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Technically Speaking, February 2013

LETTER FROM THE EDITOR

In February, the MTA is recognizing Women in Finance and will be featuring webcasts by experts in technical analysis who also happen to be women. We have tried to recognize the contributions some women have made to technical analysis in this issue of Technically Speaking. The MTA has a long history of recognizing the role of women in finance including Bernadette Murphy, CMT, who served as the fifth president of the organization in 1977. We also briefly highlight the work of another past President, Gail Dudack, CMT, in this month’s newsletter along with brief articles about the work of Louise Yamada, CMT and Jeanette Schwarz Young, CFP, CMT. While celebrating the fortieth anniversary of the MTA, it is interesting to note that the MTA has always focused on “attract(ing) and retain(ing) a membership of professionals devoting their efforts to using and expanding the field of technical analysis and sharing their body of knowledge with their fellow members.” Those words in found in the MTA constitution and history shows that women just happen to have been among the leading contributors

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What's Inside...

APPLYING STANDARD TOOLS IN UNIQUE WAYS

by Louise Yamada, CMT

Louise Yamada, CMT, is Managing Director of Louise Yamada Technical Research Advisors (LYA), the firm she founded in 2005 after a 25-year career at Smith Barney (Citigroup) where she had been...

EXPLAINING COMPLEX IDEAS IN SIMPLE TERMS

by Gail Dudack, CMT

Gail Dudack, CMT, now the Managing Director of Dudack Research Group a division of Wellington Shields & Co. LLC., is an analyst who has enjoyed a long and successful career by delivering clear...

DETAILED OPERATIONAL KNOWLEDGE CAN LEAD TO SUCCESS

by Jeanette Schwarz Young CMT, CFP, CFTe, MS

The successful career of Jeanette Schwarz Young, CFP, CMT, demonstrates the importance of understanding how markets work. She understands the theory of technical analysis and can demonstrate how to...

INTERVIEW WITH LASZLO KOVACS, CMT

by Laszlo Kovacs, CMT & Amber Hestla-Barnhart

How would you describe your job?  I am an asset manager and also deal with financial risk management in the insurance industry. What led you to look at the particular markets you specialize...

GEORGE LINDSAY’S “AN AID TO TIMING” ANNOTATED EDITION

by Ed Carlson & Michael Carr, CMT

In 2011, Ed published George Lindsay and the Art of Technical Analysis, bringing the work of a forgotten technician to the attention of a new audience. Lindsay used counts to precisely identify...

A TECHNICAL GUIDE FOR DOMESTIC ETF PORTFOLIOS

by Jonathan Beck

Editor’s Note: This is a weekly report developed by Jonathan Beck using a classical technical approach to investing. This approach is intended to uncover trends, patterns, relative strength...

THE THIRD: A KEY TO TOPS AND BOTTOMS IN THE DOW

by Scott Hathaway, CFTe

INTRODUCTION AND FOUNDATION “3 shall be the number thou shall count, and the number of the counting shall be three…” The Monty Python reference not-withstanding, the number 3 generates much...

CONNORS RSI: UPDATES AN OLD INDICATOR WITH MODERN TOOLS

by Michael Carr, CMT

Technical analysis is a mixture of old and new tools. Dow Theory was developed more than one hundred years ago at a time when even handheld calculators were unavailable. Actually many of the most...

APPLYING STANDARD TOOLS IN UNIQUE WAYS

APPLYING STANDARD TOOLS IN UNIQUE WAYS

Louise Yamada, CMT, is Managing Director of Louise Yamada Technical Research Advisors (LYA), the firm she founded in 2005 after a 25-year career at Smith Barney (Citigroup) where she had been Managing Director and Head of Technical Research. In order to have a long career, it is important to offer valuable market insights and Louise continues to do that. She was recently in the headlines for her analysis of the bond market and her opinion that emerging markets are set up to outperform U.S. equities in the next few years.

Jeff Macke of Yahoo! Finance Breakout introduced Louise as a “national treasure” in their interview which can be seen at http://go.mta.org/3347.  Summaries of that interview focused on comments Louise made about emerging markets and bonds.

These opinions are based on long-term trends:

  • “Emerging markets have for this little period of time started to turn up at their eleven year uptrend. We’ve had about

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Contributor(s)

Louise Yamada, CMT

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EXPLAINING COMPLEX IDEAS IN SIMPLE TERMS

EXPLAINING COMPLEX IDEAS IN SIMPLE TERMS

Gail Dudack, CMT, now the Managing Director of Dudack Research Group a division of Wellington Shields & Co. LLC., is an analyst who has enjoyed a long and successful career by delivering clear forecasts and research. Gail is also a past President of the MTA and has a number of other honors on her resume which serve as recognition of her ability to concisely present detailed analysis of the complex problems that she encounters in the markets and in business.

Her career also shows that markets evolve and successful analysts adapt to those changes. In The Heretics of Finance by Andrew W. Lo and Jasmina Hasanhodzic (Bloomberg Press 2009), Gail noted that she discovered technical analysis working on Wall Street at a summer job while in college.  Inspired by that job, she selected two topics related to technical analysis for her senior thesis – short interest and odd lots. While these

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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)

Gail Dudack, CMT

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DETAILED OPERATIONAL KNOWLEDGE CAN LEAD TO SUCCESS

DETAILED OPERATIONAL KNOWLEDGE CAN LEAD TO SUCCESS

The successful career of Jeanette Schwarz Young, CFP, CMT, demonstrates the importance of understanding how markets work. She understands the theory of technical analysis and can demonstrate how to apply that theory to charts. She combines this knowledge with a detailed understanding of how markets actually work and is an expert on options markets. This expertise allows her to not only apply the tools of technical analysis but also to understand firsthand the impact changes in supply and demand are having on prices. Her skills have been developed over years of trading options on and off the exchange floor.

Detailed market knowledge can help technical analysts understand why some indicators work better than others. This knowledge can also help when building strategies to implement insights based on price charts. It is a combination of skills that many analysts never develop and success can be obtained without understanding how markets work but

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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)

Jeanette Schwarz Young CMT, CFP, CFTe, MS

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INTERVIEW WITH LASZLO KOVACS, CMT

INTERVIEW WITH LASZLO KOVACS, CMT

How would you describe your job? 

I am an asset manager and also deal with financial risk management in the insurance industry.

What led you to look at the particular markets you specialize in?

I have been managing assets for a multinational insurance company operating in Central and Eastern Europe for more than a decade and prior to that I also managed pension fund and investment fund assets focusing on the same markets. These balanced portfolios made me focus on fixed income, equities and forex markets and those are the markets that I still follow.

Do you look at any fundamental or economic inputs to develop your opinions?

Having fundamental opinions is always crucial for several reasons. But what I would emphasize the most is that fundamentals drive the sales stories, the leading articles in financial dailies, as well as the retail sales forces, thus fundamentals become the utmost concern of the end clients. Not

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)

Laszlo Kovacs, CMT

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GEORGE LINDSAY’S “AN AID TO TIMING” ANNOTATED EDITION

GEORGE LINDSAY’S “AN AID TO TIMING” ANNOTATED EDITION

In 2011, Ed published George Lindsay and the Art of Technical Analysis, bringing the work of a forgotten technician to the attention of a new audience. Lindsay used counts to precisely identify market tops and bottoms in advance.

For those who are unfamiliar with Lindsay’s work, the general concept behind his approach to the markets is summarized by Joe Granville, who quotes Lindsay in the introduction this book:

How is it that such very long-term counts prove accurate to the very day, or close to it? As we all know to our sorrow, the market is made up of a succession of advances and declines of widely varying duration. No two of them seem to be of exactly the same length.  My theory is that, unequal as they are, they always come out even in the end. Such seems to be the nature of price movements.

Counts are the also the

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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)

Ed Carlson

Michael Carr, CMT

Michael Carr, CMT

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A TECHNICAL GUIDE FOR DOMESTIC ETF PORTFOLIOS

A TECHNICAL GUIDE FOR DOMESTIC ETF PORTFOLIOS

Editor’s Note: This is a weekly report developed by Jonathan Beck using a classical technical approach to investing. This approach is intended to uncover trends, patterns, relative strength leaders, and other potential profitable trades by revealing the leading and lagging equity sectors. It is reprinted as an example of a comprehensive way to develop technical research that can be used to manage equity portfolios using Exchange Traded Funds. It was originally published on January 28, 2013 and is reprinted with permission.

BIG CALLS ARE NOT MADE EVERY DAY, BUT WHEN THEY ARE, WE WILL MAKE A BIG DEAL OF THEM.

In this report the goal of our sector allocation will be to tactically outperform the S&P 500 on a relative basis. We will adjust our portfolio weightings by maneuvering into leading sectors and shying away from the losers, at least from a technical perspective assuming a 1-3 month timeframe. My objective is

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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THE THIRD: A KEY TO TOPS AND BOTTOMS IN THE DOW

THE THIRD: A KEY TO TOPS AND BOTTOMS IN THE DOW

INTRODUCTION AND FOUNDATION

“3 shall be the number thou shall count, and the number of the counting shall be three…”

The Monty Python reference not-withstanding, the number 3 generates much curiosity for me in the markets. Usually this involves linking 3 with its inversion (1/x) of ‘1/3’; dividing 90 degrees into thirds providing the ever useful 30 degrees and 60 degrees; dividing a price range into thirds of 33.3% and 66.6%; or linking reversals with any combination of 3 and these facets of thirds.

(Author’s note: Short on time? Please by all means skip the nitty-gritty and jump to the last few charts for patterns and projected resistance levels.)

Editor’s note: the conclusion is bullish. 

But lately I have found a new ‘mathematical toy’, 1/3 of 10 (the basis of our counting system), or ‘3 to infinity’:

10 /3 = 3^(1/3) = 3.33333333333333333333333333333…

And, even seemingly further off topic of the markets is, of course, its partner

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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)

Scott Hathaway, CFTe

Scott Hathaway, CFTe

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CONNORS RSI: UPDATES AN OLD INDICATOR WITH MODERN TOOLS

CONNORS RSI: UPDATES AN OLD INDICATOR WITH MODERN TOOLS

Technical analysis is a mixture of old and new tools. Dow Theory was developed more than one hundred years ago at a time when even handheld calculators were unavailable. Actually many of the most popular charting techniques were developed before calculators, as were relatively simple indicators like moving averages.

The history of the McClellan Oscillator, a story told by Sherman McClellan and brought online by his son Tom McClellan, illustrates the techniques applied to developing indicators before the 1980’s. Sherman offered some insights into how breakthroughs in technical analysis were made n a 2004 MTA Annual Symposium presentation. He was inspired by P.N. Haurlan who first used exponential moving averages (EMAs) for tracking the stock market in the 1960’s. EMAs were new at that time and would be used to calculate the McClellan Oscillator. From Tom’s web site:

“As a Christmas gift in 1968, (Sherman’s wife) Marian gave me some

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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)

Michael Carr, CMT

Michael Carr, CMT

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New Educational Content This Month

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