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Technically Speaking, May 2010

Letter from the Editor

In this month’s issue of Technically Speaking, we proceed from the theoretical side of technical analysis to the practical application of technical analysis. The theory is important to understand, ideally before you start putting real money into trading ideas. Perhaps that last idea is what separates the professionals in our audience from the many failed traders that find technical analysis doesn’t work. It’s not that technical analysis doesn’t work – it’s more likely that the default settings of an indicator they saw on a web site don’t work. Several prominent technicians offer examples of what they have read over the years. Combined with the CMT reading list, which can be downloaded here, there is a lot to learn. If you haven’t reviewed that list in a few years, it’s worth taking a look at the changes that have been made over the past couple of years. The MTA library has many, if not all the technical analysis books that are worth reading. We also include two articles showing how to turn theory

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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...

The MTA Library: An Overlooked Benefit?

by Michael Carr, CMT

Learning technical analysis is different than mastering many other disciplines. Until recently, there has been little in the way of formal education. The introduction of the CMT Institute and...

Bull market? Bear market? Nu? Mu? Lessons in Semantics…

by Charles Bassetti

This article was originally posted at http://www.edwards-magee.com/2010/01/14/bull-market-bear-market-nu-mu-lessons-in-semantics/ on Jan 14, 2010. There is a famous zen story (mondo) about a monk...

Real Data Versus Fake Data

by Tom McClellan

appreciated the inclusion of the article by Jasmina Hasanhodzic, Andrew W. Lo, and Emanuele Viola concerning technicians being able to detect real price history data versus random data. I have heard...

US Stock Market Returns – What is in Store?

Last month, we published an article in Technically Speaking entitled “US Stock Market Returns – What is in Store?” and asked if it was an example of technical analysis. We received...

Theory to Practice – Bollinger Band Tools

by Michael Carr, CMT

Elsewhere in this issue, we offer examples of influential books. Experienced technicians often read a wide variety of materials to find what works for them. Eventually, they find a suite of tools...

A Detailed Technical Strategy

by Larry M. Berman, CMT, CTA, CFA

Editor’s Note: Technical analysis is a complex field. Larry has allowed us to reprint one of his daily reports which demonstrates this. There is some commentary, but this report presents an...

S&P 500 Technical Strategy

by Larry M. Berman, CMT, CTA, CFA

More details on Larry’s work can be found at ETF Capital Management (http://www.etfcm.com/index.php) It was impressive to see the market bounce back after the Goldman Sachs debacle and it is...

MTA Announcements

MTA May Symposium 2010 – Don’t Miss Out! Register today and join 200 of your colleagues and fellow MTA members at this year’s MTA Annual Symposium. This event will be an excellent...

The MTA Library: An Overlooked Benefit?

The MTA Library: An Overlooked Benefit?

Learning technical analysis is different than mastering many other disciplines. Until recently, there has been little in the way of formal education. The introduction of the CMT Institute and proliferation of college classes in technical analysis has changed that. The MTA Educational Foundation has worked for years to increase the availability of classes at the college level. College students at the undergrad and graduate level are now benefitting from these efforts. Among the recent successes of the MTAEF, they:

  • Developed a complete course in technical analysis, comprised of 12 lectures, including all necessary charts and exhibits. These lectures are available for use by academic institutions.
  • Partnered with University of Maine at Fort Kent to offer an affordable and accessible course online. The course is given three times a year.

With the focus on education, I recently asked members of the Foundation’s Board of Directors what books had a strong influence on their careers.

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

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Bull market? Bear market? Nu? Mu? Lessons in Semantics…

Bull market? Bear market? Nu? Mu? Lessons in Semantics…

This article was originally posted at http://www.edwards-magee.com/2010/01/14/bull-market-bear-market-nu-mu-lessons-in-semantics/ on Jan 14, 2010.

There is a famous zen story (mondo) about a monk who asked, does a dog have the Buddha nature? To which the zen master answered, mu. Mu means in this case both “no” and “nothing”.

When asked if we are in a bull market we answer, Nu?

Good god, what is the point? our readers ask.

Here’s the point. As you may know one of Magee’s books we edited is The General Semantics of Wall Street which concerns itself with the way we think about the market and how it affects our decisions. If you think of this market as a bull market you react one way. If you think you are in a bear market rally you react another. Good god, does Bassetti think

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)

Charles Bassetti

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Real Data Versus Fake Data

Real Data Versus Fake Data

appreciated the inclusion of the article by Jasmina Hasanhodzic, Andrew W. Lo, and Emanuele Viola concerning technicians being able to detect real price history data versus random data.

I have heard that criticism of technical analysis in the past, and many years ago a technician (who shall remain nameless) was confronted by a critic offering this very point. The critic proposed to prove that technical analysis was meritless by challenging the technician to examine some actual price charts and some charts of random data, and see if the technician could tell which was real.

The technician thought for a moment, and agreed to the challenge on one condition: he would provide some real corporate earnings data and some fake earnings data, and the critic would need to see if he could tell which sets were real.

The critic lost his smug expression, and declined the offer. The technician then twisted the knife a

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)

Tom McClellan

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US Stock Market Returns – What is in Store?

US Stock Market Returns – What is in Store?

Last month, we published an article in Technically Speaking entitled “US Stock Market Returns – What is in Store?” and asked if it was an example of technical analysis. We received several responses.

From Kevin MacDonald, an Investment Advisor with Mackie Research Capital, one of Canada’s largest independent full service investment firms:

Regarding the article “US Stock Market Returns – What is in Store?” in the most recent Technically Speaking, I am a classical technician and so would refrain from forming an opinion on a question that seems to be more of a quantitative issue.

I have another question, though, that arises from your original question: has the SPX p/e ratio ever been plotted in the same classical fashion as the SPX price is plotted? Can a p/e “price” chart and classic TA techniques reveal anything useful about the duration and strength of p/e trends, reversals, measured moves, etc.? Quite possibly you can’t

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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Theory to Practice – Bollinger Band Tools

Theory to Practice – Bollinger Band Tools

Elsewhere in this issue, we offer examples of influential books. Experienced technicians often read a wide variety of materials to find what works for them. Eventually, they find a suite of tools that work for them. Martin Pring has written that he makes decisions based upon the ‘preponderance of the evidence’ which requires multiple inputs.

John Bollinger developed Bollinger Bands in the early ’80s. Since their introduction, they have become one of the most widely used technical indicators by investors and technical analysts. There is a very simple reason for the popularity of Bollinger Bands — they work, and they work in a variety of ways. The indicator can be applied to price, another indicator, or almost any data series.

Recently, Bollinger wrote, “As the developer of Bollinger Bands I am often asked how to best utilize my bands. To answer requests for guidance I wrote Bollinger on Bollinger Bands. In my

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

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A Detailed Technical Strategy

A Detailed Technical Strategy

Editor’s Note: Technical analysis is a complex field. Larry has allowed us to reprint one of his daily reports which demonstrates this. There is some commentary, but this report presents an overwhelming amount of data in the charts and tables that make up the bulk of the analysis. What Larry does well is present an amazing volume of information in a clear and usable format.

Too often, new analysts don’t understand the importance of considering multiple data points and looking at as many variables as possible. That is probably because they don’t know how to organize the data. The report that follows is an excellent example of consistently portraying the technical conditions of the market, sectors, and individual stocks. It also illustrates the importance of looking at the data differently than everyone else to spot trades before the crowd – Larry’s sector RSI charts are pictures that are worth a thousand

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 M. Berman, CMT, CTA, CFA

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S&P 500 Technical Strategy

S&P 500 Technical Strategy

More details on Larry’s work can be found at ETF Capital Management (http://www.etfcm.com/index.php)

It was impressive to see the market bounce back after the Goldman Sachs debacle and it is impressive to see the continued strength despite the challenges the economic markets face. We knew earnings would be strong this quarter and we have heard virtually nothing about the stronger dollar hurting foreign revenues in the quarter.

There is enough economic momentum in Q2 to suggest that these strong earnings could continue for another quarter, so all these small dips created by economic anxieties probably continue to be shaken off. There is a point in a market cycle when bond yields are rising and asset allocation shifts back to stocks are such a powerful force that is frankly hard to measure. We believe we are in that phase now, as few like bonds, and it probably has more to run.

The financials (XLF)

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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)

Larry M. Berman, CMT, CTA, CFA

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MTA Announcements

MTA Announcements

MTA May Symposium 2010 – Don’t Miss Out!

Register today and join 200 of your colleagues and fellow MTA members at this year’s MTA Annual Symposium. This event will be an excellent opportunity to further your networking while expanding your education of technical analysis. Sign up today to join this growing list of attendees which is on pace to be one of the highest attended events in recent MTA history.

Keynote Speakers

To register online, click here. Alternatively, you can register over the phone by calling Cassandra Townes at 646-652-3300.

For complete event information, please click here.

MTA Knowledge Base – Recent Additions!

The MTA would like to announce the following articles have been added to the MTA Knowledge Base.

    • Equities: Blending Technical And Fundamental Analysis by Sam Subramanian
    • 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.

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New Educational Content This Month

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