The widely read New Yorker Magazine has a section entitled Goings on About Town, which reads like a bulletin board of current and upcoming events in the Big Apple. Of course, unless you live in New York or plan to visit the city sometime soon, most readers probably skip over this section or, at most, quickly skim over it.

In this month’s President’s Letter, I’m going to highlight some of the “goings on about the CMT Association” for you. There’s a lot happening that affects you as a Member.

• The 50th Anniversary Symposium will be held in New York City on April 26-28th. Hey, maybe the New Yorker will notice??? If you have yet to make plans to attend, it’s not too late! Standard registration pricing lasts until March 12th. If you have never been to the Annual Symposium, I want to encourage you to attend. You will be surprised by how welcoming everyone is and how much fun you will have. Its two and a half days of learning from the finest technical analysts on the planet and networking with people like yourself who are practicing TA. Plus you’ll get to hang out on the floor of the New York Stock Exchange on Thursday evening at the reception. I’ve often said that one of the biggest benefits of membership is the Annual Symposium, and this year it will be the best we’ve every held. I hope to see you there!
• Standard registration pricing for the June CMT exams is open until April 9th. Is there still time to study and pass? Absolutely! If you’re reading this, you are already a Member and very likely a CMT charterholder. Please take a minute out of your busy schedules today to think about anyone you know who should sign up and send them this link: https://cmtassociation.org/chartered-market-technician/. Word of mouth is how I was first introduced to the designation, and your recommendation to a colleague could be all they need to tip the scales and sign up.
• The Governance Committee is evaluating submissions for the Board of Directors slate of candidates for FY 2024, which begins in July this year. Are you interested in serving as a Director, or do you know someone who would be a good fit? Please submit your nomination here.
• The CMT Investment Challenge is coming up on February 13th through April 7th. This virtual money management competition is open to CMT candidates and students at universities that participate in our Academic Partner Program. Participants use technical analysis and follow standard fund house rules and are measured by risk-adjusted returns. Over 1,000 people participated in the first edition of the Investment Challenge, which got the attention of several recruiters and asset managers looking for talent. The software platform for this challenge was built by Mathew Verdouw, CMT and his team at Optuma. You can learn more about the Investment Challenge by watching Joel Pannikot, Head of Asia Pacific for the CMT Association, talk about it at the APAC Summit last November.
• Have you listened to the last Fill the Gap podcast, the official podcast of the CMT Association? It was one of my favorites so far, featuring Patrick Kent, CMT, CFA. Co-host Dave Lundgren and Patrick worked together at Wellington Management with Director of Technical Research and living legend Frank Teixeira. After 25 episodes so far, I swear it seems like it keeps getting better every time.
• There are lots of great Educational Webcast presentations coming up in March and April, including Lucas Downey, Brendan McCarty, Manuel Blay, Steve Bigalow, Greg Harmon, and David Lundgren. These one-hour-long online lectures are a great way to get your education refresh on. Compare how good these are to the free garbage on YouTube.

Looking for the most recent news about the CMT Association? You should definitely follow us on LinkedIn and Twitter.

The CMT Association seeks to fill a newly created position for an Assistant Director of the CMT Program to work directly with the CMT Program Director on all aspects of the CMT Program.

The person to fill this position must be either a current CMT Charterholder, or a member who is a candidate for the charter who has successfully completed all three levels of the CMT exams and is awaiting only the professional work experience to earn the charter.

This is a full-time position that will require availability for calls and meetings during US hours.  In addition, there may be some restrictions on the Assistant Director’s activities outside the CMT Association that conflict with the security standards necessary for a credentialing program or otherwise conflict with the mission, standing, or credibility of the CMT Association and the CMT Program.

The work of managing the CMT Program falls broadly into three categories: Policies, Texts, and Exams.

Policies

• Completion of a Jobs Task Analysis (JTA).
• Policies related to exam administration, including security and candidate identification.
• Vendor relationships including psychometricians, test administration, and publishing.

Texts

• Ongoing editing and maintenance of the curriculum, including researching and correcting reported errors.
• Identification of topics and authors for new Association-owned content.
• Long-term evolution of the curriculum.

Exams

• Expansion of the Level I and II item banks.
• Monitoring production of Level I and II exams for semi-annual administration windows.
• Managing construction of semi-annual Level III exams.
• Managing Level III grading following each exam window.

The initial duties of the Assistant Director will fall primarily, but not solely, in the area of Exams.

The Assistant Director, alongside the Program Director, will interact with several key groups of CMT Association members/volunteers.

• The Curriculum and Test Committee (CTC) which is the ultimate arbiter on matters related to the content of the texts and exams.
• The Subject Matter Experts (SMEs), a select group of members who are tasked with writing exam questions (all levels), reviewing additional exam content, and other functions related to CMT Program content.
• The Level III graders who read the candidates’ exam papers and assign grades based on the SMEs’ answer keys and their own judgment.
• Authors working on content for the CMT texts.  There is an ongoing project to augment the CMT texts with custom-written content.
• Other CMT Association staff, particularly on matters of CMT Program operations, marketing, and candidate/member communications.

As noted above, the Assistant Director’s initial responsibilities will be in the management of the content and delivery and grading of the CMT exams.  Under the direction of the Program Director, the Assistant Director will be tasked with:

• Analysis of the current Level I and II item banks to determine areas of weakness and inadequacy.
• Organizing and tasking SMEs with creating new content for Level I and II based on that analysis.
• Editing and supplying content citations for the Level I and II item banks.
• Managing the SMEs who write the Level III content.
• Organizing and tasking graders with their assignments for Level III grading.
• Compiling, reviewing, and verifying the Level III results.

The ideal candidate should have experience in several key areas critical to the ongoing management of the CMT Program.

The Assistant Director is expected to have competence with several common software products and be prepared to learn to use several others.

• Microsoft Office – Word, Excel, Teams
• Adobe Acrobat
• TechSmith Snagit
• Charting software such as Optuma, StockCharts, and others.

Project management and coordination – The work of producing and grading exams and creating exam content, as well as editing and producing texts, requires coordination of the CTC, SMEs, graders and vendors, in addition to other Association staff.  Management of these tasks requires clear and consistent communication with those working on the task, including instructions and deadlines, and availability for questions and corrections.  Creation of document templates and maintenance of consistent formats are critical to ease the burden on member-volunteers and on Program staff in managing the work.

Writing and editing – The Assistant Director must be proficient in writing and, most importantly, in editing exam and other content.  In addition to grammar and syntax, exam content must conform to best practices such as accurate and consistent nomenclature.  Content must be written and edited to comply with the Program’s policy of avoiding slang and idioms that would be difficult for non-native English speakers to analyze.

If you meet these requirements and are interested in being considered, please submit your resume.

Last year presented us with the largest consensus of economists forecasting an imminent recession that we ever recall. Contrary opinion theory says that when people start to think alike it is time to look in a different direction. After all, if businesspeople and investment advisors think a recession is on the way, is it not logical that they will already have taken steps to protect themselves from such a downturn?

At Pring Turner we are very data driven and agree that at first glance, it looks as if the economy is headed for a recession. Several of the leading economic indicators we follow are literally right at recession triggering levels, on the edge of a cliff if you will. Given the expectation of rising short-term interest rates and the reality of an inverted yield curve, it is not difficult to project a weaker economy.

Indicators On the Threshold of a Recession

For example, our Pring Turner Leading Economic Indicator calls recessions when it approaches the “Recession Line” in Chart 1. Some recessions, as we can see from the vertical lines and red highlights, start prior to reaching the line. Others lag the crossover, so it’s not an exact science. However, this indicator is certainly in the ballpark for a signal, should things deteriorate further. In that respect, the recent slowing of its downward trajectory is an encouraging sign that further damage can be avoided.

CHART 1 PRING TURNER LEADING ECONOMIC INDICATOR AND THE RECESSION CALLER

NEGATIVE CROSSOVERS OF THE RECESSION LINE WARN OF AN IMPENDING RECESSION.

Chart 2 features another indicator on the brink. It compares a coincident economic indicator with a lagging one, nonfarm payroll data to the unemployment rate. Once again, the red highlights represent recessions, as they do for all the charts in this article, and the vertical lines  their beginning. The price oscillator in the lower window compares a 3- month to a 12- month moving average (MA) of the ratio. In this instance negative zero crossovers generally warn of an impending recession. Prior to January’s employment report the oscillator was falling sharply but had not crossed the zero threshold.

CHART 2 NONFARM PAYROLLS/UNEMPLOYMENT RATE AND A PRICE OSCILLATOR

NEGATIVE ZERO CROSSOVERS INDICATE THE LIKELIHOOD OF A RECESSION.

Its January firmness is not enough to call an actual upturn. However, it could be an indication that things may be improving. After all, the actual ratio touched a new high in January and the small green arrows show that the oscillator has rebounded eleven times from around its equilibrium point since the late 1960’s.  But wait, as they say in the infomercials, there’s more!

Tentative Evidence of an Economic Bounce

A key ingredient for economic growth is an improvement in the level of  confidence. In that respect, the University of Michigan has been publishing consumer sentiment information since the late 1970’s. The raw data is extremely volatile  and does not easily lend itself to trend analysis. However, if it is presented in the form of long-term smoothed momentum, a clearer path is exposed. Chart 3 compares sentiment momentum to a proxy for the economy i.e., the ECRI Coincident Index. The green vertical lines show when it crosses above its 9-month MA an end to the recession is consistently signaled. In the absence of a recession the remaining lines indicate a multi-month extension to the recovery.

CHART 3 ECRI COINCIDENT INDICATOR VS MICHIGAN CON SENTIMENT MOMENTUM

UPTURNS IN MOMENTUM SIGNAL AN END TO A RECESSION OR FUTURE GROWTH.

What Does This All Mean for Stock Investors?

Chart 4 compares the S&P Composite to the ECRI Weekly Leading Economic Index, or rather its momentum. That momentum takes the form of a price oscillator, constructed by dividing a 6-month by a 15-month exponential MA. The arrows indicate when it dips below the -1% level and reverses to the upside. Such action consistently signals an end to the prevailing recession and/or a long-term buy signal for equities. It’s also important to make sure such upturns are not temporary, as occurred in 2001 and 2008. One way to filter out such outliers is to observe when the oscillator confirms the low by crossing above its 9-month MA. This series looks as though it may have bottomed in December. Preliminary February data puts it slightly above the average, so there is a pretty good chance that a ninth such positive signal has been triggered.

CHART 4 S&P COMPOSITE VS ECRI LEADING ECONOMIC INDICATOR MOMENTUM

UPSIDE MOMENTUM REVERSALS FROM AN OVERSTRETCHED POSITION SIGNALS AN END TO THE RECESSION AND USUALLY A GREAT BUYING OPPORTUNITY FOR EQUITIES.

But Wait, There’s Even More…

Looking around the world, one might think that the global economy has the potential to drag down the US. Ironically, a derivative of the G7 LEI, published by the OECD has not only started to turn up, but has crossed above its 6-month MA. The arrows show that, except for the 1989 and 2001 experiences, each reversal represented a great buying opportunity for global equites and by implication a global economy ready to expand. This indicator has also consistently led the termination of US recessions.

CHART 5 MSCI WORLD ETF AND A G7 LEI DERIVATIVE

UPTURNS IN THE DERIVATIVE OFFER BUYING OPPORTUNITIES FOR GLOBAL STOCKS AND AN ADVANCE WARNING US RECESSIONS HAVE TERMINATED.

Conclusion

The US economy has reached a crucial juncture point, as several leading economic indicators are on the edge of signaling a recession. By the same token some others have begun to turn up, suggesting that a recession will be avoided. So, how does one resolve the conflict between a worrisome macro environment, but an improving technical condition of the market? Perhaps, the funny thing that happened on the way to the recession is that it has been postponed.

History of course, tells us, that, unless the business cycle has been repealed, another recession inevitably lies down the road. It’s just a question of depth and timing. Many yield curve spreads inverted late last year, an event that has consistently called business contractions. The problem lies in the fact, that the leads have varied from a few months to almost two years. That leaves plenty of time for the latest inversion to eventually validate itself.

One possible scenario would be for the economy to get a decent bounce, frustrating the majority of forecasters, only to fulfill the negative yield curve omen at a much later date. In our opinion, that could be when the majority has begun to look up again rather than down!

Welcome to a new investment environment where higher interest rates and inflation lead to a likely trading range market. Passive investment strategies run the risk of wholly inadequate performance in this more challenging economic backdrop. Portfolio managers should pay close attention to risk management and have a tactical gameplan to take advantage of cyclical bull markets, even if they turn out to be just mini-bulls.  And just as importantly, be prepared to incorporate a defensive strategy for protecting capital in the difficult periods.

In terms of the market, 2022 was a year many want to put in their rearview mirror including the NASDAQ, which finished down over 30%. So far in 2023, we are seeing the index pick itself up off the ground. Starting the year with five consecutive positive weeks and up more than 10% YTD. Is this just a bear market rally or does this move have sustainability? With hostility increasing between the bulls and the bears let’s evaluate both sides.

The Bull Case (see above) – Starting with price, you can see the follow through in a bullish RSI divergence, where price made new lows in October, but RSI managed to make a higher low. Market breadth has also been supportive. In just 28 trading days the index made more consecutive days of net new highs than all of last year combined. This rally also managed to get price back above the 40-week simple moving average (SMA), which followed through into the percentage of stocks above their 200 day SMA reaching levels not seen in over a year.

The Bear Case (see above) – 2023 has been a promising start for the NASDAQ, but logical skepticism remains. During this rally we have yet to see the September and May highs of 2022 eclipsed and less than 50% of stocks in the index are above their 200-day SMA. Although we are back above the 40-week SMA, the slope remains negative. Lastly, the concentration of growth exposure in the NASDAQ lends itself to relative underperformance to the broader market when headwinds around growth surface like higher interest rates, which many believe are here to stay.

Intermarket Implications (see above) – The two market wrecking balls this past year started 2023 off slow, aiding in the most recent rally. We are now seeing the dollar ($UUP) and yields ($TNX) finding support at the same time the NASDAQ struggles to get through resistance at that pesky 12,000 level.

The Verdict – I remain cautiously optimistic, but until we get above 12,000 (September and May 2022 highs) or below 11,500 (downtrend line and 40-week SMA) I think the bulls and bears will continue fighting. Patience will pay and the implications of the dollar and yields cannot be understated.

The previous year proved to be a troubled year for global equities. The equity markets underwent a lot of turmoil; there were many events throughout the year that affected in one way or the other. This included events like.  The major indexes in the US like Dow Jones, Nasdaq, Dow Transportation, and the broader market S&P 500 Index ended with losses.

As it is clearly visible from the above Performance Chart; the Dow Jones Industrial Average and Dow Transportation Index performed in line with each other; they lost 19.44% and 18.73% respectively. While the broad market index S&P500 lost just 8.78% in 2022, the technology pack had remained under pressure where Nasdaq Composite Index lost 33.10% of its value during the last year.

The beginning of 2023 has been in sharp contrast to the previous year. All the major indexes started on a front foot; all have closed positive returns in 2023 on a YTD basis. While S&P 500 Index has gained 7.73%, the Nasdaq and the Transportation Index have put up a much stronger show by gaining 14.72% and 15.88% on a YTD basis.

Only the Dow Jones Industrial Average that is seen lagging in its performance; though it has closed positive returns so far, the gains have been only to 2.35% on a YTD basis.

However, technically it indicates that Dow Jones Industrial Average can pick up pace with the other indices.

The above charts show the four major indices; the Dow, Nasdaq, S&P 500, and the Transportation Index plotted one above the other. An overview at the chart shows that the three among these four indices, i.e., Nasdaq, S&P500, and the Transportation Index have already broken above their previous swing highs and are inching higher. The Dow, on the contrary, is seen not confirming this trend and it appears to be in a range-bound consolidation.

As per the basic principles of technical analysis Dow index is likely to pick up momentum over the coming days and inch higher toward its previous swing high points of 35000 and higher. While the index is in the current consolidation pattern, there is a Golden Cross where the 50-DMA is crossing above the 200-DMA. Following some retracements the 50-DMA has decently held on as a good support for the Index so far.

The pane below shows the important Market Breadth data of the Advance-Decline Line. This a simple yet powerful breadth indicator; any rise of this indicator means that more stocks are advancing than the ones declining during any given move in the markets. This Dow AD Line plotted in purple has already broken above and marked a fresh high. This lays a strong ground for the Dow eventually resolve the current area pattern with a convincing move on the upside and retest the levels of 35000 and higher.

Another most obvious outcome of a strong market rally is a risk-on environment; this means that investors prefer riskier assets than traditionally defensive ones. A classic example of this is the preference for Consumer Discretionary over Consumer Staples.

As visible from the below weekly charts, there are possibilities of a strong sectoral outperformance from the Consumer Discretionary space.

The Consumer Discretionary Select Sector SDPR ETF (XLY) declined from 210-215 levels; it found its bottom near the 125-130 zone. The recent price move shows that it has confirmed a trend reversal as it has moved above a falling trend line.

The second chart is of Consumer Staples Select Sector SPDR ETF (XLP). It was outperforming XLY but now it appears to have hit a double-top resistance above 76 and is under a corrective decline.

Another strong evidence of the Discretionary space relatively outperforming the staples and the markets, in general, is the RS line. The RS line of Consumer Discretionary (XLY) against XLP and the broad market index S&P500 have reversed their downtrend. They are now firmly moving higher and have crossed above their 50-Period MA as well.

From a technical perspective, going by the technical evidence present on the chart, there are strong possibilities of the Dow Jones Index catching the pace and moving higher towards the 35000 level and higher on the back of strong market breadth. While this happens, the Consumer Discretionary sector is likely to show strong relative outperformance against Staples and the broader markets as well.

As technicians the area we focus on primarily is price action. While that is the most important variable, time acts as another variable that one can incorporate in their research. It is important to note that just as the market ebbs and flows, there are certain cycles that are always at play. The identification of these cycles, based on your preferred time frame, can help understand their impact on the market.

The Time Cycles of Volatility determined from Volatility’s past behavior have pretty much been a leading indicator of its turning points going forward.

This Chart is not India VIX, but IndiaVIX/NIFTY ratio. Though the chart difference between India VIX and IndiaVIX/NIFTY ratio is only apparently subtle, it shuns out all the noisy moves of India VIX that failed to translate into any credible inverse NIFTY’s movements.

Back in 80’s and 90’s, several Technical Analysts came up with the concept of Cycles in financial markets on various instruments and the books were then flooded with them. The Time Cycles themselves have been questioned several times for their efficacy. Primary question raised on them being, how can Cycles, so static, work on Markets, so dynamic? The dynamic part of these Cycles is that one may never be able to project the magnitude of impact that can happen during the turning points of these Cycles.

Time Cycles are never measured Peak to Peak or Peak to Trough or Trough to Peak, they are always measured Trough to Trough. They are drawn through Sine Waves.

In the post-2020 era, IndiaVIX/NIFTY ratio is witnessing two concurrent Time Cycles of varying timeframes. A larger Cycle (Blue) is of 89 Days, coincidentally also a Fibonacci number, and a smaller Cycle (Orange) is of 46 Days. These Cycles generally stay intact till some major event, and post that new cycles emerge. Their life is only till the next significant event.

The smaller Cycle is expected to make its Trough in coming March (vertical line) and both the Cycles are then expected to confluence their Troughs in May.

While this makes a strong case for increasing complacency during their Trough phases and therefore, risk in Markets, these Cycles are at best combined with price studies for benefitting from the larger turns in the Markets.

“These expressions of emotion have within them the seeds of destruction.” Victor Neiderhoffer

Silver Lining:

Can the PRICE of silver be a good sign for the stock market? Although it is thought of as a precious metal, more than half of its use comes from “industrial purposes” which shows a possible positive development for the global economy (silver will be found in semiconductors of all things which I did not realize). Gold, which is seen as more of a store of value, has been acting a bit better than silver with the GLD off by 3% YTD and the SLV is down by 9% in 2023 so far. Looking at the chart below of the SLV shows some distribution as it is on a current 5 week losing streak with the week ending 2/3 off more than 5%. It has been under pressure as the greenback tries to steady itself above the very round par number. But the dollar recorded a shooting star candle after a doji candle Thursday after a $4 jump in February so silver may not be facing as stiff a headwind going forward. Like the GLD, the SLV recorded a bullish engulfing candle Friday and perhaps that may be equities in a glittery light, pun intended.

Crystal Clear Set Up:

With an abundance of eyes on the 10-year, the daily chart below of the instrument demonstrates why. Friday provided a stalemate between bulls and bears. Just as it seemed a breakout above the long double bottom base near 3.9% PRICE backed off. If this can not climb above 3.9 next week I think that could really signal a regime change for the bulls to solidify their sanguine stance. Remember there is nothing more bearish that a bullish setup that fails. If one were to look at the WEEKLY chart this still looks like there is room to the upside. It is on a 4-week winning streak, and quite frankly it looks like a healthy pause following the 12-week win streak between last August and October (and is comfortably back above its 21-day EMA which it rode higher between last August-November). But the bulls have a chance here if last week proves to be a fourth lower high since a bearish counterattack candle late last October. That same candle was recorded last Friday. Something for the equity bears to ponder over the long weekend.

Winds Of Change:

For the last 3 months, the WEEKLY VIX chart has resided below the 200 WEEKLY SMA. To show just how soft it has been since the start of Q4 ’22 it has not recorded back-to-back positive weeks and has gained ground just 6 times. It is now 47% off most recent 52-week highs and last week CLOSED just above the very round 20 number. On the chart below one can see that it is testing a break of a long uptrend that began in June 2021. If it fails here where I think it is likely we could return to the mid-teen territory when the VIX resided throughout most of 2021 which was a very favorable environment for markets. On its daily chart, it is making the bearish habit of CLOSING at lows for the daily range 5 of the last 6 sessions apart from Thursday which advanced more than 10%. The VIX bulls have one notch in their belt with 2 of the last 3 WEEKLY gains being bullish harami cross candles, but neither has garnered any follow-through.

CMT Charter holders, new opportunities beckon you across various markets.

Look below and reach out to the email IDs or contact links below for more information.

1. Koyfin

We are looking for a salesperson focused on RIAs and FAs to build on our traction with the advisor community. This is a unique opportunity for someone who wants to be part of a fast-growing startup and take a leading role in developing our sales efforts.

As the first salesperson for our company, this person will have the autonomy to take advantage of the biggest opportunities to expand our business in the FA and RIA community. We are looking for someone who can take the initiative and make things happen.

The description of the role is here: https://www.linkedin.com/jobs/view/3448961821

2. CIBC Asset Management

We are looking for an Assistant Portfolio Manager, Global Beta to join our Montreal team.

Message Glen Martin, CMT, for more details! https://www.linkedin.com/in/1glenmartin/ or

Apply here: https://lnkd.in/gzJhWZ5m