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Technically Speaking, June 2013

LETTER FROM THE EDITOR

We focus on the practical in this month’s newsletter. From trading psychology to trading tools and trading strategies, we have tried to provide you with new ideas that you can apply in the slow summer market. Of course, the slow summer market is probably a myth but we all need to find time to explore ideas and tools that might help us become better at what we do. Trading seems to be the point where theory meets practice in technical analysis. Hopefully you will find the techniques and tools we highlight to be useful. Although trading is often associated with short-term analysis, many traders analyze long-term data. In the long-term, stocks can move up or down just as they do in the short-term. SRC Stock Charts offer a long-term perspective on markets and we conclude this issue with a chart of Japan’s Nikkei 225 stock index. The Nikkei ended May with a one-week loss of 15% but is up about 50% in the last year. Shortterm volatility can mask the relentless down

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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.

What's Inside...

HOW WILL THE NEXT FEW YEARS BE CHARACTERIZED? INFLATION, DEFLATION, OR BOTH?

by Robert Prechter & Martin J. Pring & Ron William, CMT, MSTA

During the annual symposium of the Market Technicians Association, April 2013, two of the world’s most renowned veteran market technicians, Robert Prechter, CMT, President of Elliott Wave...

THE MENTAL EDGE IN TRADING

by Jason Williams & Keith Newcomb, CMT, CFP® & Michael Carr, CMT

Editor’s note: Dr. Jason Williams was one of the speakers at the recent MTA Annual Symposium. His presentation was based on the research detailed in his book which is reviewed below. To view Dr....

A TECHNICAL GUIDE TO THE ISHARES DOW JONES U.S. ENERGY

by Jonathan Beck

This report takes a closer look at the U.S. Energy sector, via the iShares Dow Jones U.S. Energy ETF (Ticker: IYE). In recent days, IYE has quietly broken out of an ascending triangle pattern two and...

THE SMART MONEY

by Eric Leake

While equities have made new record highs this month High Yield Bonds have declined, a classic warning sign that has often led to multi-month declines. Does it matter when High Yield Bonds are not...

SCREENING FOR TRADING IDEAS

by Michael Carr, CMT

Many traders use screens to generate trading ideas. A screen will generally be designed to scan a list of stocks, identifying the ones that meet certain criteria. For example, a screen might identify...

GEORGE LINDSAY’S AN AID TO TIMING

by Ed Carlson & Michael Carr, CMT

Ed Carlson has produced a video to explain a tool developed by George Lindsay and almost lost in the history of technical analysis. For those unfamiliar with Lindsay’s work, it is important to note...

ETF TRADING WITH BOLLINGER BANDS®

by Laurence Connors & Cesar Alvarez & Matt Radtke

Introduction to Bollinger Bands® Bollinger Bands®, created by legendary money manager and researcher John Bollinger, are one of the most popular trading indicators in use today.  Nearly all...

INTERVIEW WITH CHRISTOPHER GURKOVIC, CMT

by Christopher Gurkovic, CMT & Amber Hestla-Barnhart

How would you describe your job? I would describe the job as an opportunity to promote technical research and educate investors about the many ways in which talented people are successfully using our...

CHART OF THE MONTH

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HOW WILL THE NEXT FEW YEARS BE CHARACTERIZED? INFLATION, DEFLATION, OR BOTH?

HOW WILL THE NEXT FEW YEARS BE CHARACTERIZED? INFLATION, DEFLATION, OR BOTH?

During the annual symposium of the Market Technicians Association, April 2013, two of the world’s most renowned veteran market
technicians, Robert Prechter, CMT, President of Elliott Wave International and Martin Pring, Chairman of Pring Turner Capital, shared their key insights during a moderated panel discussion with Ron William, CMT, MSTA, Founder & Principal Market  Strategist of RW Market Advisory, on one of today’s most widely debated questions about Inflation & Deflation pressures and how both risk scenarios would impact your investment decisions and portfolio returns. Please select link to review the full online video. 

Ron William: What is the best strategy to help preserve capital given your stances on either of the inflationary or deflationary pressures ahead?

Martin Pring: Our firm (Pring Turner Capital) has just come out with a new ETF (The AdvisorShares

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)

Robert Prechter

Martin J. Pring

Ron William

Ron William, CMT, MSTA

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THE MENTAL EDGE IN TRADING

THE MENTAL EDGE IN TRADING

Editor’s note: Dr. Jason Williams was one of the speakers at the recent MTA Annual Symposium. His presentation was based on the research detailed in his book which is reviewed below. To view Dr. Williams’ presentation, please visit http://symposium.mta.org

Dr. Jason Williams presented findings from his research into the trader‘s mind at the MTA Symposium April 4th and 5th, 2013. In his book, The Mental Edge In Trading (McGraw-Hill, 2012), he leads readers on a deep dive exploring his findings, a recommended personality test of choice, and explains how to interpret the results to improve trading enjoyment and performance.

This book is completely different from other studies and texts examining trader personality in three important ways. First, many of the previous studies have been written for academics by academics, offering limited use for practitioners. Second, previous studies often included self-selecting traders with varying degrees of success

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)

Jason Williams

Keith Newcomb, CMT, CFP®

Michael Carr, CMT

Michael Carr, CMT

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A TECHNICAL GUIDE TO THE ISHARES DOW JONES U.S. ENERGY

A TECHNICAL GUIDE TO THE ISHARES DOW JONES U.S. ENERGY

This report takes a closer look at the U.S. Energy sector, via the iShares Dow Jones U.S. Energy ETF (Ticker: IYE).

In recent days, IYE has quietly broken out of an ascending triangle pattern two and a half years in the making. From a portfolio perspective there have also be some developments worth noting. For example, the longer-term relative strength chart (vs. the S&P 500) appears to have found support at an historically significant level and the near-term relative strength chart substantiates that a bottom is in place. As a result, it appears that IYE is becoming a technical leadership sector ETF and investors/traders should look to take advantage of such a rotation.

In addition to a brief technical analysis of this sector ETF as a whole, this report goes one step further as is delves into the technical outlook for its top 10 holdings or 63% of the entire fund.

ENERGY –

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

THE SMART MONEY

THE SMART MONEY

While equities have made new record highs this month High Yield Bonds have declined, a classic warning sign that has often led to multi-month declines. Does it matter when High Yield Bonds are not invited to the stock market party? We decided to quantify these divergences over the past several years.

Here is what we found.

There are a number of structural reasons why we call movements in the High Yield Bond asset class the “Smart Money”. A key reason is liquidity.  High Yield Bonds are much less liquid than stocks. Bonds are still traded over the counter, dealer to dealer based on a wide variety of inputs such as inventory, credit risk and yield spreads. For these and other reasons High Yield Bonds tend to be much more of an institutional asset class, with few individual investors in the marketplace. Stocks on the other hand can be purchased by just about

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)

Eric Leake

SCREENING FOR TRADING IDEAS

SCREENING FOR TRADING IDEAS

Many traders use screens to generate trading ideas. A screen will generally be designed to scan a list of stocks, identifying the ones that meet certain criteria. For example, a screen might identify all stocks with an RSI below 30 as potential buys. Without access to specialized trading software or proprietary screening software, the capability of screens that are widely available on the internet are usually limited to simple criteria like an oversold RSI.

Long-term value investors can generally find tools that allow them to identify stocks with low price-to-earnings (P/E) ratios or high dividend yields. Some sites, like FinViz.com, offer fundamental screens along with longer-term technical tools like the 50-day and 200-day moving averages.  This site also screens for stocks completing chart patterns. Technicians may argue about whether or not the stocks identified by the screens actually meet the requirements of the pattern definition but it is an interesting capability.

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

GEORGE LINDSAY’S AN AID TO TIMING

GEORGE LINDSAY’S AN AID TO TIMING

Ed Carlson has produced a video to explain a tool developed by George Lindsay and almost lost in the history of technical analysis. For those unfamiliar with Lindsay’s work, it is important to note that Lindsay predicted market turning points months to years in advance. In this way, it is more similar to the work of Elliott than to a trend follower. While the techniques of both Elliott and Lindsay offer a degree of precision in the hands of a skilled analyst, Lindsay seems to be more objective. Broad market  patterns need to be identified and smaller wave counts are not needed. This distinction should allow traders and analysts to enjoy more consistent results with Lindsay.

As Louis Rukeyser told Lindsay during an appearance on Wall Street Week, “Your predictions are so specific and so long range, I think the remarkable thing is not that you’re sometimes wrong but that you’re

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)

Ed Carlson

Michael Carr, CMT

Michael Carr, CMT

ETF TRADING WITH BOLLINGER BANDS®

ETF TRADING WITH BOLLINGER BANDS®

Introduction to Bollinger Bands®

Bollinger Bands®, created by legendary money manager and researcher John Bollinger, are one of the most popular trading indicators in use today.  Nearly all commercial charting applications include the ability to plot Bollinger Bands®, which allow traders to quickly assess how overbought or oversold a security is.

While there has been an abundance of information published on how to trade with Bollinger Bands®, the majority is discretionary in nature rather than quantitative. Thus, the trader is left to interpret what the security’s price is doing relative to its Bands, and more importantly, what it is likely to do next.

In contrast, the ETF Trading with Bollinger Bands® Strategy is a precise, quantified approach to Bollinger Bands® trading. It allows a trader to identify the entry and exit signals that have produced the best results over the past 7+ years. We will also show how different levels of intraday pullbacks

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)

Larry Connors

Laurence Connors

Cesar Alvarez

Cesar Alvarez

Matt Radtke

INTERVIEW WITH CHRISTOPHER GURKOVIC, CMT

INTERVIEW WITH CHRISTOPHER GURKOVIC, CMT

How would you describe your job?

I would describe the job as an opportunity to promote technical research and educate investors about the many ways in which talented people are successfully using our craft. When studying the markets I think it is important to keep an eye out for research that you could possibly learn from. It is my opinion that a Technician should constantly be expanding and tweaking their tool box of indicators. The market of stocks is constantly changing and evolving every day, and a good technician should adapt with it. There are many highly intelligent people out there that are constantly studying the markets, and something can be learned from everyone one of them.

What led you to this opportunity?

I found that there were a few unique problems facing technical analysis.  First, there were many great authors spread out all over, without a good aggregator site for these ideas

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)

Christopher Gurkovic, CMT

CHART OF THE MONTH

CHART OF THE MONTH

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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.

New Educational Content This Month

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