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Technically Speaking, June 2017

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What's Inside...

CAN WE IMPROVE SECTOR ROTATION?

by Corey Hoffstein

Editor’s note: This was originally published at “Flirting with Models” on May 22, 2017 and is reprinted here with permission. Summary • Momentum-based sector rotation is a popular investment...

GUILLOTINE INVESTING - KEEPING YOUR HEAD WHILE OTHERS ARE LOSING THEIRS

by Kelvin Angle & Michael Carr, CMT

Editor’s note: KD Angle spoke at an MTA Annual Symposium several years ago. In this article, we have a chance to learn about his recent work. He is also the author of the recently released book,...

BEHAVIORAL FINANCE BEYOND THE MARKETS: A REAL-TIME CASE STUDY OF RUSSIA’S MILITARY RESURGENCE

by Matt Lampert & Alyssa Hayden & Alan Hall

The Socionomics Institute recently announced that a paper by Matt Lampert, Alyssa Hayden and Alan Hall was accepted for publication in the Journal of Behavioral Finance & Economics. The...

BONDS OR STOCKS? INVESTORS ARE BUYING BOTH

by Chad Shoop, CMT

Editor’s note: This was originally published at BanyanHill.com and is reprinted here with permission. Over the past few months, stocks have roared to a number of new highs and investors are eager...

THINK INCOME AND GROWTH DON’T EXIST IN THIS MARKET? THINK AGAIN

by CAMBRIA INVESTMENTS

Editor’s note: this article demonstrates a different perspective on income and was originally published as a white paper at the Cambria Investments web site. In the paper, the authors illustrate...

ELLIOT WAVE GRAND SUPER CYCLE ANALYSIS OF THE S&P 500 CASH INDEX - SUPPORTED BY CLASSIC TECHNICAL ANALYSIS

by Lara Iriarte, CMT

This Elliott wave analysis is offered as a long-term view of the wave structure of the S&P 500. Historic Chart – Back to 1871 This analysis makes two base assumptions: 1. That the S&P...

THE ‘GRAND OLD PARTY’ AND THE U.S. DOLLAR

by Howard Friend, CMT

The storming of the White House by Donald Trump last November created not just the usual ripples on a change in U.S. leadership but many shockwaves both at home and abroad as the world holds its...

BFF STOCKS: BACH, FIBONACCI, FRACTALS, AND US EQUITIES - ANALYSIS OF MODEL TRADING STRATEGY UTILIZING MAP QUANTITATIVE EQUITY RESEARCH DATA

by Jason Bodner & Lucas Downey & RAN ZHAO & VICKY ZHOU & M A P

SUMMARY This paper explores an in-depth analysis of enhancing a model trading strategy utilizing MAP quantitative equity research data. Three studies were conducted and the data set representing the...

CAN WE IMPROVE SECTOR ROTATION?

CAN WE IMPROVE SECTOR ROTATION?

Editor’s note: This was originally published at “Flirting with Models” on May 22, 2017 and is
reprinted here with permission.
Summary
• Momentum-based sector rotation is a popular investment strategy.
• Recent academic studies have shown that alternative implementations of standard momentum – including risk-adjusted momentum, residual momentum, and “frog-in-the-pan” momentum – can significantly improve the risk-adjusted and total return potential of stock-based momentum systems.
• We explore whether these approaches create value for sector rotation systems.

Momentum is a system of investing that buys and sells securities based upon recent returns.  Momentum investors buy outperforming securities and avoid – or sell short – under-performing ones.

In the traditional academic implementation of momentum, hundreds of individual securities must be bought and sold. One popular – albeit simplified – implementation of this approach is sector rotation, where investors implement a momentum strategy through industry groups or sectors. In a past commentary[1], we demonstrated

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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.

Contributor(s)

Corey Hoffstein

Corey Hoffstein

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GUILLOTINE INVESTING - KEEPING YOUR HEAD WHILE OTHERS ARE LOSING THEIRS

GUILLOTINE INVESTING - KEEPING YOUR HEAD WHILE OTHERS ARE LOSING THEIRS

Editor’s note: KD Angle spoke at an MTA Annual Symposium several years ago. In this article, we have a chance to learn about his recent work. He is also the author of the recently released book, Guillotine Investing, which expands on his investment philosophy.In this study, we explore whether these approaches are value-add in a traditional sector rotation approach.

Success in the markets is best measured over the long term. With over thirty years of experience, KD Angle has met any definition of success. His work has focused on researching and developing trading algorithms. Over
that time, he has learned a lot about what works and what doesn’t work.

In general, when searching for what works, he begins with the premise that nothing works. This forces him to think through every idea to consider the logical underpinnings of every possible trading strategy.

In simple terms, a moving average crossover strategy is a popular

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)

Kelvin Angle

Michael Carr, CMT

Michael Carr, CMT

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BEHAVIORAL FINANCE BEYOND THE MARKETS: A REAL-TIME CASE STUDY OF RUSSIA’S MILITARY RESURGENCE

BEHAVIORAL FINANCE BEYOND THE MARKETS: A REAL-TIME CASE STUDY OF RUSSIA’S MILITARY RESURGENCE

The Socionomics Institute recently announced that a paper by Matt Lampert, Alyssa Hayden and Alan Hall was accepted for publication in the Journal of Behavioral Finance & Economics. The publication of Behavioral Finance Beyond the Markets: A Real-Time Case Study of Russia’s Military Resurgence demonstrates the acceptance of socionomics within the academic community.

Socionomic theory proposes that social mood manifests across the spectrum of social behavior, from the movements of stock market indexes to the leaders we elect to the songs we choose to hear and even to changes in the social propensity toward peace or war. In the paper, the authors present a case study tracking the real-time socionomic analysis of the Russian Trading System Index (RTSI) and Russia’s military resurgence from 2007 to 2016. The paper illustrates the utility of the theory for anticipating the character of social actions that express swings in social mood.  The roots of the

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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.

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BONDS OR STOCKS? INVESTORS ARE BUYING BOTH

BONDS OR STOCKS? INVESTORS ARE BUYING BOTH

Editor’s note: This was originally published at BanyanHill.com and is reprinted here with permission.

Over the past few months, stocks have roared to a number of new highs and investors are eager to participate in the rally. It’s this type of risk-on environment where you typically see investors sell bonds to move even more cash into stocks. But we are seeing investors buy bonds, pushing those prices higher as well. This is contradictory to what we take for granted — that there is an inverse relationship between the stock market and bond prices. While many are calling for concern over this, based on the data, this isn’t something to be alarmed about.

The Cash Flow

First, let’s discuss why this is such a given concept — that as stocks go higher, bonds typically head lower. The rationale is that bonds are the safe place to park your cash. So when uncertainty is on

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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.

Contributor(s)

Chad Shoop

Chad Shoop, CMT

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THINK INCOME AND GROWTH DON’T EXIST IN THIS MARKET? THINK AGAIN

THINK INCOME AND GROWTH DON’T EXIST IN THIS MARKET? THINK AGAIN

Editor’s note: this article demonstrates a different perspective on income and was originally published as a white paper at the Cambria Investments web site. In the paper, the authors illustrate the different considerations involved in the investment selection process.

Are you having the following argument with yourself?

“I need an investment that’s going to provide me not only income, but growth too. Unfortunately, investors have been piling into dividend funds for years now in their search for yield. I’m worried that this has left me few reasonably-valued opportunities. If I invest in a potentially overvalued dividend fund today and this 8-year bull market finally runs out of steam tomorrow, then I’m risking serious losses. On the other hand, keeping my money on the sidelines is returning me zero. Is there an answer?”

As I’m about to show you, yes, I believe there is an answer – and a good one. Income and growth

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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ELLIOT WAVE GRAND SUPER CYCLE ANALYSIS OF THE S&P 500 CASH INDEX - SUPPORTED BY CLASSIC TECHNICAL ANALYSIS

ELLIOT WAVE GRAND SUPER CYCLE ANALYSIS OF THE S&P 500 CASH INDEX - SUPPORTED BY CLASSIC TECHNICAL ANALYSIS

This Elliott wave analysis is offered as a long-term view of the wave structure of the S&P 500.

Historic Chart – Back to 1871

This analysis makes two base assumptions:

1. That the S&P 500 price is a good reflection of current social mood and Elliott waves.

* That the upwards wave to the market peak of 1929 can be counted as a complete five wave impulse. (Data used for this analysis goes back to 1871 only. Data prior to the inception of the S&P 500 index is an amalgamation of the US stock market back to that date.)

Because this data does not show the start of Super Cycle wave (I), no

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)

Lara Iriarte, CMT

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THE ‘GRAND OLD PARTY’ AND THE U.S. DOLLAR

THE ‘GRAND OLD PARTY’ AND THE U.S. DOLLAR

The storming of the White House by Donald Trump last November created not just the usual ripples on a change in U.S. leadership but many shockwaves both at home and abroad as the world holds its breath waiting for the ‘New Normal’ to emerge.

For those trying to get a handle on what to expect over the next four or more years the early months of the Presidency have been a little perplexing to say the least. Differences have emerged between Mr. Trump’s isolationist pre-election rhetoric and some of his actions in the Oval Office, particularly in the field of foreign policy which has seen unilateral action in Syria, strong assurances given to NATO and the ramping up of stakes with North Korea.

Despite all the confusion and contradictions witnessed so far it is worth pointing out that while in what used to be called ‘the free world’ the leader of 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)

Howard Friend, CMT

Howard Friend, CMT

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BFF STOCKS: BACH, FIBONACCI, FRACTALS, AND US EQUITIES - ANALYSIS OF MODEL TRADING STRATEGY UTILIZING MAP QUANTITATIVE EQUITY RESEARCH DATA

BFF STOCKS: BACH, FIBONACCI, FRACTALS, AND US EQUITIES - ANALYSIS OF MODEL TRADING STRATEGY UTILIZING MAP QUANTITATIVE EQUITY RESEARCH DATA

SUMMARY

This paper explores an in-depth analysis of enhancing a model trading strategy utilizing MAP quantitative equity research data. Three studies were conducted and the data set representing the weekly pool of securities for portfolio construction spanned over 3.5 years.

This paper poses the following primary question:
Can we use quantitative analysis to enhance the desirable risk-adjusted return of the Compass 20/10 model trading strategy?

STUDY ONE: MODEL PORTFOLIO – WEEKLY COMPASS 20/10

The first study addressed the following question:
Is there enough statistical significance using MAP quantitative equity research data to create the Compass 20/10 model trading strategy to achieve desirable risk-adjusted return?

HYPOTHESIS: A model portfolio constructed with the aim of buying stocks with the highest Compass Scores, and shorting stocks with the lowest Compass Scores each week will generate desirable risk-adjusted return over time with statistical significance.

RESULTS: The model strategy tested assumes

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Contributor(s)

Jason Bodner

Jason Bodner

Lucas Downey

Lucas Downey

MAP

M A P

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New Educational Content This Month

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