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Technically Speaking, May 2022

Welcome Readers to a brand-new edition of Technically Speaking.

Well guess what? I just attended my first CMT Symposium, and it was phenomenal!

Here’s a little history about me. I began my CMT journey in late 2014. By October 2016, I had completed all three levels and got in line to apply for my charter. After gaining the right work experience, I received my charter in February 2020. The only reason for this little timeline here is to say that it’s basically been about 8 years since I’ve been pining to go to a CMT Symposium! When I realized that I could potentially make it to the event in 2022, I was ecstatic!

It was two days of like-minded people talking markets and sharing perspectives. We’ve all known of each other through Twitter or LinkedIn or working together, but this was the first time I met a lot of folks.

But, I’m here to share the single most important thing that I learnt from the Symposium. The CMT Community is possibly the nicest group of people I’ve come across. In a world where everyone is guarding their trade secrets (spoiler alert: they don’t exist), the people I met were more than willing to share and learn from one another regardless of their experience.

 

A testament to this is Ralph Acampora sitting in the front row, listening intently to every speaker that took to stage! One conversation with the Godfather of TA and you realize just how easy we have it these days. I was lucky to have had a half an hour one-on-one chat with Ralph about his journey, early days at the CMT Association, the market as he sees it etc. The CMT Association has fought several battles for survival, but we still have a long way to go! And as Ralph says it, the responsibility is now in the hands of the technical analysts today. We have the stage; we just have to use it!

While WFH has its own benefits, it is a whole different feeling meeting people in person. There is a certain charm in having a face-to-face conversation and nothing can replace that. And it adds a certain dimension to your work that only comes when you meet people in flesh and bones. Safe to say I had a great time at the Symposium and certainly made some great friends!

I’m going to go ahead and share some pictures from the symposium that are very close to my heart. To all those who attended the event, thank you for making it a success! To all those tuning in from their homes, we hope you enjoyed the content and will be back the next time!

Until then, Think Technical!

Rashmi Bhatnagar, CMT

Editor

Technically Speaking, May 2022 - 2022

What's Inside...

President's Letter

by Brett Villaume, CMT, CAIA

During one of the conversations I had at the 2022 CMT Annual Symposium, I was reminded that there are quite a few Members and CMT Program candidates who are living in more remote areas of the world....

May 2022 CMT Newsletter

Membership The CMT Association would like to congratulate the following member on their new positions: Keith C. Applegate, CMT, HNW Associate at Fidelity Investments Milan Vaishnav, CMT, MSTA,...

My First Symposium

by Louis Spector

This year’s 49th Annual Symposium was incredible. For many, attending in person might be a challenge. That said, I can tell you the reward is more than worth the effort. Being a first-year...

2 Takeaways from the 2022 CMT Symposium

by Larry Thompson, CPA

As a student of the markets and on the verge of my CMT level one exam, I was pumped to attend the 49th CMT Symposium. The old saying, “drinking through a fire hose” never seemed more relevant....

What can the ES one-day straddle and Average True Range tell us about short-term market expectations?

by Matt Nygaard, CMT

For those of you who day trade or swing trade, it is helpful to get a gauge on the market’s expectations for price movement.  I’ll share a simple method that I use for my own trading, and I’ll...

Road Ahead for Equities, Gold and Dollar Index: Technology Stocks May See Relative Outperformance

by Milan Vaishnav, CMT, MSTA

The year 2022 has not been particularly kind to equities in general; more particularly to the technology stocks. Almost all global equity markets marked their peaks in or around October 2021; since...

Crude Oil: Will War & Inflation concerns push prices beyond $200?

by Jigar Mehta, CMT

Well, Crude price has been all over the place in the last couple of years. In the year 2020 we saw a major crash with negative rates on WTI Crude. Fast forward now to current Russia-Ukraine War where...

Ichimoku - At A Glance

by Bhagyashree Urdhwareshe, CMT

Ichimoku Kinko Hyo is a popular trend following Japanese system developed by Goichi Hosoda in the late 1930s. He used and tested the system over next 20 years before publishing it in 1969. Balance...

ICYMI: Sunil Garg, CMT Presentation to CFA Society Hong Kong

by Brett Villaume, CMT, CAIA

On April 27th, Mr. Sunil Garg, CMT, former Head of International Equity Research at J.P. Morgan, presented to the CFA Society of Hong Kong on a webinar that was co-hosted with the CMT Association....

President's Letter

President's Letter

During one of the conversations I had at the 2022 CMT Annual Symposium, I was reminded that there are quite a few Members and CMT Program candidates who are living in more remote areas of the world. These people may feel a bit “out there on their own” compared to those of us living in large metropolitan areas. If you don’t live in a big city, it’s difficult to meet fellow technicians and get together to share ideas. Now that the COVID-19 pandemic is subsiding, local CMT chapter meetings are beginning to reconvene in-person (or “in 3D”) in certain parts of the world. And of course, there was the hybrid in-person/online 2022 Symposium that brought together over 100 people in Washington DC. But for those members living in rural or remote areas, what options do they have to build their professional networks? It is especially hard for CMT Program candidates who live in

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)

Brett Villaume

Brett Villaume, CMT, CAIA

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May 2022 CMT Newsletter

May 2022 CMT Newsletter

Membership The CMT Association would like to congratulate the following member on their new positions: Keith C. Applegate, CMT, HNW Associate at Fidelity Investments Milan Vaishnav, CMT, MSTA, Consultant Technical Analyst – ChartWizard.ae at ChartWizard FZE Status is reachable Rishav Raj, Assets Operation at Utkarsh Small Finance Bank Karan Pai, CMT, as Manager at Kotak Securities     CMT   The June 2022 test administration starts on June 2nd and now is the time to make sure that you are prepared for your scheduled appointment.   If taking the exam at a test center, plan to arrive at least 30 minutes before your scheduled appointment to allow for check-in procedures.  For remote proctoring also allow yourself time to check that the firewalls and/or antivirus protections have been temporarily disabled and to download the exam.  If you need to verify your appointment, please go to Prometric.com and select Confirm.   You will also need present an ID both at the test center and for remote

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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My First Symposium

My First Symposium

This year’s 49th Annual Symposium was incredible. For many, attending in person might be a challenge. That said, I can tell you the reward is more than worth the effort. Being a first-year attendee, I was nervous. That nervousness was completely unfounded. The association’s members were friendly and welcoming. I did not run into any egos too large to shake hands and engage in spirited conversation. This was true from our inspiring founder Ralph Acampora, to our esteemed president Brett Villaume, to the Ubiquitous Tyler Wood, to the forward-thinking Joel Pannikot, to the model CEO and educator Mathew Verdouw of Optuma.   The symposium began perfectly. John Bollinger gave us a history lesson. He outlined 12 market technicians, their contributions to our discipline, and how to learn more about them. This incredibly practical and thoughtful presentation reminded us that only through studying history can we truly hope to develop an informed perspective.

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)

Louis Spector - 2022

Louis Spector

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2 Takeaways from the 2022 CMT Symposium

2 Takeaways from the 2022 CMT Symposium

As a student of the markets and on the verge of my CMT level one exam, I was pumped to attend the 49th CMT Symposium. The old saying, “drinking through a fire hose” never seemed more relevant. It’s been about a week since the conference and now that I’ve had time to reflect, here are two of my key takeaways. Keep it simple. Whether it was 2020 Charles H. Dow Award Winner, Christopher Cain, who builds quantitative models in his search for alpha or the great Helene Meisler who prefers chart paper and a sharp Ticonderoga #2, this refrain was echoed in every talk. Keep it simple. Yes, the boring old verbiage we’ve heard countless times, keep it simple. After studying my notes and seeing this written down on every page it hit me, why would every speaker take time to remind us to keep it simple? It must matter, and

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)

Lawrence Thompson

Larry Thompson, CPA

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What can the ES one-day straddle and Average True Range tell us about short-term market expectations?

What can the ES one-day straddle and Average True Range tell us about short-term market expectations?

For those of you who day trade or swing trade, it is helpful to get a gauge on the market’s expectations for price movement.  I’ll share a simple method that I use for my own trading, and I’ll provide some additional thoughts to consider when you plan your trading day.

We’ll start with the inputs, and we’ll use the e-mini S&P (ES) product.  Since the CME has listed ES options for every trading day, it is easy to get the one-day straddle price.  I prefer to use the next day extrinsic straddle price (at-the-money straddle price minus any in-the-money premium) on the 5pm CST market open.  The Average True Range is widely available on charting platforms, and I use the 5-day ATR to get the price action over the past trading week. The daily ATR is the high/low range but adds any gaps from the previous closing price.  We will use the ATR/straddle ratio for the following analysis, and we will assume that the 5-day ATR would be the following day range.

The logic behind the ATR/straddle ratio is very straight forward.   We’ll use an example with an ES closing price of 4200, the ES 4200 straddle is worth $50, and the ATR is 120 for a 2.4 ratio.  If the ATR is 120 over the next trading day, and the ATR is evenly distributed around 4200, the 4140 low and 4260 high levels would allow the owner of the straddle to exit the trade outside of the straddle price range, and the trade would be profitable.  If the ES 4200 straddle was $100 and the ratio was 1.1, the 4140-4260 range would be inside the straddle range and a short straddle position would be profitable.

With these two scenarios, the outcomes change if the ATR range is distributed directionally away from the closing price.  Let’s say ES opened at 4200 and then it moved the entire ATR distance for a 4080 or 4320 print.  The long straddle for $50 would be profitable, while the short strangle at 100 would be a losing trade. Empirically, an ATR/straddle ratio over 2 favors a long straddle position since an ATR range equally distributed around the prior closing price is profitable, and a ratio of less than 1 favors a short straddle position because movement of the entire ATR range away from the prior closing price would still be profitable. Option premium decay is a major benefit for a short strangle, so the ratio us usually greater than 1.  For my own use and based on my observations, a ratio less than 1.25 favors a short straddle, between 1.25-2.25 is neutral, and greater than 2.25 favors long straddles.

Another way to look at the ratio is that the market is expecting a decrease in ATR with the ratio over 2 and an increase in ATR if the ratio in closer to 1.  For example, the day before a scheduled data release or before a market holiday may have a reduced expected range and the ratio may be higher for that reason.  Also keep in mind that there are several ways to manage an option position, and the profits or losses from the straddle would change based on the position management process.  The goal of this analysis is to use the information from the ATR/straddle ratio along with these considerations to gain an edge while examining the markets.

Below is a four-hour chart of ES from May 5th.  On May 4th, ES made a strong rally towards the 4303-resistance level after the FOMC announcement.  At 5pm on May 4th, the at-the-money 4290 straddle was $48.25, and the five-day ATR was 125 which is a 2.59 ATR/straddle ratio.  If ATR remains at 125 through the next session, a long straddle position has good odds of being profitable.  The market is also expecting ATR to drop significantly following the major FOMC event, and the rally calmed the market’s nerves.  For the “art” portion of the analysis, it is clear that 4303 is a significant resistance level for ES as it has been tested multiple times recently, and a breakout or failure could see a decent move from that level.  With this information, a trader could buy the straddle with the expectation of ATR maintaining its level, or a trader could reduce some short gamma exposure in their option portfolio since the ATR/straddle ratio is skewed towards a large than expected market move.  On May 5th, ES made a very steep decline, and the 5-day ATR jumped to 141.

Like every technical analysis methodology or trading tool, the ATR/straddle ratio analysis doesn’t work every time, and no one could have predicted the magnitude of the ES price move on May 5th.  However, the ATR/straddle ratio did provide some valuable information on May 4th about market range expectations for the next trading day.  I hope that you can apply some of these ideas to your own trading plan.

Contributor(s)

Matt Nygaard

Matt Nygaard, CMT

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Road Ahead for Equities, Gold and Dollar Index: Technology Stocks May See Relative Outperformance

Road Ahead for Equities, Gold and Dollar Index: Technology Stocks May See Relative Outperformance

The year 2022 has not been particularly kind to equities in general; more particularly to the technology stocks. Almost all global equity markets marked their peaks in or around October 2021; since then, they have either seen a corrective retracement or broad consolidation on the long-term charts. Looking at the Year-To-Date (YTD), it is only Singapore’s Straits Times Index that has returned a positive return of 6.86%. The FTSE Index stays flat with a negative return of 0.16%. All other global equity indexes have given negative returns with the German DAX being the worst performer with negative returns of 16.97% on a YTD basis.

Let us narrow our focus on the US Markets. All the three key indices; the Dow, S&P500, and the NASDAQ have shown negative returns on YTD basis. While the Dow (DJI) and the S&P500 (SPX) have given negative returns of (-6.90%) and (-10.35%) respectively, the Nasdaq Composite has remained the worst performing index as it returned a negative return of -18.11% as evident from the Relative Comparison Chart below.

The FOMC came up with an expected rate hike of 50-bps on May 04, 2022. The Fed has tried to play a balancing act by raising the interest rate on the expected lines. As per the Fed, the present rate hike is exactly what it feels is just enough to stem the inflation and not big enough to invite recessionary pressures on the economy. The markets rose not just because it had already discounted the 50-bps hike, but it gave a big thumbs-up to the Fed Chairman Jerome Powell making clear that despite the rate hikes that are lined up as scheduled, they are not looking at a single rate hike of as high as 75-bps.

With the equities having been battered over the past several months, perhaps they may now sigh a bit of a relief and see some relief rally. Within this, the technology sector which has been battered the most is likely to put up a resilient show and strongly improve its relative performance against the broader S&P500 index.

The all-tech Index NASDAQ Composite Index (COMPX) is likely to go into a phase of relative outperformance against the broader markets. A strong bullish divergence of the RSI is seen against the price; the most recent low point of 12202 may well act as an immediate support/bottom for the Index for the near term. In any case, from a technical standpoint, if the zone of 11800-12200 is defended, the NASDAQ may be in not only for a good technical pullback but also a good relative outperformance against the broader S&P500 index as well.

The Relative Strength line (RS Line) of Nasdaq against the S&P500 index rests at a multi-year pattern support. Also, when benchmarked against the S&P500 Index, the NASDAQ has rolled inside the improving quadrant of the Relative Rotation Graph (RRG) while sharply improving its relative momentum against the benchmark.

The rate hikes had its obvious effect on the Dollar Index (DXY). The Dollar Index tested its 27-month high as marked by its most recent high point at 103.93 which marks a strong Double Top resistance. This strength in the Dollar Index had, in turn, its obvious effect on the Gold (XAUUSD) price which retraced sharply from its 20-month high point near 2070 while marking a classical Double Top resistance for itself. Moving ahead from here, given the oversold nature of the Dollar Index, it is likely to show some retracement/consolidation in a defined range. Gold, during this time, may once again see some upward momentum with the levels of 2070 acting as key resistance levels.

From the sectoral standpoint, apart from the Utilities, Real Estate, Materials, Energy, Industrials, Staples, etc., that are already in the leading quadrant, the Technology, Consumer Discretionary, Communication, and the Retail groups are showing good improvement in their relative momentum against the broader S&P500 Index. It is only the XLF, the financial sector that is likely to continue underperforming the benchmark.

Broadly speaking, the coming week may see the battered technology stocks begin their phase of relative outperformance, the Dollar Index taking a breather and the Gold trying to play some catchup again after sharp retracement from its key resistance points.

Contributor(s)

Milan Vaishnav, CMT, MSTA

Milan Vaishnav, CMT, MSTA

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Crude Oil: Will War & Inflation concerns push prices beyond $200?

Crude Oil: Will War & Inflation concerns push prices beyond $200?

Well, Crude price has been all over the place in the last couple of years. In the year 2020 we saw a major crash with negative rates on WTI Crude. Fast forward now to current Russia-Ukraine War where we saw WTI Crude test the highs near $129 which is about $20 away from the highs made in 2008. In the meantime, Brent Crude touched $138 which is nearly $10 away from the previous life time highs.

 

Current Market scenario is quite dynamic where every day we see new updates on the China Lockdown, OPEC+ supply outlook or any development on the War. This has actually opened up a range of scenarios and it is crucial to remain objective rather than follow the crowd.

 

To understand the broader picture, we are looking at a Log Scale monthly chart of Brent Crude Oil. At times just by switching from arithmetic scale to a Log scale, many things clear out. Below we have shown the Elliott wave theory application with Channeling technique which indicates that the breakout has just come through.

 

Brent Crude Oil (Log Scale) Monthly chart:

As we know, technical analysis is all about probabilities and based on the use of various technical tools we try to arrive at the higher probable scenario. Thus, we are showing 2 high likelihood paths and key levels which will give vital clues to gauge the major trend and objective outlook.

Scenario 1 – Bullish – High Probability:

Channels and Fibonacci: It is imperative to look at the channeling technique which is an integral part of Elliott wave analysis. Here prices are intact in an upward rising channel since the year of 1960. The low made in the beginning of 2020 tested the channel support and resumed the major uptrend. The entire corrective move started in 2008, tested the 61.8% Golden ratio of the prior rise from $10.50 to $147.50 levels. Moreover, post that, prices broke out from the downward sloping red channel which suggests the next bull run is underway.

Elliott wave pattern: The channelized nature of up move since the year of 1960 suggest that Complex correction pattern is under formation (W)-(X)-(Y)-(X)-(Z). From the lows made in 2020, prices are in intermediate wave (Z). This wave (Z) is likely to move higher towards the channel resistance level, if the prices manage to surpass the key resistance zone of $145-150 with strong momentum, then next key level can be expected near $210 level where 78.6% of the prior rise is placed. This possibility will remain alive as long as $90-85 zone is protected on the downside.

Scenario 2 – Bearish – Low probability:

As discussed, it is important to keep the other possibility in the loop to avoid any kind of surprises. From here on, if prices struggle to take out the zone of $145-150 levels, then it will increase the probability of a Double Top formation where we might see the ongoing rally fizzle out near all-time highs. Keep in mind there is no indication of a Double Top pattern yet, but just a probability which we are not ruling out.

In this case, we will expect prices to retrace around 61.8% of the entire rise seen from the lows made in the year of 2020 which comes close to $67-62 levels.

In a nutshell, the price structure on the Log scale monthly chart indicates that a bullish breakout is being witnessed from the downward sloping red channel. In case of a bullish scenario prices are likely to test $145 followed by $210 levels whereas an alternate scenario will lead price towards the support of $67-62. Surprising times are ahead definitely!

Contributor(s)

Jigar headshot

Jigar Mehta, CMT

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Ichimoku - At A Glance

Ichimoku - At A Glance

Ichimoku Kinko Hyo is a popular trend following Japanese system developed by Goichi Hosoda in the late 1930s. He used and tested the system over next 20 years before publishing it in 1969. Balance and harmony symbolize the universal energy and is its natural state. Markets as a collective representation of human emotions (greed and fear) tend to be cyclical. They move away from and back towards the state of balance or equilibrium. This perspective of equilibrium forms the basis of ichimoku. Interaction of current price with Equilibrium, balance and the mean are at the core of this system. Ichimoku provides a perspective of strength and direction of the trend, support – resistance zones, volatility and momentum – all in one chart. Average of the highest high and the lowest low of a specific time period is used as the basis for calculations and plotted ahead or projected back by time shifting 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)

Bhagyashree Urdhwareshe, CMT - 2022

Bhagyashree Urdhwareshe, CMT

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ICYMI: Sunil Garg, CMT Presentation to CFA Society Hong Kong

ICYMI: Sunil Garg, CMT Presentation to CFA Society Hong Kong

On April 27th, Mr. Sunil Garg, CMT, former Head of International Equity Research at J.P. Morgan, presented to the CFA Society of Hong Kong on a webinar that was co-hosted with the CMT Association. Sunil has been a markets professional for over 25 years with experience in both Developed and Emerging Markets. His lecture, entitled “Time(ing) is Everything – Combining Fundamental and Technical Analysis”, was not another fundamentals vs. technicals debate. Instead, Sunil provided a unique perspective of using the two investment philosophies together. Sunil argued that fundamental analysis is critical and is the bedrock of investing. Fundamentals include macro analysis, industry analysis, and company analysis, and then ultimately gets down to valuation based on the sum of discounted cash flows. But, valuing an asset in theory is easy. In reality, it is extremely difficult. No matter how good a forecaster you are, your DCF estimate is very likely to be off. Ultimately demand

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)

Brett Villaume

Brett Villaume, CMT, CAIA

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New Educational Content This Month

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