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Technically Speaking, July 2022

Welcome back to Technically Speaking.

Consciously or unconsciously, we are conditioned to have certain opinions. They may not be our own to begin with, but they form a part of our decision making. While all ideas have their place, the market is particularly unforgiving. The market doesn’t care what you think should play out for you to benefit, it unfolds independent of wants and needs.

For example, we’re all looking at the same chart. Unless of course we use different types of charts altogether like point and figure or kagi, etc. For the most part we’re looking at similar forms of the chart. Take the Dollar Index for instance. The price had ben testing the level of 103.50 since 2017. In June this year, we got a breakout and follow through in price. Its trading close to 108 now.

But the question is, how many people who could participate in that trade, actually did? With inflation catching up, crude oil making a base and DXY rallying, the average market participant can see the adverse impact of these variables on stocks and commodities. But rather than switching into a Dollar trade, wishful thinking takes precedence. Somewhere deep down there is hope that the DXY will pause and that bonds will catch a bid again and that the stocks will get back on track to moving higher. This here is the inherent bias formed due to unconscious conditioning. Dollar going up – bad. Dollar going down – good. When it really should be about following the trend and taking positions accordingly.

Similarly, take a look at the Chinese market. The Shanghai Composite has been moving higher for the last two months, even as other global indices continue to correct. Chinese Internet stocks (KWEB) as well as large cap stocks (FXI) have been doing well too. But how many market participants bought into that move? Not many, is my guess. There are ETFs to benefit from too, you know?

The point here is that there are opportunities that are missed because of the inherent biases we hold. And these are opportunities lost with a sizable opportunity cost. But the end goal of being a market technician is just that, shedding biases. And boy, that’s not easy! I’ve been a part of the chart world for 5 years now, and there are times when I catch myself with these inherent biases as well.

What are some of the biases that you faced in your journey? Share your thoughts with us at: editor@cmtassociation.org.

 

Until next time,

 

Think Technical!

Rashmi Bhatnagar, CMT

Editor

What's Inside...

President's Letter

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Recently, the Financial Times published an article entitled “Demand ‘falls off cliff’ for CFA financial analyst qualification”, in which the authors pointed to a 40% decrease in the number of...

Special Feature: Negative Divergences Often Warn of Impending Declines: Bitcoin Highlighted…. is Gold Next? (Contd...)

by Louise Yamada, CMT

(Note: This is an extension of the blog published in June 2022 Technically Speaking)  Negative divergences, occurring in a variety of indicators, often warn of impending price consolidations /...

Are Luxury Stocks Recession-Proof?

by Tea Muratovic

According to Oxford Economics, Americans saved roughly $3.7 trillion during the pandemic. However, approximately $360 billion of that amount will be spent by the end of 2022. Think twice, where will...

CMT Newsletter

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Membership The CMT Association would like to congratulate the following member on their new positions: Justin S. Liberti, CMT, Director at Chevy Chase Trust Gordon Scott, CMT, Editorial Director...

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by Vinay Rajani, CMT

US benchmark index S&P 500 index closed out its worst first half of a year since 1970 with a drop of 20.6%. The Nasdaq Composite finished the first half down 29.5% and notched its worst...

Favorable Risk-Reward: Are stocks & bonds poised for a strong 2nd half of the year?

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1H ‘22 marked the worst 1H for the 60/40 portfolio since 1932. The 10-year US Treasury Note Yield started the year at 1.51%, closed H1 at 2.97%. The avg. US 30-year Mortgage Rate started the year...

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This diversified collection of New York Stock Exchange traded stocks are breaking back upwards and above previous resistance levels. These point-and-figure charts tell the story of more demand than...

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by Joel Pannikot

CMT Association’s Discord server is fast becoming a vibrant space for members to participate and share knowledge, network and build their personal credibility in our community. One of the...

President's Letter

President's Letter

Recently, the Financial Times published an article entitled “Demand ‘falls off cliff’ for CFA financial analyst qualification”, in which the authors pointed to a 40% decrease in the number of CFA level 1 candidates sitting for the exam compared to 2019. The article suggested that the high workload required to pass the exam, the historically low pass rates, and pandemic-related disruptions had caused more prospective students to rethink whether the qualification was relevant to their careers. An anonymous senior CFA Institute staff member was quoted saying, “People today are turned off by studying for long hours for an exam with a low pass rate that is only valued by employers when they apply for a job, and is irrelevant thereafter.” Hearing this news, one might get the wrong impression that demand for professional designations is waning. Without going into an argument about whether or not one should take the “hardest exam in finance”,

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)

Brett Villaume

Brett Villaume, CMT, CAIA

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Special Feature: Negative Divergences Often Warn of Impending Declines: Bitcoin Highlighted…. is Gold Next? (Contd...)

Special Feature: Negative Divergences Often Warn of Impending Declines: Bitcoin Highlighted…. is Gold Next? (Contd...)

(Note: This is an extension of the blog published in June 2022 Technically Speaking)

 Negative divergences, occurring in a variety of indicators, often warn of impending price consolidations / declines. There are different implications with short- term, intermediate- term or longer-term (more structural) divergences observed versus price action in an uptrending stock, commodity, index, etc.

A divergence occurs when price moves to a new reaction high but the indicator does not, rather failing at a lower high, creating a negative divergence to price, suggesting the momentum is waning.

Referencing here the MACD (moving average convergence divergence) indicator as an example, short-term (daily) divergences can indicate the potential for either a period of consolidation, or of a short-term pull back in an ongoing uptrend. A weekly divergence might suggest a more sustained consolidation / pullback, and even a reversal of trend, particularly if support is violated, offering an opportunity to lighten positions.

The monthly (more structural) divergences generally cover an extended period of time and should be taken more seriously for the potential of a more sustained decline; even an eventual end to an uptrend. These can offer a warning / opportunity to continue lightening / selling positions.

The event of a Sell signal in the MACD (the upper line crossing below the lower line), or a broken critical price support level, offer technical viability of the divergence. Monthly divergences need not always occur, but a monthly MACD Sell signal, even without a divergence, offers a more structural warning to sell.

Is GOLD Next?

Recently, we have been questioning the somewhat similar behavior of GOLD:

The May 2020 price high achieving 2,000, versus the 2022 price peaks also achieving 2,000, as well as the relationship between the two 2022 price peaks with regard to their momentum readings.

The daily MACD divergence to GOLD price is quite visible (Fig. F-5), by the time the 2022 price rallies to 2,000, equating to the 2020 price high, but with the 2022 MACD at a much lower level (see aqua line, lower panel) than that of

  1. (Note: A MACD Sell signal occurred after the 2020 peak, alerting to the possible price decline, which eventually carried to the March 2021 low near 1,700.)

The lower March 2022 MACD peak also registered a March Sell signal, suggesting one might lighten positions.

Fig. F-5 Gold (GOLDS) (Top) and MACD (Bottom) (Daily)

Source: Bloomberg and LY Advisors

In addition to the daily MACD wide divergence between the 2020 and 2022 price rally peaks, there is also a shorter-term negative MACD divergence between the 2 peaks in the 2022 March and April rallies to 2,000 (declining red arrow, lower panel).

This divergence followed the March 2022 MACD Sell signal, and barely recognized the April price rally (declining red arrow, lower panel). The ultimate price decline broke the support at 1,900 (flat aqua line, top panel), broke the short-term uptrend, and slipped below 1,800 before rebounding slightly.

Fig. F-6 Gold (GOLDS) (Top) and MACD (Bottom) (Monthly)

Source: Bloomberg and LY Advisors

The monthly profile (Fig. F-6) depicts a multi-year MACD negative divergence to price (see declining arrow, lower panel) from as far back as the 2012 price peak near 2,000, versus the minimally higher 2022 price peak.

(In 2012, the monthly MACD Sell offered protection from the price collapse toward 1,100, had one followed that structural Sell signal.)

In March 2022, the MACD, registered another major monthly Sell and barely rallied on the secondary 2022 price peak back to 2,000; the MACD now remaining negative and poised to perhaps continue down.

This suggests technically, that Gold may be in danger of a potentially larger decline ahead, especially if support at 1,700 is broken. Such a breach could bring next support at 1,400 into view (horizontal red line) … returning to the breakout level from the 2013 to 2019 basing pattern (see saucer).

It is possible, however, that although GOLD has broken out in many other currencies, the extraordinary current strength in the US dollar may be contributing to the GOLD disappointment.

Contributor(s)

Louise Yamada, CMT

Louise Yamada, CMT

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Are Luxury Stocks Recession-Proof?

Are Luxury Stocks Recession-Proof?

According to Oxford Economics, Americans saved roughly $3.7 trillion during the pandemic. However, approximately $360 billion of that amount will be spent by the end of 2022. Think twice, where will all the $$$s go? Looking at the statistics, more than 69% of that spending is by the wealthiest 20% of households. Moreover, what goes hand in hand with wealth, is expensive items. Luxury goods need no introduction. They are known for strong brand identity, high operating margins and timeless products. But are they also a good investment in the current markets? During the pandemic these companies have demonstrated cash-rich balance sheets and high profitability. But will they be able to continue their growth in the tricky environment of high inflation, pressured stock markets, supply chain issues and a possible recession? I found a feasible explanation in a study by the Bank of America, which showed that the correlation between luxury spending and the

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)

Tea Muratovic - 2022

Tea Muratovic

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CMT Newsletter

CMT Newsletter

Membership The CMT Association would like to congratulate the following member on their new positions: Justin S. Liberti, CMT, Director at Chevy Chase Trust Gordon Scott, CMT, Editorial Director at Money Map Press! Samuel Levine, CFA, CMT, Senior Writer at Reink Media Group. Tom Schneider, CMT, Senior Education and Training Specialist at NinjaTrader Group, LLC   CMT Early registration is now open for the December 2022 test administration.  The Level I & II exams will take place December 1-11, 2022, and the CMT Level III exam on December 8, 2022. Don’t forget to schedule an appointment for your exam at Prometric as early as possible.  Candidates have the choice of taking the exam at a Prometric test center or scheduling an appointment for remote proctoring.  Be sure to test your computer, read the User’s Guide, the FAQs and how to temporarily disable your firewalls and antivirus software before scheduling a remote proctoring exam: https://cmtassociation.org/chartered-market-technician/cmt-exams-remote-proctoring/. If you encounter any problems registering for the

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)

Marie Penza - 2022

Marie Penza

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Indian Markets set for a bounce from highly oversold levels

Indian Markets set for a bounce from highly oversold levels

US benchmark index S&P 500 index closed out its worst first half of a year since 1970 with a drop of 20.6%. The Nasdaq Composite finished the first half down 29.5% and notched its worst first-half performance on record. The MSCI global stock index was down 20.9% for the first half of 2022, its biggest first-half of a year percentage drop on record. Back home, markets are also grinding lower. Nifty ended June month ~5% lower and 9.4% lower for the quarter as FPIs continue to be sellers on almost all days. Nifty has ended the third consecutive expiry in the red where it ended June series with the losses of 2.41%. Nifty witnessed sharp sell off from the start of the June series and touched the low of 15183 level but towards the end the index recovered by almost 700 points. A majority of the fall was contributed by Metals, Pharma, Realty

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)

Vinay Rajani, CMT - 2022

Vinay Rajani, CMT

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Favorable Risk-Reward: Are stocks & bonds poised for a strong 2nd half of the year?

Favorable Risk-Reward: Are stocks & bonds poised for a strong 2nd half of the year?

1H ‘22 marked the worst 1H for the 60/40 portfolio since 1932. The 10-year US Treasury Note Yield started the year at 1.51%, closed H1 at 2.97%. The avg. US 30-year Mortgage Rate started the year at 3.10%, closed H1 at 5.70%. Despite the S&P 500 Index seeing positive earnings growth, stocks declined due to multiple contraction associated with rising interest rates and fear of persistent inflation. Stocks down, bonds down… If your portfolio lacked exposure to cash, commodities or other alternative asset strategies, you felt a lot of pain in H1. Your 60/40 backtest results, which suggested reasonable downside protection, have added very little value in 2022. But as the stock and bond market declined over the last 6 months, what new information is available to help guide our decision making? Let’s start with bonds. Retail investors tend to gravitate toward bond funds. These funds carry different risks compared to individual bonds. Learn more about the key

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)

Shane Murphy

Shane Murphy

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5 Stocks With Triple Top Breakouts To Higher Highs

5 Stocks With Triple Top Breakouts To Higher Highs

This diversified collection of New York Stock Exchange traded stocks are breaking back upwards and above previous resistance levels. These point-and-figure charts tell the story of more demand than supply, that is, enough new buying that sellers give up enough for trend to reverse. Some are making higher highs. Others are taking out downtrend lines, an early indication of possible change of direction, it it holds. This method of price chart analysis gives a different picture than candlesticks or OHLC (open, high, low, close). Because “p&f” is not as widely used as back in the 50’s and 60’s, this makes it valuable for those looking for the less popular. Evolent Health There are not many charts like this showing NYSE-traded stocks almost straight up off of the March, 2020 pandemic lows. Most stocks dipped here and there and then began to sell-off at the beginning of 2022. Evolent Health just keeps going. It’s

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)

John Navin - 2022

John Navin

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Intermarket Study and the Indian Markets

All of the world’s financial markets including bonds, equity, commodity, currency and cryptocurrency have an interrelation and do not exist in isolation. Markets namely equities, cryptocurrencies and commodities(industrial base metals, energy commodities likely to follow) have taken a major hit in terms of correction following the inflated prices due to the excessive money printing experienced in the year 2020 in terms of the quantitative easing by the Federal Reserve, followed by the Russia-Ukraine Crisis. Crypto Market view:  In 2020, Bitcoin bottomed on 13th March 2020 after the COVID crash. Cryptocurrencies, being a technology based asset class, have a chance of bottoming out before the equity markets in order to lead the rally across the various asset classes, followed by equities (Nifty 50)and then commodities(crude oil). Bitcoin has seen a correction of around 72% off the peak and is estimated to bottom around 16150 levels, 76% off the peak or the 50% Fibonacci retracement mark by

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)

Kshrey Jain - 2022

Kshrey Jain

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Job posting on CMT Association's Discord server

Job posting on CMT Association's Discord server

CMT Association’s Discord server is fast becoming a vibrant space for members to participate and share knowledge, network and build their personal credibility in our community. One of the premium access benefits for active members and candidates is our job board. This is a space where we post opportunities that companies reach out to us with.  In the past month, some interesting roles were posted. Feel free to visit the job board in the “Premium Access” section of the website to check out the details. The company names below link to the job posted on Discord. S&P Global Market Intelligence Choice India McMillan Analysis Corporation Fidelity International Goldilocks Premium Research StockTwits International (Internship) StockCharts.com Forex4Money  

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)

Joel Pannikot

Joel Pannikot

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New Educational Content This Month

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