larry Williams

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FOUR TECHNIQUES, ONE CONCLUSION ON THE MARKET TREND

FOUR TECHNIQUES, ONE CONCLUSION ON THE MARKET TREND

Editor’s note: this analysis was prepared after the close on March 28, 2013. They finally did it — they managed to get the SPX to close above its 2007 closing high (October 9th at 1565.15), hitting a high of 1570.28 just before Thursday’s close at 1569.19. The weekend papers should be full of good news about the market and why it should continue much higher. All aboard for DOW 20K! It was a good effort to get a high price for the end-of month/quarter and we’ll have to see how the coming week goes. Keep in mind that those fund managers who are compensated in part by a percentage of AUM (assets under management) have every incentive to max out their AUM before the quarter finished. They won’t have the same incentive to keep buying in the coming week. There was a very nice setup for a reversal that was achieved at

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Keene Little

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THE TRADING METHODOLOGIES OF W.D. GANN

THE TRADING METHODOLOGIES OF W.D. GANN

As any trader knows, to trade successfully there need to be clear trading rules to follow.  Hima Reddy’s book The Trading Methodologies of W.D. Gann does a very good job of showing the trading rules of one of the best traders there ever was. Reddy starts by introducing herself as a Gann student who has delved deeply into Gann’s writings, with her favorite being How To Make Profits in Commodities. Reddy then takes Gann’s work and translates the many “don’t do” rules into more positive “do” statements. She says it’s more constructive to remember rules in a positive way instead of feeling like the rules are beating you over the head (I agree). Reddy also quickly points out that her book is not meant to cover Gann’s forecasting techniques; it is designed to shows his trading techniques and methodologies. When most traders think about Gann, they think about his reputation for making accurate market

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Hima Reddy, CMT

Hima Reddy

Keene Little

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HAVE GOLD MINING STOCKS BOTTOMED? A VERY BRIEF LOOK AT THE MARKET VECTORS GOLD MINERS ETF (GDX)

HAVE GOLD MINING STOCKS BOTTOMED? A VERY BRIEF LOOK AT THE MARKET VECTORS GOLD MINERS ETF (GDX)

Note: This report was originally prepared in early March and was updated at the end of the month with this observation: As I mentioned in my March 7th 2013 report on Gold and Gold Miners, GDX may still have unfinished business to the downside if it can’t begin to stabilize near the bottom of its Sep. 2012 downtrend line. As I also alluded to, the March 6th, 2013 positive outside day pattern, which was forming at the time of my going to press, could be signaling such stabilization. Recent absolute and relative improvements are also helping to firm up a technical bottom. HOWEVER, continue to use caution as it will take a move above key resistance in this 40-41 area to claim a that a bottom has been put in place. Until then the technical view on a 1-3 month and 6-12 month views are still bearish. The ability to clear

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Jonathan Beck

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M&W WAVE PATTERNS

M&W WAVE PATTERNS

This was originally published in issue 7 of the MTA Journal in February 1980. Aim: Consider the zigzag movements of stock prices, ignoring minor fluctuations. Pick any five consecutive turning points. If the first of the four swings is upward, the pattern forms an – M. If the first swing is downward, the pattern is a – W. Are some of the four swing patterns bullish? Are some bearish? How big was the swing following the pattern? Robert Levy has attacked this problem for individual stocks’. He measured the performance in the 4, 13 and 26 weeks following each pattern. The paper which follows considers the market as a whole, as measured by the Dow Jones Industrials, ignoring swings of less than 5%. The extent of the swing following each pattern was measured and averaged. Classification: Levy, in a July 1971 Journal of Business article titled “Predictive Significance of Five Point Chart Patterns, “suggested

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

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INTERVIEW WITH MUKUL PAL, CMT

INTERVIEW WITH MUKUL PAL, CMT

Editor’s note: Several editorial errors were made in last month’s issue when we originally included this interview. I apologize for those errors and this month we present the answers Mukul Pal provided previously. How would you describe your job? Study fascinating patterns which repeat in nature and stock markets Look for cues from a history of overlapping research from sciences to economics to psychology. To simplify market complexity and build market solutions around it, and continuing on Garfield Drew approach that ‘Simplicity is the single most undermined investment approach. What led you to look at the particular markets you specialize in? I started as a derivatives strategist building option payoff strategies. It did not take me much time to realize that the underlying was more essential than the instrument. This led me to forecasting and systems. Today we operate across assets and build portfolio management and risk management solutions for different regions and markets including US. Do you

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Mukul Pal

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HOW STATIONARY IS MY ECONOMIC NORTH STAR? THE STUDY OF DRIFT IN ECONOMIC BENCHMARKS

HOW STATIONARY IS MY ECONOMIC NORTH STAR? THE STUDY OF DRIFT IN ECONOMIC BENCHMARKS

Editor’s note: In his interview, Mukul Pal mentioned that his firm combines statistical stationarity to generate performance cycles. He applies this technique to find cycles that are nested fractalled performance periodicities.  This report, which is available along with other research on wellsfargo.com/economics and on Bloomberg WFRE, demonstrates how stationarity is applied to economic data. Effective economic decision making, in both the public and private sector, starts with a sense of benchmarks or guidelines to frame a view of the future. Yet, how reliable are these benchmarks. In fact, are they really benchmarks at all? Unfortunately, many decision makers suffer from an anchoring bias in making strategic decisions, and will set their expectations for the future based on what they perceive was true about the past.[i]  For instance, a common practice by today’s decision makers is to assume that a data series will continue to grow at its average rate over the past

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

Contributor(s)

Wells Fargo Securities, LLC. Economics Group

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New Educational Content This Month

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