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Technically Speaking, May 2017

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THE MYTH OF SHOCKS - AN EXCERPT FROM CHAPTER 1 OF THE SOCIONMIC THEORY OF FINANCE

by Robert Prechter, CMT

Editor’s note: This is an excerpt from Robert Prechter’s recently published book, The Socionomic Theory of Finance. Few people find a new theory accessible until they first see errors in the old...

INTERMARKET ANALYSIS: A CLASSIC OVERVIEW

by Benjamin Upward, CMT

Editor’s note: This was originally published as a series of posts at SynchronicityFutures.com. The original posts are available here. What a run…US Treasuries 10 Year US Treasury Notes – why do...

STOCK MARKET YEARS ENDING IN ‘7’

by Lawrence McMillan

Editor’s note: Larry McMillan was a featured speaker at the recent MTA Annual Symposium.  This article was originally published by Proactive Advisor Magazine. Free subscriptions are available...

DOES MARKET SENTIMENT HELP EXPLAIN MOMENTUM?

by LARRY SWEDROE

Editor’s note: This article was originally published at AlphaArchitect.com and is another example of recent behavioral finance research. To learn more, please visit AlphaArchitect.com. Momentum is...

RULES FOR DRAWINGS AND ANALYZING TRENDLINES

by Jeffrey S. Weiss, CMT

Editor’s note: Reprinted with permission from the American Association of Individual Investors, www.aaii.com. Article Highlights • Trendlines can offer insights in assessing buying power or...

WHY HAVE ASSET PRICE PROPERTIES CHANGED SO LITTLE IN 200 YEARS

by JEAN-PHILIPPE BOUCHARD & DAMIEN CHALLET

Editor’s note: This paper was originally published at https://arxiv.org/pdf/1605.00634.pdf. It is reprinted here as an example of recent work in behavioral finance. Abstract: We first review...

THE MYTH OF SHOCKS - AN EXCERPT FROM CHAPTER 1 OF THE SOCIONMIC THEORY OF FINANCE

THE MYTH OF SHOCKS - AN EXCERPT FROM CHAPTER 1 OF THE SOCIONMIC THEORY OF FINANCE

Editor’s note: This is an excerpt from Robert Prechter’s recently published book, The Socionomic Theory of Finance. Few people find a new theory accessible until they first see errors in the old way of thinking.  Part I of this book challenges the universally accepted paradigm under which humans’ rational reactions to exogenous (external, or externally generated) causes purportedly account for financial market behavior. The current chapter explores whether dramatic news events affect financial markets. Testing Financial-Market Reaction under Perfect Conditions In the physical world of mechanics, action is followed by reaction. When a bat strikes a ball, the ball changes course. Most financial analysts, economists, historians, sociologists and futurists believe that society works the same way. They typically say, “Because so-and-so has happened, it will cause suchand-such reaction.” This mechanics paradigm is ubiquitous in financial commentary. The news headlines in Figure 1 reflect what economists tell reporters: Good economic news makes the stock market

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Contributor(s)

Robert Prechter, CMT - 2023

Robert Prechter, CMT

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INTERMARKET ANALYSIS: A CLASSIC OVERVIEW

INTERMARKET ANALYSIS: A CLASSIC OVERVIEW

Editor’s note: This was originally published as a series of posts at SynchronicityFutures.com. The original posts are available here. What a run…US Treasuries 10 Year US Treasury Notes – why do we care? • Foreign countries own quite a bit of our debt – http://ticdata.treasury.gov/Publish/mfh.txt • The Fed owns quite a bit of our debt – https://fred.stlouisfed.org/series/TREAST • Domestic institutions own quite a bit of our debt (mutual funds, baking institutions, insurance companies, state and local governments, and pension funds) – SIFMA Although not a perfect correlation, the 10 year rate does have some effect on certain fixed mortgage rates. And mortgage rates have some effect on home prices (though other variable like wage growth and inflation have a say as well) So, treasuries are important because: • We have huge players that own a ton of treasuries and • Treasuries have an important impact on the housing market. Let’s look, then, at a long-term vista of the 10 Year Treasury Rate

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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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Benjamin Upward, CMT - 2023

Benjamin Upward, CMT

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STOCK MARKET YEARS ENDING IN ‘7’

STOCK MARKET YEARS ENDING IN ‘7’

Editor’s note: Larry McMillan was a featured speaker at the recent MTA Annual Symposium.  This article was originally published by Proactive Advisor Magazine. Free subscriptions are available to qualified professionals. To learn more, please click here. Long-term cycle charts are interesting to look at, but I’m not sure how much they help one’s trading or strategy. In any case, www.seasonalcharts.com has an interesting 10-year cycle chart of the Dow Jones Industrial Average. The data for the Dow is accumulated by year and then published in a way that shows the pattern of each year of the decade—going back to 1897 in this case. Stock market years ending in “7” have had some very interesting drama. Many of us remember the Crash of ‘87, of course. Up through August, 1987 had been a wonderful year, as prices surged ahead. There were problems moving forward in September and October, and then a torrent of

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Lawrence McMillan

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DOES MARKET SENTIMENT HELP EXPLAIN MOMENTUM?

DOES MARKET SENTIMENT HELP EXPLAIN MOMENTUM?

Editor’s note: This article was originally published at AlphaArchitect.com and is another example of recent behavioral finance research. To learn more, please visit AlphaArchitect.com. Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. In 1997, Mark Carhart, in his study “On Persistence in Mutual Fund Performance,” was the first academic to use momentum, together with the three Fama-French factors (market beta, size and value), to explain mutual fund returns. Robert Levy published one of the earliest formal studies on crosssectional momentum in 1967, but the real academic interest for momentum (a form of technical analysis) was inspired by Narasimhan Jegadeesh and Sheridan Titman, authors of the 1993 study “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.” The academic literature has investigated the existence and performance

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RULES FOR DRAWINGS AND ANALYZING TRENDLINES

RULES FOR DRAWINGS AND ANALYZING TRENDLINES

Editor’s note: Reprinted with permission from the American Association of Individual Investors, www.aaii.com. Article Highlights • Trendlines can offer insights in assessing buying power or selling pressure, with significant breaks often foreshadowing a continued move in the direction of the break. • Using both bar and line graphs can offer confirmation of whether a trendline break is actually occurring. • The keys in drawing include identifying the peaks and troughs to originate the trendlines from, the length of time they cover and how many points lie along/around the line, and what constitutes a break of the trend. Perhaps no other aspect of technical analysis lends itself to as many varied interpretations as trendlines—an analytical tool with the potential to enhance your investment performance while simultaneously offering a risk management component. How much you weight this analytical gauge in your analysis is, of course, up to you. You must be comfortable and confident with any approach,

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Jeffrey S. Weiss, CMT

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WHY HAVE ASSET PRICE PROPERTIES CHANGED SO LITTLE IN 200 YEARS

WHY HAVE ASSET PRICE PROPERTIES CHANGED SO LITTLE IN 200 YEARS

Editor’s note: This paper was originally published at https://arxiv.org/pdf/1605.00634.pdf. It is reprinted here as an example of recent work in behavioral finance. Abstract: We first review empirical evidence that asset prices have had episodes of large fluctuations and been inefficient for at least 200 years. We briefly review recent theoretical results as well as the neurological basis of trend following and finally argue that these asset price properties can be attributed to two fundamental mechanisms that have not changed for many centuries: an innate preference for trend following and the collective tendency to exploit as much as possible detectable price arbitrage, which leads to destabilizing feedback loops. 1 Introduction According to mainstream economics, financial markets should be both efficient and stable.  Efficiency means that the current asset price is an unbiased estimator of its fundamental value (aka “right”, “fair” or “true”) price. As a consequence, no trading strategy may yield statistically abnormal profits

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New Educational Content This Month

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