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Technically Speaking, June 2008

On the Campus

This month, instead of A Letter from the Executive Director and from the Editor, we have decided to provide you with an update from the MTA Educational Foundation.

9 Days in Taipei - a Very Different Teaching Experience

Baruch College has a very successful International Executive MBA program with operations in China, Hong Kong, Singapore, Taiwan, Israel, and France. Over the years the program has enriched the lives of the students whose careers have benefited by the knowledge from the course work, the prestige of a U.S. degree, and the networking amongst other alumni. After being on an informal waiting list for a number of yeas, I was invited to teach Technical Analysis in Taiwan during the recent April holiday break here in the U.S. Courses run consecutively and Technical Analysis is an elective at Baruch, so I had to wait until a class of finance students completed all their core curriculum before I got this opportunity. I accepted the assignment, arranged vacation time at the office and quickly booked an 18 hour flight that would take me over the North Pole to Hong Kong

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What's Inside...

Top Ideas and Sectors for 2008, a Market Forecast Panel Presentation by John Roque, Louise Yamada, CMT, and Larry Berman, CTA, CFA, CMT

by Michael Carr, CMT & John Roque & Louise Yamada, CMT & Larry M. Berman, CMT, CTA, CFA

At the MTA One-Day Symposium on May 16, 2008, three technicians discussed their best trading ideas for the rest of the year. Roque began by displaying a chart of the CRB Index relative to the S&P...

Bear Stearns (BSC): The Signals Were Clear

You can’t open a financial media outlet without seeing a story on Bear Stearns [BSC]. One of the most recent stories I have seen about the stock, other than the fact JP Morgan could increase its...

Bear Stearns: Other Approaches to Identify the Sell

Relative strength was used by two technicians to identify the deteriorating conditions of BSC. Kristin Hetzer, CMT, CIMA, CFP, submitted the chart of BSC relative to the S&P 500 index (Figure 1)....

Using Style Index Momentum to Generate Alpha

by William DeShurko, CFP

The recipients of the 2008 Charles H. Dow Award are Assistant Professor Samuel L. Tibbs, Professor Stanley G. Eakins, and Mr. William DeShurko, CFP, for their paper entitled “Using Style Index...

Inferring Trading Systems From Probability Distribution Functions Summary

by John Ehlers

Editor’s note: This is a summary of the paper which was recognized as a runner-up in the Dow Award competition. The complete paper may be downloaded from the MTA web site. There are two crucial...

Top Ideas and Sectors for 2008, a Market Forecast Panel Presentation by John Roque, Louise Yamada, CMT, and Larry Berman, CTA, CFA, CMT

Top Ideas and Sectors for 2008, a Market Forecast Panel Presentation by John Roque, Louise Yamada, CMT, and Larry Berman, CTA, CFA, CMT

At the MTA One-Day Symposium on May 16, 2008, three technicians discussed their best trading ideas for the rest of the year.

Roque began by displaying a chart of the CRB Index relative to the S&P 500. In his opinion, this chart illustrates that we are not in a commodities bubble and commodities can move much higher off the 2001 bottom in that relationship.

Roque also presented a series of innovative charts showing the weighting of several sectors within the S&P 500. Stocks in the financial sector represented 23% of the market cap of the S&P when they peaked in late 2006. They currently represent 17% of the index, and have historically, on average, made up 13% of the index. His conclusion is that they still have room to go lower. As an additional bearish factor weighing down this sector, Roque pointed out that some of the large financial stocks are making

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)

Michael Carr, CMT

Michael Carr, CMT

John Roque

Louise Yamada, CMT

Larry M. Berman, CMT, CTA, CFA

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Bear Stearns (BSC): The Signals Were Clear

Bear Stearns (BSC): The Signals Were Clear

You can’t open a financial media outlet without seeing a story on Bear Stearns [BSC]. One of the most recent stories I have seen about the stock, other than the fact JP Morgan could increase its bid to $10 a share, is the SEC is probing into sell transactions on BSC and if someone had inside information. It makes me think back to the days of late 2001 when Imclone [IMCL] imploded on a bad FDA report, and sold off sharply from the 60’s to an eventual low in the single digits. It was the sale of IMCL on reported insider information and subsequent lying to the Fed’s that landed Martha Stewart in jail. The infamous scribble note to sell “at $60” and what precipitated that note will go down in history. Of course had Martha Stewart just been looking at the Point & Figure chart of IMCL the reason

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.

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Bear Stearns: Other Approaches to Identify the Sell

Bear Stearns: Other Approaches to Identify the Sell

Relative strength was used by two technicians to identify the deteriorating conditions of BSC. Kristin Hetzer, CMT, CIMA, CFP, submitted the chart of BSC relative to the S&P 500 index (Figure 1). She noted that “the decline in relative strength and sell signals could have been used along with the price chart strongly suggesting exit from this stock.” Her annotations can be seen on the chart. Kristin is the Principal at Royal Palms Capital LLC.

Robert Peirce, principal and co-founder of Cookson, Peirce & Co., Inc., noted that “on a weekly basis, the high was 01/12/07 at 169.67. Under our current rules, we would have sold three weeks later at 164.56 when the Alpha rank reached 21. Had we held the stock under the old rules, we would still have been

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.

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Using Style Index Momentum to Generate Alpha

Using Style Index Momentum to Generate Alpha

The recipients of the 2008 Charles H. Dow Award are Assistant Professor Samuel L. Tibbs, Professor Stanley G. Eakins, and Mr. William DeShurko, CFP, for their paper entitled “Using Style Index Momentum to Generate Alpha.” Dr. Tibbs summarized the results of their research at the MTA Symposium on May 16, 2008.

We have all heard that “past performance is no guarantee of future results,” but recent work provides some support otherwise. Specifically, this research demonstrates that Russell style indexes exhibit significant momentum, particularly after medium term relative out- and underperformance.

Prior research provides evidence of style momentum at the firm level, but the construction of such portfolios can be costly. Therefore, we measure style momentum at the index level, which can easily be represented by exchanged traded funds, thereby providing a low expense, diversified method to exploit such momentum.

We are motivated to test the existence of style index momentum due to 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)

William DeShurko, CFP

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Inferring Trading Systems From Probability Distribution Functions Summary

Inferring Trading Systems From Probability Distribution Functions Summary

Editor’s note: This is a summary of the paper which was recognized as a runner-up in the Dow Award competition. The complete paper may be downloaded from the MTA web site.

There are two crucial factors when trading with oscillators. Firstly, the Probability Density Function (PDF) of the detrended data depends heavily on the way the detrended data is computed. Secondly, one must anticipate the turning point of the detrended data because if one waits for confirmation with these relatively fast indicators most of the move is over before trade entry or exit can be made. Taken together, these two factors can infer the best trading system to be employed.

Detrending using RSI techniques typically results in the data having a Gaussian-like PDF. Therefore, one can use the traditional 20% and 80% levels as entry points – with the added trick that one sells short when the RSI crosses above the upper

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 Ehlers

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New Educational Content This Month

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