Technically Speaking, March 2023

As human beings, what sets us apart is our emotional quotient. It is a part of us that allows us to perceive things in ways that are unique to one another. This is also why we have multiple interpretations of the same chart based on time horizon, risk profiles, and goals. There are optimists, pessimists as well as realists. And somewhere, these tendencies play out in our job responsibilities as well. But regardless of personality traits, there are ways and means that help us find common ground. As market participants, that comes in the form of risk management. 

We know that trades could go either in our favor or against it. In my journey, I’ve realized that no matter how prepared I was for failure, the moment it hits you, it hits you hard. But over time, I have come to understand that my next steps at that point were most important from the perspective of recovery. Those failures can be converted into successes with introspection and a planned approach. Far too often, though, the curiosity within peaks when we do something wrong and is left in the background, fighting for attention when we do something right. If success is what we chase, we must approach the rights and the wrongs with the same level of curiosity. And while that is true for the market, it also stands true for life in general!

I recently had a conversation where someone expected me to justify technical analysis as a study and explain why it applies to all asset classes when the economic drivers are vastly different. As an equity market participant, I asked him if he had any view on natural gas, Ethereum, or the stock market of Lithuania. He promptly thought I was straying and quickly denied it while ‘attempting’ to bring me back to the discussion at hand. I responded by saying, “That’s why technical analysis’. It allows me to study anything that has a price. I can look at the Dollar Index and identify whether the stock/commodity market conditions would be positive or negative. I can look at the rate of change of interest rates and gauge if that’s a headwind or a tailwind. In my curious moments, I can also take a trip down the covariance and correlation routes to look for patterns. So technical analysis gives me a starting point; from then on, it’s my treasure hunt! 

The market at present is murky again. With banks and financials flirting with crucial support zones, tech and growth stocks hold the leaderboard. DXY has remained range-bound, but it is the volatility in the bond market that has the market spooked. Bond market volatility ($MOVE) is typically accompanied by stock market volatility ($VIX), which is currently absent. So one or the other has got to play catch up. Which one will it be? Only time will tell. But in the meantime, other areas of the market are outperforming, which ought to attract attention. We never know the future, but we can position ourselves with all our information and look out for developing trends. 

If you’re in the market for an excellent two-day information camp in technical analysis, your timing couldn’t get better! The CMT Association is proud to host the 50th Symposium in New York from April 26-28. I guarantee you, you’ll make memories and contacts that last a lifetime! This is your chance, take it! You can read more about it here

I will see you again next month as we inch closer to the Symposium. 

Until then, Think Technical!

Disclaimer: No part of this write-up was developed using ChatGPT. (Do you think you could tell the difference if it was, though? Just curious) 

What's Inside...

President's Letter

I’m sure many of us have been in the situation of having to explain what Technical Analysis is to someone...

Read More

Things Should Be Better, Right?

Volatility heated up in a big way to start March, as the failure of Silicon Valley Bank triggered a wave...

Read More

Bearish and Bullish Momentum Ranges

Momentum indicators are widely used by most technicians. There’s a wide variety of applications of momentum. Some look at high-low...

Read More

Commodities and Bonds at Crossroads

Silicon Valley bank ($SIVB) news led to turmoil in the market. This had an impact on all major indices which...

Read More

Accurate Trade Analysis with candlestick charts

Candlestick charts reveal some very powerful truisms. The chart graphics are based upon the most consistent investment indicator in the...

Read More

Steven Carl Leuthold Memoriam

Steven Carl Leuthold, Age 85, a dynamic and respected CMT Association Member with over 50 years of service to the...

Read More

President's Letter

I’m sure many of us have been in the situation of having to explain what Technical Analysis is to someone who asks. Usually it’s because they noticed the CMT designation after your name and wondered what it means. Or perhaps you found yourself in a heated debate with another financial professional about the merits of a valuation estimate and you brought technical analysis into the discussion.

Not so easy, is it? I’ll bet you stumbled a bit, trying to explain this investment philosophy that is so near and dear to your heart, but something you’ve never actually tried to write down yourself, from memory.

I think it’s worthwhile for practitioners of technical analysis to develop their own definition that they can recite when the opportunity arises. That way you deliver a clear, concise, and accurate message without having to wing it and end up thinking later that you could have done a better job.

Of course, you don’t have to start from scratch. Here are some of the best definitions I could find as a starting point for your own definition.

The CMT Association Constitution defines Technical Analysis in Article 2:

“Technical analysis is the study of data generated by the action of markets and by the behavior and psychology of market participants and observers. Such study is usually applied to estimating the probabilities for the future course of prices for a market, investment or speculation by interpreting the data in the context of precedent.”

The very first definition of technical analysis I ever read was by John Murphy on page 1 of Technical Analysis of the Financial Markets. 

“Technical Analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends.”

The last (most recent) definition I’ve read is by Stan Weinstein in Secrets for Profiting in Bull and Bear Markets (page 4).

“All that technical analysis really consists of is the study of price and volume relationships to gain an insight into future trends.”

Aswath Damodaran wrote a whole chapter about technical analysis is his book, Investment Philosophies (pages 209-257), but does not explicitly define technical analysis. He does however quote Edwards & Magee a few times, so let’s look at their definition.

Robert Edwards and John Magee wrote Technical Analysis of Stock Trends in 1948, and on page 5 said this:

“Technical Analysis is the science of recording, usually in graphic form, the actual history of trading (price changes, volume of transactions, etc.) in a certain stock or in ‘the averages’ and then deducing from that pictured history the probable future trend.”

One of the Edwards and Magee quotes in Damodaran’s Investment Philosophies seems perfectly suited to follow their own definition (page 240):

“The market price reflects not only the differing fears and guesses and moods, rational and irrational, of hundreds of potential buyers and sellers, but it also reflects their needs and resources—in total, factors which defy analysis and for which no statistics are obtainable. These are nevertheless all synthesized, weighted and finally expressed in the one precise figure at which a buyer and seller get together and make a deal. The resulting price is the only figure that counts.”

It seems like we should include in our definition some reference to our stance on the Efficient Market Hypothesis. After all, we are making an assumption that price includes all relevant information. 

Kirkpatrick and Dahlquist dedicate the first chapter of their book, Technical Analysis, to defining technical analysis, but sum it up on page 1 with the following:

“…technical analysis is the study of prices in freely traded markets with the intent of making profitable trading or investment decisions.”

But they also list five assumptions of technical analysis that were presented in Edwards and Magee to clarify what it is, and they go on to say that “the technical analyst believes that all [relevant] factors are already factored into the demand and supply curves and, thus, the price of the company’s stock.” 

So they include the idea that technical analysis takes a specific stand in the debate about market efficiency.

On page 3 of Technical Analysis Explained, Martin Pring defines it as:

“the art of identifying trend changes at an early stage and to maintain an investment or trading posture until the weight of the evidence indicates that the trend has reversed.”

Pring defines “evidence” as a series of scientifically derived indicators or techniques that work well most of the time in the trend-identification process (page 9). He also expounds on what he means by “art”, saying that it consists of combining indicators into an overall picture and recognizing when that picture resembles a market peak or trough.

In case you were unaware, technical analysis is actually covered in the CFA Program Level 1 curriculum, written by Aksel Kibar, CMT; Barry M. Sine; and Robert A. Strong, PhD, CFA. Here’s the CFA definition:

“Technical analysis is a form of security analysis that uses price and volume data, often graphically displayed, in decision making. Technical analysis can be applied to securities in any freely traded market around the globe. A freely traded market is one in which willing buyers trade with willing sellers without external intervention or impediment. Prices are the result of the interaction of supply and demand in realtime. Technical analysis allows us to see a battle between buyers and sellers, along with subtle clues as to which side may be winning. Technical analysis is used on a wide range of financial instruments, including equities, bonds, commodity futures, currency futures, and cryptocurrencies.”

Finally, just for fun, I tried out ChatGPT, the artificial intelligence driven chatbot that has captivated the news lately, and told it to “explain what technical analysis is”. For what its worth, here you go.

“Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. The idea behind technical analysis is that market trends, as shown by charts and other technical indicators, can predict future activity.

Technical analysts believe that the study of past market data, primarily price and volume, can provide insight into future market activity. They use charts and other technical tools to identify trends and make trading decisions. For example, a technical analyst might look for patterns in a stock’s price chart that suggest a buying or selling opportunity, or use a technical indicator such as moving average to identify a trend.

It’s important to note that technical analysis is a controversial approach to security analysis, and not all investors and traders believe in its effectiveness. While some view it as a valuable tool for making informed investment decisions, others believe it to be unreliable and based on subjective interpretation of market data.”

Realistically, everyone should develop their own definition that will be most effective in whatever professional setting you are in most often, whether it is a layperson or another investment professional. Being consistent with your message will seriously improve how people evaluate your use of technical analysis as a valuable tool for securities analysis.


Brett Villaume, CMT, CAIA

Brett Villaume, CMT, CAIA, is Past President of the CMT Association, having served on the Board of Directors since from 2014 to 2023. Additionally, Brett is a Wealth Advisor at Dogpatch Capital, a registered investment advisor in San Francisco, CA. From 2015...

Things Should Be Better, Right?

Volatility heated up in a big way to start March, as the failure of Silicon Valley Bank triggered a wave of selling and one of the worst weeks for banks since the heart of the Covid-crisis. While the S&P 500 has continued to trade in a wide sideways range, returns under the surface have been wildly dispersed. Equity bulls have been able to point to skyrocketing industrial stocks and significant improvement from some of the bear market’s worst-performing growth stocks. In addition, the case for the lows being in is supported by a number of breadth thrusts, and stats such as the fact that the S&P 500 has never spent a month above its 200-DMA in the midst of a bear market rally, as it did recently.

However, bears didn’t just start scoring points in the wake of the regional bank crisis.  One of the things that has continued to bother me has been the persistent deterioration in healthcare stocks to start 2023. Yes, we expect healthcare and other defensive sectors to lag in the early innings of a bull market, but outright decline? The healthcare sector has fallen for 12 of the past 14 weeks going back to last December, including a run of 9 straight losses. Not exactly bull market behavior for the market’s 2nd largest sector.

So, as the S&P 500 approaches its 5-month anniversary of the October lows, I thought it prudent to investigate what sector returns typically look like at this point following a (potential) major market low.

As the table above shows, returns across the board are underwhelming compared to prior bear market lows, not just for defensive sectors, but also cyclicals and growth. 

Since the October 12 closing low, consumer discretionary has an outright negative return and only 3 sectors have returned greater than 10%. Of the 3 prior bear markets, the only comparable period was 2002, where discretionary was also negative and just two sectors had a double-digit return.

However, it should be noted that almost exactly five months after the October 2002 lows, the S&P 500 was in the midst of a retest that would take it to within 3% of the bear market lows. For that reason, the table also includes sector returns following those March 2003 lows. Five months later, energy was the only sector not up double-digits and five sectors had gained at least 24%.

My takeaway from this simple exercise is that the underwhelming sector returns suggest an elevated possibility that the October lows could be retested or taken out. That isn’t to dismiss the positives or other data available to us, but it would be far more within expectations to see multiple sectors up 20-30% at this point, versus the 16.5% leading return for the industrials sector.   


Scott Brown, CMT

Scott Brown, CMT is the founder of Brown Technical Insights. Scott has worked both as a financial advisor and for financial advisors his entire career and Brown Technical Insights brings his knowledge and expertise to an even larger audience.  He has appeared...

Bearish and Bullish Momentum Ranges

Momentum indicators are widely used by most technicians. There’s a wide variety of applications of momentum. Some look at high-low ranges, closing values only, various lookback periods, smoothed values with the inclusion of moving averages. How they are used also varies. Some traders look for extremes in momentum as signs for potential mean-reversion. Others seek divergences, such as with momentum making a lower-high as price makes a high-high. However, one topic regarding momentum indicators that doesn’t get as much attention are ranges. The range that a momentum indicator – and for this post’s purposes we’ll be using the 14-period Relative Strength Index (RSI) – can tell us a lot about what’s going on in the market’s price action.

Ranges can be viewed in various timeframes; my focus today is looking at the weekly chart of the S&P 500 and the 14-week RSI. The focus isn’t on the “overbought” or “oversold” levels of 70 and 30. Instead, we’re more interested in when RSI rises above 60 or falls below 40. Strong momentum often begets continued strength, so when we see momentum staying elevated (outside of extreme levels like getting north of 80 back in January 2018), that’s historically been bullish for price continuing to rise. The opposite has also been true, when RSI is weak, hitting levels under 40, then price is deemed to be in a bearish range and price activity often finds itself in a down trend.

Below is an example using the weekly chart of the S&P 500 since 2000. Let’s unpack what can be learned from this chart:

  1. First let’s look at the major bear markets that began in 2000 and 2007. Notice as those down trends developed, the weekly RSI was unable to produce a reading above 60. It wasn’t until the down trends had ended and price began to show strength that we got the first break above 60.
  2. This doesn’t just apply to major bear markets. When RSI goes from under 40 to above 60, historically price action has appreciated further. I’ve plotted green arrows when this has occurred. Each move above 60 after being under 40, the shift from a possible bearish range to a potential new bullish range has been a positive sign for the Index.

We can take this concept of ranges a step further and look at a more systematic approach to identifying when the S&P 500 is in a bullish or bearish range based on its 14-week RSI. The chart below goes back to 1980 and turns green when the RSI has spent 3 of the last 4 weeks above 60 and turns red when the opposite occurs, spending 3 of the last 4 weeks under 40. To assist in identifying the ranges we’re looking for when it’s been above or below the noted levels for at least a few weeks rather than just a single week that pierces the threshold and immediately moves away (as we saw in August 2004 and June 2010).

Looking at the far right of the chart, we can see this metric is one that bulls still have left unchecked with regards to the rebound in equities that began in October 2022. Currently the 14-week RSI still hasn’t been able to breach 60 which leaves us still in a bearish range.

By taking a systematic approach to identifying the ranges of momentum, we can run a simple back test to see how the market has performed when in these ranges. The chart below shows difference in performance of when the market is in bullish range (orange line) vs. when in a bearish range (blue line). This isn’t intended to be a trading signal but to provide insight into the condition of the market, based on whether the range momentum finds itself in. And of course… It’s important to note this is not a recommendation to buy or sell and past performance is not indicative of future returns.

By taking a step back and looking at longer-term charts such as the weekly chart examples used above, we can evaluate the ranges of momentum and work towards identifying what kind of market environment we may find ourselves in. The analyst can also play around with different thresholds. 60/40 are the ones I used today but are by no means the only options available and other technicians may find other thresholds for range identification useful.


Andrew Thrasher, CMT

Andrew Thrasher, CMT is the Portfolio Manager for Financial Enhancement Group LLC and founder of Thrasher Analytics LLC. Mr. Thrasher holds a bachelor’s degree from Purdue University and the Chartered Market Technician (CMT) designation.  He is the 2017 and 2023 winner of the Charles H. Dow...

Commodities and Bonds at Crossroads

Silicon Valley bank ($SIVB) news led to turmoil in the market. This had an impact on all major indices which closed below their 200 Day Moving Averages signifying a weakness. Long Term Treasury Bonds ETF $TLT gained 3.5% while 10 Yr Treasury Yield $TNX lost 5.86% in a week. Given recent developments, the Commodity to Bond ratio which has been consolidating is at an interesting point. The commodity to Bond ratio is an important indicator of the health of the economy. The rising ratio is inflationary and indicates higher demand for commodities, which in turn points towards higher interest rates and falling bond prices. The falling ratio is deflationary.

Commodities/Bonds – The ratio and its momentum have been consolidating after the countertrend DeMark Signal (13). The price which is inside the Ichimoku Cloud (Kumo) needs to move above or below the cloud for the resumption of the trend.   

Copper and Oil – Copper and oil are major commodities having an impact on the economy. Rising oil has a direct impact on the economy. Higher oil prices are inflationary. Copper is used in many sectors. Rising copper prices signify a growing economy.

$CPER – Copper rallied from July 2022 lows retracing 62% of the move down to consolidate between two Fibonacci levels. 

$USO – Oil too has been range bound and has overhead cloud resistance.

$DXY – US Dollar Index $DXY which had been rallying up from the February low formed a bearish momentum divergence and failed to cross the resistance at 105.63. It is likely to go to the next support at 102.39.  

Weakening stocks were a tailwind for Bonds and Gold with the market going into the risk-off mode.

$TLT – Long Bonds ETF has been consolidating after moving up from October 2022 low. After an island reversal from the December lows, it now faces resistance at 110 and from the overhead cloud.

$GLD –  Gold has been moving up after a failed breakdown of March 2021 lows. After a brief pullback into the cloud, it gapped up above the cloud in a bullish price action supported by the bearish dollar. A break above the downtrend line will likely activate the next target at 185. 

$EEM – Emerging Markets ETF has a strong correlation with copper and an inverse correlation with the US Dollar. $EEM rallied from October 2022 lows but failed to cross the cloud resistance. It has been moving down since January and is now near the support level at 37. A weak dollar is likely to fuel an up move in $EEM. However, it has to close above the cloud resistance at 42 for the resumption of the up move.  

2 Yr Treasury Yield rallied to the highest level since 2007 which is a long term resistance. A countertrend DeMark 13 signal led to a sharp reversal, its biggest drop since 1987 Black Monday.

A weaker Dollar is likely to boost commodities while falling interest rates will be bullish for bonds. Fed Fund Rate has usually been following the 2 Yr Yields which leads to the possibility of a FED pivot. Whether the FED will slow down the rate hikes remains to be seen.  




Bhagyashree Urdhwareshe, CMT

Bhagyashree Urdhwareshe, CMT has been active in trading and technical analysis of Indian stock market since 2007 and US Market since 2015, trading derivatives and equities. She owned a software development firm Sunsoft Technologies in India that successfully executed several software development...

Accurate Trade Analysis with candlestick charts

Candlestick charts reveal some very powerful truisms. The chart graphics are based upon the most consistent investment indicator in the world – human nature. Another investment truism is that if something does not work, it does not stay around very long. Candlestick analysis has been in existence for hundreds of years. Japanese rice traders have identified signals and patterns that produce high-probability results based on investor sentiment.

As an investor, whether a trader or a money/hedge fund manager, applying the common sense expected results of candlestick signals and patterns significantly improve the ability to evaluate trend movement much more accurately. Candlestick signals and patterns are not conjecture. They indicate the actual decisions occurring between the bulls and the bears.

The logic is simple! Candlestick analysis is the graphic depiction of everybody buying and selling during a specific time frame. It is not delegated to any specific trading market or entity. It is a graphic depiction of human nature. Anything that involves investor fear and greed, which is all trading entities, market indexes, ETFs, stocks, commodities, currencies, and tulip bulbs, can be evaluated with much greater accuracy using candlestick analysis.

Investors can gain a considerable advantage by utilizing candlestick information to put ‘all the stars in alignment!’ First, the candlestick visuals will indicate reversals and the direction of the overall market trends. If the market reveals an uptrend, simple candlestick scanning techniques will reveal which sectors show the most vital signals. The same scanning techniques can then reveal which individual stocks demonstrate the most substantial upside potential in that sector. The same process can be used for identifying the strongest bearish sectors and bearish stock positions, in those sectors, in a market downtrend.

Chart 1

At point “A”, identifying the candlestick buy signal, with stochastics showing oversold conditions, would warrant scanning for the sectors demonstrating the most robust bullish candlestick charts. The next step would be scanning for the individual stocks in those sectors, demonstrating the most vital bullish candlestick signals. This process implies that the sector is being bought across the board by numerous buyers.

At point “B”, witnessing candlestick sell signals at the 200-day moving average indicates that this is where the sellers are taking control at a detectable resistance level. Sell signals at the resistance level and a close back below the T line is a decisive probability factors that a downtrend is about to start.


Stephen W. Bigalow

Stephen W. Bigalow owner of His 45 years of investment trading, with heavy emphasis on candlestick analysis, provides a learning forum of candlestick analysis. He consults for money managers and hedge fund managers for improving market and positioning timing. Stockbroker: Kidder Peabody,...

Steven Carl Leuthold Memoriam

Steven Carl Leuthold, Age 85, a dynamic and respected CMT Association Member with over 50 years of service to the investment industry, passed away peacefully at his home in Carlsbad, California, on March 7, 2023.

Steve became a nationally respected investment strategist, known for his contrarian nature and unpretentious style, which was poles apart from his manicured peers on Wall Street who donned three-piece suits and flashy accessories. He explored a variety of prospects before carving out his niche on (off) Wall Street. 

Our thoughts remain with his family during this difficult time.