Editors’ note: This paper was originally published as a white paper by Dorsey Wright & Associates Money Management.  It was republished here as an introduction to the type of work done by Dorsey Wright & Associates. Tom Dorsey cofounded Dorsey, Wright & Associates in 1987 and continues to serve as President. He is scheduled to make a presentation at the 2015 MTA Symposium. Numerous academic and practitioner studies have shown relative strength—also known in academia as “momentum”—to be a robust factor that leads to outperformance. However, much of the academic research has been handicapped by testing methodologies that are not at all similar to the way that portfolios are managed in the real world. This white paper discusses our improved testing process, which incorporates two elements that are unique: 1) a continuous portfolio testing protocol that manages portfolios the way they are managed in the real world, and 2) a Monte

Editor’s note: Intermarket relationships are important but they can change over time. It is important to consider the reason a relationship exists and to watch for changes in economic fundamentals that could highlight times when a breakdown in correlations could occur. In this article, Andrew Thrasher addresses the historic relationship between copper and the stock market and explains what’s changed in recent years. There used to be a belief on Wall Street that copper had a Ph.D. in economics since it was often used as a barometer for the economy and often the market. Traders would look for divergences between the copper and the equity markets for signs of potential danger. If Dr. Copper began to weaken it was believed that the stock market would soon follow. While this may have been the case at one point I would argue it no longer is today or has been for a few

How would you describe your job? I work for a small research firm called Computrade Systems in Atlanta, GA that provides a web-based research product for retail and professional money managers. The research is centered around technical analysis and includes quant models that formulate opinions and recommendations on individual stocks as well as generating studies for Industry Group Analysis and ETFs. I do analysis on individual stocks and write two weekly commentary articles and a monthly overview of the stock market. The weekly market letter on our Market Edge website summarizes the weekly market action and concentrates on different momentum and sentiment indicators to project probable market scenarios. These publications are released through clearing firms and on-line brokerage firms. I also write a weekly article for Schwab’s active traders which includes a short piece on educating investors on how technical analysis can help in their outlook of the market. What led you

StockCharts.com has created an indicator called the StockCharts Technical Ranking (SCTR) created by John Murphy.  The SCTR indicator has been in use for the last 7 years so the value of the data is really starting to show through now. The SCTR ranks the price action (no fundamental analysis) of the stock or ETF against a peer group. One of the most interesting charts using the SCTR right now is Wal-Mart. When the price action in Wal-Mart is worse than the majority (below 50%) of its peers, we are in a strong bull market. Looking at the chart below, when Wal-Mart became a top performing stock shown by the SCTR, it was a good indicator for being defensive. When Wal-Mart starts to under-perform relative to the Large Cap peer group, it is a great time to be bullish. As we can see in the chart, Wal-Mart recently fired off a signal