Technically Speaking, April 2019

Thanks to the constraints of newsletter publishing and the lack of time travel resources available, this edition of Technically Speaking was put to bed before the festivities of the 46th Annual Symposium, earlier this month. While we could not magically forecast what the speakers would say, rest assured we will have plenty of information and reviews in the next edition. If you haven’t taken the post-Symposium survey yet, you can do that here.

The funny thing about time is that this time is never different. While we usually apply that to analysis and the behavior of crowds, we are still applying it to the news of the day. Brexit was supposed to happen March 29, but it was delayed and still they argue over what it will look like. Trade with China is still up in the air. The Mueller report is finally out, and while we don’t know all the details inside, everyone still clings to their previous views.

What else is not different? Headlines! The three-month Treasury yield ticked above the 10-year yield and suddenly the media was in a panic over the curve inversion. Funny, the 2-year is still below the 10-year and that seems more important to me, especially now that the Fed said it’s done raising rates for now.

All of that hides the fact that the domestic stock market continued to claw its way back towards last year’s highs. That’s pretty good for a geriatric bull market, yes? If you want to argue whether the bull started in 2008 or 2015 or some resistance breakout, be my guest. We don’t get paid to label things, only to make money.

Vincent Randazzo, CMT, from Lowry’s returns with another article and one indication why the current rally is not done yet.

And on a more mundane, although really important, topic, George Schade, CMT, introduced us to publishing and copyright specialists Joyce and Daniel Miller. The Millers offer part one in a series of articles walking us through the details of staying on the right side of the law. Whether you write books, newsletters or just post to your blog, this is important stuff to know.

I’ve found another of my vintage articles, explaining how to be a good interviewee on financial TV. This is a loose part 2 to last month’s article talking about dealing with the media. If you want to get invited back for another round of talks, you need to know this stuff.

And this month’s member interview is with Richard Dickson, also from Lowry’s. One more in a long, long, long list of professionals who started with the analysis herd and then saw the light that is technical analysis.

We also have a brief recap of those who received Association honors at the Symposium. They are listed within. And finally, we’ll top this edition off with the usual news about the goings on around the Association.

What's Inside...

President's Letter: Making it to Your “Final Four” – Be A Complete Trader/Investor with a Robust Skill Set

As I watch the NCAA March Madness Basketball Tournament, I’m struck by the composition of the Final Four teams.  They...

Read More

Powerful Short Duration Expansions in Lowry’s Short-Term Index

Lowry’s Short-Term Index is our proprietary short-term measure of investors’ demand for equities. Typically this indicator oscillates between 60 and...

Read More

46th Annual Symposium Honorees

We would like to acknowledge once again the award winners at this this year’s gathering:

Charles H. Dow Award to...

Read More

Copyright Basics, Part 1

Both in my writing projects and with the Educational Foundation’s Library, I have come across the importance of...

Read More

Member Interview: Richard Dickson

What do you do professionally?

I am currently head analyst at Lowry Research, the oldest continually operating technical research company...

Read More

How to be a Good Interviewee

This is the second part of a loose series on how to write for and deal with the media. It...

Read More

Mumbai Chapter Update: Sports in Technical Analysis

Some of our most enduring relationships too are built on the sports field, and some of our fondest memories are...

Read More

Minnesota Chapter Meeting Recap

Twenty technicians met at the Rock Bottom Restaurant and Brewery to hear Kenneth Tower, CMT, from Quantitative Analysis Service, Inc....

Read More

Membership News

Members on the Move

The CMT Association would like to congratulate the following members on their new positions: 

  • John...
Read More

President's Letter: Making it to Your “Final Four” – Be A Complete Trader/Investor with a Robust Skill Set

As I watch the NCAA March Madness Basketball Tournament, I’m struck by the composition of the Final Four teams.  They are solid TEAMS!

They are not just teams where ONE superstar is carrying everyone else. That only goes so far.

Teams are so ultra-competitive today – even if a team has a dominating player (i.e., Zion Williamson for Duke) – they can still lose the championship with their superstar! So, goodbye to Duke, goodbye to Gonzaga, goodbye to Carolina and all the other teams with superstar players. Robust teams are winning; robust teams win championships.

What does that have to do with me, you ask? You’re off topic. Well, no, not if you think about it more deeply.

Like the NCAA Basketball Championship, we find ourselves in a very competitive “financial markets” environment. There’s a lot of pressure to perform and meet mandates for institutions, high net worth investors and clients. The bar is high and doing more with less is common.

How do we, as investors and traders, make it to the “Final Four” or our Championship? How do we have an edge?

Try this. Think of your investment and trading skills as your team. Do you rely on Superstar individuals, or do you field a strong and balanced team? Could you “lose” against a more balanced and skilled team in the game of investing? How do you field the best and strongest team over the long term to win?

Here are some process items to think about when you’re fielding your team:

  • How are your entry and set up skills?
  • Do you have a full understanding of position sizing and its implications?
  • How is your risk management skill set?
  • What type of “practice” do you do to build your skills?
  • How do you detect underperformance and errors in judgment?
  • Do you do post-mortem trade analyses? What do you learn? What can improve?
  • What rules-based systems do you use to improve and take emotion out of your game?
  • What rules/beliefs govern your emotional approach to the markets? How do you handle the pressure?
  • Lastly, are you coachable? Why or why not? Is that useful?

Spend some time thinking about the process and skill items above. Consider your link to your investment and trading value-added. If you have holes, fill them. If you’re less skilled, then practice. If you don’t know something critical, seek out education to empower yourself.  It will be time well spent.

Lastly, consider using the CMT Association – our content, our programs, our chapters, and our members – to help you grow. There is a wealth of information very close to you. When you do these things, you will be well on your way to your “Final Four” and be a high value added investor/trader. Until next time.

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...

Powerful Short Duration Expansions in Lowry’s Short-Term Index

Lowry’s Short-Term Index is our proprietary short-term measure of investors’ demand for equities. Typically this indicator oscillates between 60 and the low 90s. While readings of 60 or below are historically considered oversold, the gauge is unbounded to the upside, but has reached above 110 only on rare occasions. The recent explosion in our Short-Term index – from 59 on December 24th, 2018 to 103 on January 18th, 2019 – along with the 13.6% gain in the S&P 500 Index over the same timeframe, has led many to question what this means for the sustainability of the current market rally.

In order to gain the historical perspective necessary to address this concern, we examined market data from 1940 to present. Specifically, we cited comparable instances of robust short-duration expansions in the Short-Term Index and then recorded the S&P 500 Index’s condition 1 month, 3 months, 1 year, and 2 years after the Short-Term Index’s initial observation low. With the recent rise in the Short-Term Index of 44 points in just over 3 weeks, we used a 40-point gain from oversold levels (<60) in less than a month as factors to identify similar such instances for back testing. 

Excluding the current observation, this set of criteria has been met in only 9 extraordinary instances over the course of 80 years. The full table of results appears at the end of this report. Apart from the first occurrence, which was contained in the 1937 – 1942 bear market, and was immediately preceded by a vertical 1-month, 26% drop, each of the other observations represented significant intermediate-term market bottoms.

Another key distinction of the 1940 observations is that it was the only occurrence which did not coincide with a new intermediate trend buy signal based on the movement of Lowry’s Buying Power and Selling Pressure Indexes – our intermediate-term measures of investors’ Demand and Supply. Of all observations, despite an average 1-month gain of nearly 10%, the S&P 500 Index was still higher by 30.1% one year later and 45.1% higher two years later, on average.

The point is that these relatively quick bursts of strong demand do not know an “overbought” bound. Rather, these conditions are historically consistent with the accurate identification of lasting market lows and new intermediate- to long-term uptrends.

To further this point of a significant, sustained market low, we included a column that measures the time to the next 20% drawdown, which on average was 39 months. From a similar perspective, cognizant of the fact that stock markets do not abide by specific arbitrary time parameters (e.g. 1 month, 3 months, 1 year, 2 years), we also measured the percent gain in the S&P 500 to its “cycle high,” or the last high before the first 20% drawdown.

Finally, it should be noted that, aside from the 1940 occasion, there was only one test of the low – in October of 1962 – which ultimately confirmed the June 1962 end to the December 1961 to June 1962 bear market. The context of that singular test is important to understand since it was news-driven, representing the peak of anxiety during the Cuban Missile Crisis. So, for those waiting for a significant decline or a test of the December 2018 low to buy, probabilities are historically against a market test given these rare circumstances.  

Contributor(s)

Vincent M. Randazzo, CMT

Vincent Randazzo, is the Head of Technical Research at CFRA and Chief Market Strategist at Lowry Research, a CFRA business. Vincent produces written and recorded stock market research based on Lowry’s proprietary, statistically driven measures of equity market demand/supply and breadth. Prior...

46th Annual Symposium Honorees

We would like to acknowledge once again the award winners at this this year’s gathering:

Charles H. Dow Award to Christopher Diodato, CMT, CFA, for his paper Making the Most of Panic – Exploring the Value Of Combining Price & Supply/Demand Indicators.  The paper has been recognized for its holistic approach to combining indicators and time frames to identify periods of market panic.

Service Award to Mark Cremonie, CMT, CFA, for selfless service to the CMT Program Curriculum and Test Committee. As a colleague and mentor, he has been instrumental in propelling the CMT Program forward.

Memorial Award to Paul Desmond in honor of his long service to the profession of technical analysis in general and to the CMT Association in particular.  As CMT Association President, he guided the Association through its transition to a more business-like organization.  As head of Lowry’s Research, he continued and expanded one of the most respected and time-tested technical analysis research products in the world.

CMT Annual Award to Gerald Appel recognizing a lifetime achievement and contribution to the discipline of technical analysis. Appel was the creator of the MACD indicator, which has become a staple on technical analysis platforms everywhere.

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...

Member Interview: Richard Dickson

What do you do professionally?

I am currently head analyst at Lowry Research, the oldest continually operating technical research company in the U.S.

How did you get there?

After serving in the U.S. Air Force and a few years in graduate school, I started working as a broker in 1979 with Thomson McKinnon Securities in Richmond, Va. During my first year I decided to begin working toward the CFA designation.  Using the S&P Stock Guide, I started looking for stocks that met the fundamental criteria for value. I went through the resulting list of stocks looking for the one that appeared to offer the best value, which I then bought – and proceeded to watch it go down.  I figured I must have done something wrong so went back to drawing board and picked another stock – and watched it go down. 

At that point, I went to one of the top producing brokers in the office with my failed stock picks and asked what he thought I was doing wrong.  He replied, “Well, did you look at the chart?”  My response was, “The what?”  He pulled out a copy of William O’Neil’s Daily Graphs, found the stock in question and pointed out that it had been in a downtrend for weeks.  “No wonder you lost money.” (He declined to add, “You idiot.”)  He then told me to get a copy of Edwards & Magee’s Technical Analysis of Stock Trends and get back to him after I read it. 

I never took the CFA level one exam but did learn to appreciate the utility of uptrends, especially in energy stocks in 1979-80.   I eventually decided that analysis, rather than sales, was a better career path for me (I was once told by an AT&T trainer I was the worst cold-caller he had ever heard), which led to a position as a technical analyst/option strategist with the regional firm Scott & Stringfellow in 1984.

Who was an early mentor in your career?

Apart from my broker friend, I was a regular reader of Stan Weinstein’s Professional Tape Reader and of his booklets on technical analysis.  I also found Martin Pring’s Technical Analysis Explained to be an invaluable resource. In 1986-87, when I applied for full membership to the CMT Association, my sponsors (Ralph Acampora, Phil Roth and Don Kimsey) reviewed my daily reports for about a year as part of the application process and offered invaluable insights and advice. 

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

I got my introduction to TA through Edwards & Magee, Stan Weinstein and Marty Pring. But the work of Richard Wyckoff had the most significant influence on my understanding of TA.  I began readings his books (Studies in Tape Reading, How I Trade and Invest in Stocks and Bonds, Stock Market Technique) which led to taking the year-long Wyckoff course from the Stock Market Institute.  Wyckoff’s work has been the foundation for my analysis ever since.

What do you do when you are not looking at the markets?

I like to read history.  I also play something that roughly resembles golf.

What brought you to the CMT Association?

Contact through work with members Ralph Acampora, Phil Roth, Gail Dudack and Fred Dickson, got me interested in the organization and the opportunities to learn from other, more experienced practitioners. I found the conferences especially valuable in meeting other technicians and as learning experiences.

What is the most useful benefit of membership to you?

One of my life’s ambitions was to teach and the CMT Association enabled me to fulfill this ambition.  At first, it was through the Education Committee and the early efforts at introducing the study of TA at the university level.  This led to the opportunity to teach classes at the Darden Business School at the University of Virginia and then later from 1996-2001 to work as an adjunct professor at the University of Richmond teaching a fully-accredited course in TA.

Contributor(s)

Richard A. Dickson

Richard A. Dickson, former Senior Market Strategist, Senior VP and market commentator for Lowry Research, was a technical market analyst for more than 33 years. His analysis emphasized longer-term market trends and prioritized the identification of major changes in market leadership. Prior...

How to be a Good Interviewee

This is the second part of a loose series on how to write for and deal with the media. It was adapted from its previous appearance in Technically Speaking many years ago.

As technical analysts watching financial business news on television, we might expect to find in-depth analysis presented on the air.  After all, when we tune into a program that consists of ingredients such as expert speakers, market forecasts and investment analysis, why shouldn’t we expect a session educating us about the technical complexities of the stock market? 

The problem is that we are not the only ones watching the program and the producers of CNBC, Fox Business, Bloomberg and others must satisfy a wide range of viewers. It is therefore important to remember that the audience is not limited to professional technicians and the main objective for broadcast is to attract and inform the widest possible audience.

Just what are some of the factors that producers seek to provide in their programming? 

One consensus seems to be that speakers must seek some sort of balance between technical complexity and simplicity.  Speak at the level of the audience. John Bollinger, who was once a fixture on CNBC and its predecessor FNN, offered the following advice:

  1. Dream up something interesting and cogent to say that the typical CNBC (or other) viewer can understand and present your ideas to the appropriate segment producers.
  2. Skip the jargon. If you feel you just have to use a piece of jargon–overbought, etc.–define it on the first use. Better yet, use simple English terms that anyone will understand.
  3. Remember that CNBC (or other) has a very broad audience and you need to communicate to the whole audience, not to a special-interest segment.
  4. XYZ network’s mission is to reach/interest the largest number of viewers possible, when you are on XYZ network, that should be your mission too.
  5. XYZ is very concerned with creating good television. If you can help them do that, they will be more receptive to your ideas.

Much of the technical complexities of the program can be measured in the amount of technical vocabulary and complicated charts used.  As John suggested, keep these to a minimum.  Stay focused on the idea being presented and get straight to the point. 

The late Ian McAvity also suggested, “Keep each point cogent, short and avoid jargon. But to agree partially…it does not need to be dumbed down.  Think of an interview as a tennis match.  Set it up and hand it back to your questioner, steering them to the next obvious point. Don’t try to boast about previous market calls, and if you must, keep it brief and totally in the context of your theme that moment.”

On the other end of the spectrum, it is also noted that speakers should not oversimplify the program or else run the risk of reducing the informational value of it.  There should be a technical level that should be maintained which will reflect upon the expertise of the speaker and the educational aspects of the program.  It’s an insult to one’s intelligence when things have been oversimplified.  On one occasion, Ian noted that someone was offended by the oversimplification of subject matter by one of the speakers.

Some believe that simplification should not be a process at all.  “It’s the technical side that draws viewers.  Do you really want to watch a program that has been ‘dumbed’ down?,”  said Peter Eliades.  The “do-not-simplify” perspective stresses that the audience wants to see the technical aspects of the program as long as they are explained well.  The time constraints of the program do not allow for a proper and interesting presentation of the technical intricacies so presentation and explanation of broad topics would be the best route.  A consumer who picks up a copy of “Technical Analysis of Stocks & Commodities” surely would not expect the contents to be “dumbed” down.  Likewise, a viewer who tunes into a TA program would not expect such as well.

The consistency in the format of the program is also a factor that may affect the viewer.  For instance, viewers expect the charts used on the program to be consistent.  They may also expect that certain topics must always be covered on the program.  A weather forecast on the evening news will always give you current temperature readings, five-day forecasts, weather for tomorrow, etc.   Its charts remain in a consistent format – when a geographic map of the U.S. is shown, there are also temperature readings plotted.  Sometimes, readings may vary in category, but the overall format of charts and graphs are consistent and repeatedly used. 

How often will anyone tune into a weather forecast that stress only temperature indicators one day, humidity the next, then pollen levels?   When consistency has been established, people can make routine decisions or follow a topic that is of interest. 

This translates to the program becoming predictable to the viewer.  Thom Hartle, who spent several years the Editor of Stocks & Commodities magazine, said that “CNBC wants to have a consistent format, one that is predictable so that viewers tuning in will see a predictable product. That way the viewer will return. If the product had random features then the viewers would quickly lose interest.* This also helps CNBC or others attract certain types of advertisers who believe that their products will pull better during certain segments than others.”

Bullish bias also seems to play a role in audience effect.  This is a matter of the good news verses the bad news.  How many times have you flipped the channel or turned the page in the newspaper because you didn’t want to be exposed to an overload of pessimistic news?  How would an average investor feel after making a stock purchase only to learn from the program that the market has a long-term bearish outlook? 

Producers do not want the program to be a bearer of bad news.  The audience is more inclined to devote their attention to optimistic views. Alan Newman noted that, “… in this arena, bad news does not garner as large an audience as good news.  People do not want to hear about what can or will go wrong so they do not have to face a worst-case scenario.”  

With charts and graphs, he suggests that the simplest and the most agreeable picture be presented.  The idea here is to keep the bearish analysis to a minimum and move on to other positive topics, including which sectors might outperform. Of course, we cannot gloss over bear markets but there are other ways to present them than gloom and doom. Where is a good alternative to invest?

Speakers should strive to reach an overall goal to present a TA program effectively while preserving the qualities of technical analysis.  However, in seeking approval and interest from the producers and the audience, the general consensus from experienced speakers is that the odds are better for the speaker if the technical aspects of the program are kept simple, consistency is enforced and topics remain as positive as market forecasts allow.

*In light of a predictable format, your editor recalls a NY radio station that wanted to be spontaneous, and presumably fresh each day, with the slogan, “we play what we want.” You never knew what was coming and the station did not last very long. Imagine putting this station on at work, listening to a soft tune from America followed by Rob Zombie.

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...

Mumbai Chapter Update: Sports in Technical Analysis

Some of our most enduring relationships too are built on the sports field, and some of our fondest memories are from our times at play. This is what inspired the Mumbai Chapter of the CMT Association to adopt “Sports” as a theme for the first quarter of 2019. The chapter organized two initiatives.

The February Chapter Meeting: Sports in Technical Analysis
The Relevance: The brand value of the 10-year old Indian Premier League has now touched $5.3 billion, making it the largest cricket league in the world. This growth has also led to private sports leagues in Soccer, Hockey, Badminton and other sports. These leagues represent opportunities for not only developing sporting talent, but also investment in India.
The Event: The chapter hosted its event at the St Andrew’s Turf Park, Bandra, Mumbai, a popular venue for soccer and cricket enthusiasts. Vishal Mehta, CMT, Co-chair of the India chapter the speakers at the event. Vishal spoke about Sports as an Industry, drawing parallels between listed sporting franchises around the world, and the growing sports leagues in India. He also touched upon the behavioral finance and the comparable emotional journeys of sports and trading. After the knowledge session, participants played soccer and cricket for two hours.
The Payoff: There was a strong spirit of camaraderie and enthusiasm among the members, with everyone cheering the other on. This also was a fun way for new members to get to know each other and older members. There has been a marked increase in engagement among members after the event.

The Bloomberg Square Mile Relay: A team-building event in March.
The Relevance: Bloomberg sponsors this event around the world and had invited top Indian corporations to the inaugural edition of the Mumbai race. This was a great opportunity to engage with the industry.
The Event: 10 members participated as a team in this relay race, and over a dozen turned up to cheer the team on. The CMT Association team finally placed 24th in a field of 61 teams, and won many hearts doing so.
The Payoff: Everyone turned up in their CMT colors, and this gave great visibility to our team. Several participants and supporters from other teams were interested in knowing more about the CMT Association.

Contributor(s)

Joel Pannikot

Joel Pannikot (pronounced as Punny-Quote) is the Managing Director of Chartered Market Technician Private Limited and serves as the Head of the Asia-Pacific region for the CMT Association. In this role, he is committed to advancing the field of technical analysis through...

Minnesota Chapter Meeting Recap

Twenty technicians met at the Rock Bottom Restaurant and Brewery to hear Kenneth Tower, CMT, from Quantitative Analysis Service, Inc. speak on March 19, 2019. The title for the presentation was Reminiscences of a Technical Analyst.

This is just a quick bullet point summary of the presentation.

Ken’s preferred method of analysis incorporates: 

  • Weekly price charts with a 40-week moving average and 52-week moving average to determine trend
  • Trend of market is determined on a 5-point scoring system
    • +1 if 40-week > 52-week moving average
    • +1 if price is above 40-week moving average
    • -1 if 40-week < 52-week moving average etc.
  • Employs Williams %R as an oscillator

Ken was then asked, “How receptive have asset managers been regarding technical analysis and how should it be presented by a chartist?”

  • When meeting with managers he prefers to set charts aside and begin with his thesis and factors used in reaching that thesis. Focus should be on the takeaways because presenting a chart at the beginning causes the manager to lose interest. They are too busy looking at the charts while you speak. They then miss the value provided by the analyst.  
  • Within the asset management community, charts and technical analysis still face scrutiny and managers prefer not to cite the work as a basis for trades. Yet, most still employ it in some fashion.

Unfortunately, unfriendly spirits intervened with technical difficulties. While the topic was well received, problems with Webex audio lowered the number of questions and takeaways.

Contributor(s)

Kyle Lottman, CMT, CFA, CPA

Kyle Lottman, Wealth Management Advisor at Elevate Capital Advisors. Prior to joining Elevate, Mr. Lottman led a successful analyst career spanning nearly a decade in both equity and fixed income markets. During this time, he obtained the Chartered Financial Analyst® designation; regarded...

Membership News

Members on the Move

The CMT Association would like to congratulate the following members on their new positions: 

  • John Parmigiani, CMT, Small Firm Representative on the National Adjudicatory Council at FINRA
  • Benny Ng, CPA, CA, CMT, Senior Manager at KDB Bank
  • David Keller, CMT, Senior Technical Analyst at StockCharts.com, Inc.
  • CA Mukesh Baheti, SME at HSBC Securities Services

CMT News

On the day of your exam, plan to arrive 30 minutes before the scheduled appointment to allow for check-in procedures. Take along a copy of the confirmation of your scheduled exam from the Prometric website as it contains date, time and address of the test center; you will also need a valid form of ID.  Acceptable forms of primary identification include a valid passport, driver’s license (with signature), employee ID card (with photograph) and state ID card. 

Candidates from Egypt, Vietnam and India and those taking the exam outside their country of citizenship, must present a valid passport.

If you have any questions or concerns regarding a valid ID, please contact Marie Penza at marie@cmtassociation.org.

The CMT Association would like to congratulate the following members who received their CMT Designation in March 2019.

  • Abalos, Jeffrey
  • Brown, Richard Scott
  • Bruni, Thomas
  • Cristofaro, Michael
  • Gagnon, Jean-Laurent
  • Habib, Aazan
  • Hysmith, Ryan
  • Kessler, Sean
  • Oh, Kok Wee Andrew
  • Koss, Adam
  • Kuwari, Rayyan
  • Leyfman, Aleksander
  • Luprasit, Pridi
  • Murarka, Raunaq
  • Nelson, David
  • Plonka, Brian
  • Race, Damon
  • Roller, William
  • Tai, Wing Sum Winson
  • Vogelweith, Galien
  • Whitney, Roenick
  • Zywotko, Ryan

Contributor(s)

Marie Penza

Marie Penza serves as the Director of Member Services for the CMT Association.