Technically Speaking, May 2023

Hello readers, and welcome to another edition of Technically Speaking!

 

I have a question, and I’d like some perspective.  

 

How do you measure progress? 

 

There are aspects of life where progress is quantifiable and can be tracked based on numerous metrics. It is straightforward to calculate progress in those cases. But what about the aspects where the calculations are absent? For instance, how would you figure out if you are growing as an individual? Or how would you decipher your preparedness for uncertainties? Worst still, what do you do when you’re working towards your goal and the quantifiable aspect doesn’t reflect any change in terms of output? That feels personal, doesn’t it? 

 

Human beings, by nature, are bound to work towards a desired goal with greater motivation when the output reflects progress. But when that quantifiable progress is elusive, it is imperative to maintain sight of the goal and continue working towards it by making little changes to your processes. Most often, our schedules have room for improvement, however small they may be. Focus on making little changes that lead to exponential changes in the output. I read somewhere that we have 5 seconds between thinking and executing a particular activity before the brain comes up with completely justifiable reasons for you not to do them. Never underestimate the brain. It’s the best attorney in town when procrastination is up for grabs, even with something as simple as waking up when the alarm goes off. For all the market participants struggling to identify the signs of progress, the fact that you’re keeping at it is a big deal too! Take some time to look at your processes as if they belonged to somebody else, and be objective about the improvements you can incorporate. In fact, that is a good practice even when you can see positive results.  

The market, however, is the torch-bearer of quantifying outputs. And this is precisely why we can see that the S&P500 is moving sideways, the Nasdaq 100 traded at new 52-week highs, and the US Dollar Index is range-bound between 100 and 105. So much so that we can also look at volatility shrinking, Copper trading at 6-month lows, and the evident strength coming out of the European Union with DAX and CAC40 making new highs. This loosely translates to there are always opportunities in the market. You might have to expand your horizon a little.  

 

The Symposium fever is still around, as we bring you an exceptional speaker’s session as a blog! Read on to know more! 

 

Editor

Rashmi Bhatnagar 

What's Inside...

President's Letter

“Vote early…and vote often,” said the notorious gangster Al Capone. 

Of course, the joke is based on...

Read More

Transitioning from Secular Bull to Bear? We Present, You Decide!

Secular trends in inflation adjusted equities average between 15 and 20 years. Since such price movements embrace a number of...

Read More

Position Sizing in Futures Trading: A Key to Risk Management and Profitability

Futures trading is a dynamic and potentially lucrative arena for investors seeking exposure to various financial instruments, including commodities,...

Read More

Tighten Your Seat Belts; Equity Market Volatality Likely to Increase

Volatality Index has reached to the historical low levels in India and it is expected that it is likely to...

Read More

Professional analysis of markets via charts: CMT50

I had the honour to attend, and present, at the 50th annual conference of the CMT: Chartered Market Technicians. While...

Read More

Assistant Director Position

The CMT Association seeks to fill a newly created position for an Assistant Director of the CMT Program to work...

Read More

President's Letter

“Vote early…and vote often,” said the notorious gangster Al Capone. 

Of course, the joke is based on the understanding that one should only vote once. But the hidden premise in this famous quip is the acceptance of the idea that you actually vote! 

This month’s President’s Letter provides a brief introduction to the nominees on this year’s slate of incoming Directors. 

The CMT Association annual member meeting is scheduled to take place online on June 21, 2023 at 10:00 AM Eastern Time. You should have received an email from the CMT Association with the meeting information, how to access it, and a link to vote. 

We are an association of members, and as such we are self-governed and rely on volunteers to manage and oversee the strategic direction and operations of the CMT Association.  

Importantly, you should vote for the incoming Directors and new Board Officers. 

There are LOTS of volunteers in our Association who serve in many different capacities, including chapter leaders, committee members, and members of the Board. There is a volunteer Board of Directors with 14 members who are responsible for overseeing the Staff, including the Executive Director, and the work of the various committees. 

Our fiscal year 2023 ends on June 30th, which will also mark the end of my term as President and a Director. I’ve served on the Board for nine years, but one person has served longer than I, Past President Scott Richter. Scott will also be concluding his term as Director on June 30th, which along with my departure results in two open positions on the Board. 

The Governance Committee, which oversees the annual Board refreshment process, sets as its goal the development of a Board of Directors which possesses the necessary skills to best execute the Board’s responsibilities. The Board should consist of Directors with diverse areas of expertise, professional backgrounds, and perspectives, which taken together makes the Board extremely effective in doing its job. 

This year’s proposed slate of Directors includes: 

 

  • Eric Caisse, CFA, CMT, CFP® 

 

Eric is Chief Investment Officer & Partner at Csenge Advisor Group, a multi-billion dollar Registered Investment Advisor headquartered in Clearwater, Florida. Eric created and oversees the firm’s proprietary Fusion Analysis research process, manages a series of in-house ETF portfolios, leads their monthly investment committee meetings, and often lectures at speaking engagements on behalf of the firm. In addition to being a CMT charterholder, Eric is an Accredited Behavioral Finance Professional (ABFP) and holds the CFA and CFP® designations. He has served as a CMT chapter chair and held volunteer positions on several non-profit boards in his community. 

 

  • Kelly Corbiere, CFA, CMT, CFP® 

 

Kelly is Senior Vice President and Portfolio Manager at Broadway Bank, a reginal bank and wealth management firm located in San Antonio, Texas. Prior to joining Broadway Bank 

as a Portfolio Manager, she worked as a global equity analyst and prior to that she was an investment manager in a wealth management group for a major U.S. bank. Kelly’s academic achievements include a Bachelor of Business Administration in Finance, a Bachelor of Arts in Language and International Trade, a Master of International Management with a concentration in Finance, and a Post-Graduate Certificate of Accounting. Additionally, Kelly is currently pursuing a PhD in International Development. Her experience in academia also includes teaching finance and investments courses as an adjunct instructor. Kelly has served as the Chair of the CFA Societies of Texas (which has over 3,000 members) and is an active board member of several other professional and charitable boards. 

 

  • Glen Martin, CMT 

 

Glen is Executive Director and Portfolio Manager, Global Beta, Overlays and Outcome Management at CIBC Asset Management in Toronto, Ontario, Canada. He has served on the CMT Board since 2020, and was previously Treasurer and a member of the Executive Committee. In his capacity as Treasurer, he successfully led the Finance Committee as it navigated the extremely difficult market environment brought on by the COVID Pandemic. Glen currently serves as Chair of the Audit Committee and is an active member in the Toronto Chapter. In addition to his CMT charter, gGlen hods the Canadian Securities Institute’s Derivatives Market Specialist (DMS) designation and is a member of the CFA Institute. In 2016, he was awarded the Canadian Society of Technical Analysis’ Technical Portfolio Manager of the Year. 

 

  • Dan Shkolnik, CMT, CIM 

 

Dan is a Director of Portfolio Strategy & Trading at Quintessence Wealth, a registered Portfolio Manager, Investment Fund Manager, and Exempt Market Dealer in Toronto, Ontario, Canada. Dan is President of the Canadian Society of Technical Analysts, and has served on the Board of the CSTA and as the Toronto Chapter Head since 2018. Previously, Dan served as a Director and Product Specialist of CPMS at Morningstar, a financial services research and data firm. He also spent four years as a registered proprietary trader specializing in equities and equity options. In addition to the CMT charter, Dan holds the Chartered Investment Manager designation. Dan is passionate about educating others on how to properly apply Technical Analysis to investment strategies. 

 

Additionally, you will be asked to vote to approve the proposed slate of Executive Officers, including current Director Robert Palladino, CMT as President. Rob is an Executive Director and Senior Foreign Exchange Trader at JP Morgan Chase in New York and has experience trading foreign exchange, commodities, and interest rate products, including derivatives. Rob and I have served on the Board together over the past five years and I believe he will make an excellent President, having previously held the roles of Vice President and Secretary of the Board. He is passionate about the mission of the CMT and educating people about the usefulness of Technical Analysis, and he is highly capable of leading our Association. 

 

Your vote is necessary to approve the proposed slate of Directors and Officers. Please take a moment right now to complete your ballot submission.  

Contributor(s)

Transitioning from Secular Bull to Bear? We Present, You Decide!

Secular trends in inflation adjusted equities average between 15 and 20 years. Since such price movements embrace a number of business cycles, identification of a reversal usually requires several years. If 2022 was the zenith of the post financial crisis bull market, the intervening year and a quarter is a relatively short period from which to conclude that a turn in the secular tide has taken place.

That said, several indicators have already begun to signal a change in trend. Our guess is that the odds favoring a secular peak are greater than 50/50, possibly as high as 60/40. Since the average inflation adjusted loss for a secular bear is around 65%, this is no small matter. Our first task is to outline why we think the odds narrowly favor a secular bear and then to outline what we might expect going forward.

The Case for a Secular Bear

One of the characteristics of secular equity trends is that they are driven by giant swings in crowd psychology. In that respect, Chart 1 features the Shiller P/E. It may be a fundamental indicator, but we think of it more as a measure of sentiment. Otherwise, how can you rationalize the fact that in 1929 investors were willing to pay $32 for a dollar’s worth of earnings, indicating extreme optimism, but were literally throwing them away in 1932 at less than $6, because things seemed so bleak. Secular turning points have been characterized by the P/E moving to an extreme level in excess of 22.5 and subsequently reversing. That pattern has been repeated four times since 1901. In November 2021 the ratio reversed from its highest level ever, except for a few months surrounding the bursting of the tech bubble of 2000.

CHART 1 INFLATION ADJUSTED S&P AND THE SHILLER P/E

 

Another way of measuring the popularity of stocks is to compare the P/E to the yield on 20-year bonds. When the ratio is rising the indication is that stocks are growing in popularity. By that measure stocks reached a record level of acceptance in 2021. In the past this relationship has also lent itself to trendline construction, the violation of a multi-year line indicating a secular reversal. Earlier this year the ratio violated a 45-year up trendline. That should mean the price oscillator in the bottom window, which is close to its 48-month MA will drop below it, thereby generating its fifth sell signal since the turn of the previous century.

 

CHART 2 INFLATION ADJUSTED S&P AND THE SHILLER P/E/GOVT 20-YEAR YIELD RATIO

 

One of the conditions for a secular bear arises from structural problems in the economy. By way of rationale consider the high number of recessions that develop under a secular bearish environment. This can be observed from the red highlights in Chart 1. During the 1965-82 bear, for instance, there were four recessions, yet the subsequent 18-year secular bull experienced just one, a mild recession in 1990. It is also a fact that year over year CPI inflation in excess of 7.5% has, with the exception of 1957, only occurred under the context of a secular bear. The CPI peaked at 9% in June of last year.

Chart 3 offers another example of a structural problem. In this respect, the pink shaded areas represent secular bear markets. Note that the 18-month ROC of inflation adjusted M2 is currently well below -5%. Every time that has happened in the past a secular bear has been underway, as evidenced by the small red arrows. If it walks like a duck and quacks like a duck, it probably is a duck!

 

CHART 3 INFLATION ADJUSTED S&P AND REAL M2 MOMENTUM

 

The bottom-line effect of all this is that, since 1900, the average primary bear market that developed in a secular uptrend lost 18% in inflation adjusted terms and took nine months to do it. During a secular bear those primary trend losses rose to 29% with an average 28-month duration.

WHERE DO WE GO FROM HERE?

If we assume that some kind of secular reversal has taken place, the question is what we should expect going forward. Chart 4 indicates that since 1901, there have been two types of top, a multi-year trading range and an abrupt inverted V. For example, the 1901-1920 bear evolved from a multi-year trading range with a downward bias. In this instance, serious damage only began many years after the 1901 peak. The 1966-82 bear was similar in nature.  On the other hand, the inverted V variety developed immediately following the 1929 and 2007 highs.

 

CHART 4 INFLATION ADJUSTED S&P DEMONSTRATING TWO TYPES OF SECULAR TOP

 

The longer-term implications are similar i.e., substantial inflation adjusted losses averaging 65%, spread over several business cycles. The two pathways though, are significantly different. An inverted V would involve the immediate taking out of last October’s low, whereas the trading range alternative would imply we are in a mini-bull market, possibly pushing prices to a new inflation adjusted high.

There are several reasons for expecting a rangebound scenario as being the more likely. First, many primary trend indicators are already arguing in favor of a new bull market. Second, since 1901 the two types have  alternated. The 2007 peak was an inverted V, which implies that the next one would start with a trading range. Unfortunately, that observation is based on just four data points, which is insufficient to give us confidence in drawing such a momentous conclusion. Secular bears reflect long-term economic and financial structural problems, so a more practical approach is to examine the relationship between the secular trend of stocks, bond yields and commodities.

THE INTEGRATION OF THE SECULAR TREND OF BONDS, STOCKS, AND COMMODITIES

In that respect, Chart 5 compares the performance of equity prices and bonds since the start of the twentieth century. The secular equity bears have been identified by the pink shaded areas, and bulls by the unshaded ones. Logic would suggest that a long-term trend of rising yields would provide the ideal background for a secular equity bear market, because it would provide stocks with stiffer competition resulting in a P/E contraction. Alternatively, falling yields should stimulate the economy, while at the same time making stocks relatively more attractive than bonds. Both were true during the 1901-1920 bear and 1920-29 bull markets, as flagged by the double red and green arrows.

 

CHART 5 THE SECULAR TREND OF STOCKS COMPARED TO BONDS

 

There are three other periods when “logic” prevailed with the appearance of joint red or green arrows. The most recent example was the post 2009 secular bull. Unfortunately, there are just as many exceptions in which prices and yields simultaneously rise or fall, demonstrating there is no consistent relationship between them. However, it is possible to say that all secular reversals in yields since 1900 have been associated with a secular reversal in equities. This is shown in the chart by the one red and three thick green vertical arrows. If we can show evidence of a secular reversal in bond yields, it is more likely that equities too are in the process of reversing.

THE SECULAR TREND FOR BOND YIELDS

Chart 6 offers that evidence in several formats. First, the 9-month EMA for the yield is above its 96-month counterpart, thereby earning a green highlight. This model has only experienced three small whipsaws since 1870, as shown by the ellipses. The magnitude of the current move has exceeded all of them, suggesting that the recent signal is valid. Second, the yield has violated a 40-year trendline that has been touched or closely approached 10 times. That’s a pretty big deal.

 

CHART 6 ANALYZING THE SECULAR TREND OF BOND YIELDS

 

Finally, the 18-month ROC has moved from a record oversold to a record overbought reading. This is known as an extreme swing and is a characteristic of a significant change in trend. Since it is a cyclical or primary trend indicator, the implication is for a reversal in the trend directly above it, namely the secular one. It is now time to examine the relationship between inflation adjusted equities and the secular trend of commodities.

THE SECULAR TREND FOR COMMODITIES

The shaded areas in Chart 7 reflect secular equity bears. Since 1845 all have been associated with sharply rising commodity prices, with one notable exception. That was, a pocket of sharp deflation that kicked off the1929-32 part of 1929-49 secular equity bear. Even that bear was subsequently associated with a secular commodity rally. If we can show that commodities are experiencing a secular bull market, history tells us that equities have most likely begun a secular bear.

 

CHART 7 INFLATION ADJUSTED S&P VS INDUSTRIAL COMMODITY PRICES

 

That evidence is presented in Chart 8 by the price oscillator using the 60- and 360-month parameters. This indicator triggers secular buy signals for the CRB Composite when it crosses above its 48-month moving average. Such a signal was recently given.

 

CHART 8 CRB COMPOSITE VS A 60/360 PRICE OSCILLATOR

 

Finally, Chart 9 compares this 60/360 price oscillator to inflation adjusted equities. In this instance the oscillator has been inverted to correspond with swings in the S&P Composite. It is evident that every secular equity bear, indicated by the pink shading, has at some point experienced a period when the oscillator was below its MA i.e., commodities were in a secular bull market.

 

CHART 9 CRB COMPOSITE VS A 60/360 PRICE OSCILLATOR

 

BACK TO THE TOP

If we circle back to the original observation concerning two types of secular peak, it is now evident that both inverted V examples were associated with a secular trend of falling yields, whereas the trading range peaks of 1901 and 1966 experienced a secular trend of rising rates and commodities, which is the case with the current environment. A final observation comes from the fact that the “official” 1901 and 1966 secular peaks were temporarily exceeded in 1906 and 1968. That is not inconsistent with the bullish primary trend signals being triggered currently, but that is the subject for another article. In effect, marginal new all-time market highs as part of an overall topping out process can by no means be ruled out. Such action would probably fool the majority, which is what markets are supposed to do, isn’t it?

Contributor(s)

Martin J. Pring

Martin J. Pring is the president of Pring Research and Chairman of Pring Turner Capital Group (PTG), a money management and sub-advisory firm, located in Walnut Creek, CA. He is also the president of Pring.com, the research arm of PTG, which provides...

Position Sizing in Futures Trading: A Key to Risk Management and Profitability

Futures trading is a dynamic and potentially lucrative arena for investors seeking exposure to various financial instruments, including commodities, currencies, and stock indices. While market analysis, timing, and risk management are essential components of a successful trading strategy, one crucial aspect often overlooked is position sizing. Determining the appropriate size of a futures contract is a critical decision that can significantly impact profitability and risk exposure. In this article, we will delve into the importance of position sizing and explore various methodologies that can help traders optimize their risk-reward balance. 

Position sizing refers to the process of determining the number of futures contracts to trade based on factors such as account size, risk tolerance, and market conditions. It involves striking a balance between the potential for profit and the potential for loss. In essence, position sizing provides a framework for managing risk and capital allocation within a trading strategy. 

Effective position sizing begins with a clear understanding of risk management. Before entering a trade, traders must define their risk tolerance and establish a predetermined stop-loss level. The position size should be adjusted accordingly to limit potential losses within an acceptable range. 

Volatility is a critical factor in futures trading, as it determines the potential price swings and associated risks. Highly volatile markets require smaller position sizes to account for larger price fluctuations, reducing the risk of significant losses. Conversely, less volatile markets may allow for larger position sizes to capitalize on smaller price movements. 

The size of an individual’s trading account plays a vital role in position sizing. It is generally advisable to limit the exposure of each trade to a small percentage of the total account balance. This ensures diversification and protects against catastrophic losses. As the account grows, position sizes can be adjusted accordingly to maintain an appropriate risk-to-reward ratio. 

Different trading strategies may require varying position sizes. For example, a day trader who aims to profit from short-term price fluctuations may take larger positions with tighter stop-loss levels. On the other hand, a swing trader focusing on capturing more significant market moves over a longer time horizon may opt for smaller positions with wider stop-loss levels. 

One of the most common approaches to position sizing in futures trading is the fixed fractional method. This strategy involves determining the percentage of trading capital that traders are willing to risk on any given trade. For example, if a trader has Rs. 1,00,000 in trading capital and decides to risk 2% on each trade, they would be willing to risk Rs. 2,000 on a single trade. 

The fixed fractional method ensures that traders are not risking too much of their capital on any single trade, which can help protect their account from significant losses. By keeping their risk exposure in check, traders can also avoid the emotional highs and lows that can come with large losses or gains. 

Another approach to position sizing in futures trading is the volatility-based method. This strategy involves adjusting the size of the trade based on the market’s volatility. When markets are more volatile, traders may opt to reduce their position size to limit their risk exposure. Conversely, when markets are less volatile, traders may choose to increase their position size to maximize their potential returns. 

The volatility-based method can be highly effective when trading in highly volatile markets like commodities or currencies. However, it requires traders to have a good understanding of market volatility and to adjust their position sizes accordingly. 

Position sizing is a vital component of a comprehensive futures trading strategy. By carefully considering factors such as risk management, volatility, account size, and trading strategy, traders can determine the appropriate position size for each trade. Whether using fixed-ratio position sizing, volatility-based approaches, or the Kelly Criterion, the goal is to strike a balance between maximizing potential gains and minimizing potential losses. By adopting a disciplined and calculated approach to position sizing, traders can enhance their overall profitability and achieve long-term success in the challenging world of futures trading. 

 

Contributor(s)

Dhwani Patel

Tighten Your Seat Belts; Equity Market Volatality Likely to Increase

Volatality Index has reached to the historical low levels in India and it is expected that it is likely to revert to its mean.

India VIX refers to the India Volatility Index. It measures the amount of volatility that traders expect over the next thirty days in the Nifty Index. It is also called the Fear Index since a higher level of VIX represents a high level of fear in the market and a low level of VIX indicates a high level of confidence in the markets.

A lower VIX signifies low volatility and a stable range for the asset price. India VIX at a multi-year low is good for the bulls, as India VIX has a negative correlation with Nifty. In general, Lower India VIX = Lower Risk of Falling.

India VIX is currently placed just below 12, which is near historical lows. Lower VIX could mean that the market is not expecting any significant risk in the short term due to any big event scheduled ahead. Uncertainties like Russia Ukraine War, the US Inflation, rate hikes, etc, are already factored in. The Indian market has become more stable and predictable in the short term. Except for IT sector, the quarterly results of most large-cap companies have been good so far, which gives confidence to investors to accumulate stocks for the medium to long term.

Despite Lower Vix Investors participation remained Low in the Recent Past

The sharp swings in equities and the revival of fixed income in the wake of rising interest rates had discouraged individual investors from participating in the equity market in the recent past. Till March 2023, making money was difficult due to uncertainty about rising interest rates and possible recession in the major economies like US and Europe.

Since October 2021, the Indian market has gone nowhere and has not generated meaningful alpha for retail investors and traders. The massive fall of Adani group stocks in February restrained traders and investors from enlarging their commitments in Indian equity markets.

However, from April 2023, Indian markets have recovered sharply, making most retail investors suffer from FOMO (The fear of missing out). The big question that comes to the mind of an investor is whether the recent uptrend in the Indian market is a long-term trend reversal or it is just a pullback. Most investors might have doubts about the sustainability of the markets at higher levels given the high interest rates/inflation persisting. Investors could be waiting for the interest rate trend to reverse from up to down.

In today’s world, every investor and trader seeks ways to make their stock trading and investing activity as smooth and successful as possible. Knowing very well that the volatility of prices plays a key role in stock performance, VIX can be used effectively by investors to make estimates about the levels of stocks and formulate their techniques to trade accordingly.

When the VIX gives an indication of rising volatility, investors can increase their hedges in the form of Puts to play the market both ways.

Strategies that Option traders should use in this Low VIX era

Options traders depend heavily on the volatility metrics for buy and sell decisions. In times of low volatility, options tend to lose their value as they reach the expiry.

This is a very low VIX environment which makes it extremely difficult to short sell options as premiums fall to extreme low levels. Lower premiums reduce the breakeven points on credit strategies and a single volatility spike or a high delta move against your position will take a minute to trigger your stop losses.

One effective strategy that we can deploy in a low-VIX scenario is the simple debit spread. This involves buying an option at a lower strike price (preferably ATM) and selling one at a higher strike price (OTM) simultaneously. (For CE, while the condition reverses for PE). The second leg (short OTM option) will further reduce the cost of the long option while limiting the profit potential. In a low-VIX environment, this strategy works particularly well because options premiums tend to be cheaper due to lower implied volatility levels. This means that you can enter into debit spreads with less capital than usual while still maintaining good risk management practices.

However, India VIX can also be used as a contrarian indicator due to its mean reversion nature. In other words, it is one kind of oscillator which oscillate in the range. It wouldn’t keep falling perpetually or rising perpetually. So, a certain set of alterations in trading options is required to adjust to the fact that what has gone down, could bounce back, raising options premiums without any help from directional movements. Considering this, traders can also go for the long straddle or long strangle kind of strategies as options premiums are very low due to historical low IVs. Long straddles involve buying a call and put with the same strike price. A long strangle consists of one long call with a higher strike price and one long put with a lower strike. Both options have the same underlying stock and the same expiration date, but they have different strike prices.

So irrespective of the direction, we can expect volatility or India VIX to revert back to its mean from here.

Contributor(s)

Vinay Rajani, CMT

Mr. Vinay Rajani is a CMT charter holder and M.B.A. He has more than 16 years of rich experience in the Financial Markets. He is born and brought up in Ahmadabad, Gujarat, India. He has been working as a Senior Technical and...

Professional analysis of markets via charts: CMT50

I had the honour to attend, and present, at the 50th annual conference of the CMT: Chartered Market Technicians. While everyone in finance uses charts, Market Technicians are the pinnacle of professional financial chart users: charts are core to their analyses, recommendations, actions and trading strategies.

Here’s a few comments on some of the sessions. There’s a few snapshots too: visualization people who aren’t financial professionals may be interested to see some differences and perhaps a few insights.

To start, technical analysis is the notion that price patterns in markets result from changes in supply and demand. But demand isn’t necessarily rational: people have fear of losses, fear of missing out, fear of not following trends that all their neighbours are talking about at dinner parties. We’re social, we tend to have herd behaviour in markets, whether bitcoin, meme stocks, houses (2007), railroads (1840), tulips (1634), etc. While these examples are market bubbles, there are other similar patterns in stock prices, bond prices, house prices and so forth. Patterns may similarly exist in inflation and other economic data too. The notion of trends and patterns are a feature of markets, and these trends and patterns can be observed, analyzed, communicated and traded. The Chartered Market Technicians (CMT) is the association that formalizes technical analysis and provides training and certification for professionals.

 

 

Many timeseries

 

David Keller – chief market strategist at Stockcharts.com – hosts a daily TV show on technical analysis. I’ve had the opportunity to work with Dave in the past, and one thing of note is that timeseries analysis is rarely done in isolation: timeseries are compared to other timeseries, events, derivations and so on. Here’s one of Dave’s charts from his show which he broadcast live at the CMT event:

Dave’s chart with many different timeseries indicators to analyze the current level of the S&P500.

 

Hand-drawn charts

David had an opportunity to interview legends of technical analysis Ralph Acampora (who painted a 70 foot chart of the Dow Jones Industrial Average on his barn), and Louise Yamada (who pulled out a paper chart during Dave’s interview). Both talked about their early careers when they had to manually calculate averages, plot their charts by hand and learned to get a sense of the markets from the physical charts.

Ralph Acampora and Louise Yamada both spoke about physical charts.

 

Annotated charts

Many technical analysts annotate charts: drawing trend lines, support and resistance lines, indicating peaks and troughs (sharp or gradual), other patterns (head and shoulders, wedges) and textual notes such as prices or key events. Whereas the visualization community is questioning whether or not 2-4 annotations are too many, the technical analysis community is well inclined to have 10 or more annotations (such as Ralph’s barn, or Louise’s markup on her charts).

Paul Ciana – chief of fixed income, commodity and currency technical analysis at Bank of America – presented some work analyzing trends in unemployment. Here’s a fantastic chart looking at employment filled with annotations explaining unemployment trends:

Many annotated explanations on an unemployment rate chart by Paul Ciana.

 

Statistical analysis

Many technical analyses use statistical approaches to assess data. A simple example is Ned Davis use of overlaying a mean or regression line on a timeseries chart. In a trending chart, whether economics data or price data, it can be clearly seen when a series is above below the regression. A significant divergence from the regression line indicates at a minimum a warning. Here’s a sample of one of Ned’s charts, from his book:

Ned Davis, and charts with mean overlay and regression overlays.

 

John Bollinger – inventor of Bollinger bands – provided a historical perspective on bands in timeseries charts going back to the 1800’s. John made a special point that these financial calculations are no longer technically difficult to implement – he provided Python code for each historic example, and commented on ChatGPT’s ability to generate code. Here’s one of the charts, with Python code. More importantly, John stressed how these technical analysis studies are used, for example, a trivial understanding of a Bollinger band is to derive a signal when the raw data (price), crosses the band. John explained that a signal on a Bollinger band is created when the trend weakens, the price crosses to the opposite side of the band, touches the band, then fails to break back across the moving average line (I’m paraphrasing, my notes might not be exactly right on that).

John Bollinger explains the code, the bands, their use.

 

Trading

Technical analysis can be used to understand markets, and also to underpin trading strategies used to make money in the markets. To use technical approaches to trade markets requires backtesting the technical analysis model against historic data to validate the model’s effectiveness. In addition to making a profit and other metrics, one key metric is max drawdown, an indication of how much money a model might lose at any time. In at least two presentations I saw models that had drawdowns of greater than 50% — which will require a significant commitment on the part of the trader to believe in the model and have confidence that the original model was not overfit to the test data.

There were a couple of great interviews interviews, including Jerry Parker. Parker’s story goes beyond backtesting to one of the gutsiest validation tests ever done. Parker was one of 20 people without a trading background, trained in a trading system, given a $1million to trade, and succeeded. It’s an incredible story, here’s a basic outline.

Contributor(s)

Richard Brath

Richard Brath is a long-time innovator in data visualization in capital markets at Uncharted Software. His firm has provided new visualizations to hundreds of thousands of financial users, in commercial market data systems, in-house buy-side portals, exchanges, regulators and independent investment research...

Assistant Director Position

The CMT Association seeks to fill a newly created position for an Assistant Director of the CMT Program to work directly with the CMT Program Director on all aspects of the CMT Program.

The person to fill this position must be either a current CMT Charterholder, or a member who is a candidate for the charter who has successfully completed all three levels of the CMT exams and is awaiting only the professional work experience to earn the charter.

This is a full-time position that will require availability for calls and meetings during US hours.  In addition, there may be some restrictions on the Assistant Director’s activities outside the CMT Association that conflict with the security standards necessary for a credentialing program or otherwise conflict with the mission, standing, or credibility of the CMT Association and the CMT Program.

The work of managing the CMT Program falls broadly into three categories: Policies, Texts, and Exams.

Policies

  • Completion of a Jobs Task Analysis (JTA).
  • Policies related to exam administration, including security and candidate identification.
  • Vendor relationships including psychometricians, test administration, and publishing.

Texts

  • Ongoing editing and maintenance of the curriculum, including researching and correcting reported errors.
  • Identification of topics and authors for new Association-owned content.
  • Long-term evolution of the curriculum.

Exams

  • Expansion of the Level I and II item banks.
  • Monitoring production of Level I and II exams for semi-annual administration windows.
  • Managing construction of semi-annual Level III exams.
  • Managing Level III grading following each exam window.

The initial duties of the Assistant Director will fall primarily, but not solely, in the area of Exams.

The Assistant Director, alongside the Program Director, will interact with several key groups of CMT Association members/volunteers.

  • The Curriculum and Test Committee (CTC) which is the ultimate arbiter on matters related to the content of the texts and exams.
  • The Subject Matter Experts (SMEs), a select group of members who are tasked with writing exam questions (all levels), reviewing additional exam content, and other functions related to CMT Program content.
  • The Level III graders who read the candidates’ exam papers and assign grades based on the SMEs’ answer keys and their own judgment.
  • Authors working on content for the CMT texts.  There is an ongoing project to augment the CMT texts with custom-written content.
  • Other CMT Association staff, particularly on matters of CMT Program operations, marketing, and candidate/member communications.

As noted above, the Assistant Director’s initial responsibilities will be in the management of the content and delivery and grading of the CMT exams.  Under the direction of the Program Director, the Assistant Director will be tasked with:

  • Analysis of the current Level I and II item banks to determine areas of weakness and inadequacy.
  • Organizing and tasking SMEs with creating new content for Level I and II based on that analysis.
  • Editing and supplying content citations for the Level I and II item banks.
  • Managing the SMEs who write the Level III content.
  • Organizing and tasking graders with their assignments for Level III grading.
  • Compiling, reviewing, and verifying the Level III results.

The ideal candidate should have experience in several key areas critical to the ongoing management of the CMT Program.

The Assistant Director is expected to have competence with several common software products and be prepared to learn to use several others.

  • Microsoft Office – Word, Excel, Teams
  • Adobe Acrobat
  • TechSmith Snagit
  • Charting software such as Optuma, StockCharts, and others.

Project management and coordination – The work of producing and grading exams and creating exam content, as well as editing and producing texts, requires coordination of the CTC, SMEs, graders and vendors, in addition to other Association staff.  Management of these tasks requires clear and consistent communication with those working on the task, including instructions and deadlines, and availability for questions and corrections.  Creation of document templates and maintenance of consistent formats are critical to ease the burden on member-volunteers and on Program staff in managing the work.

Writing and editing – The Assistant Director must be proficient in writing and, most importantly, in editing exam and other content.  In addition to grammar and syntax, exam content must conform to best practices such as accurate and consistent nomenclature.  Content must be written and edited to comply with the Program’s policy of avoiding slang and idioms that would be difficult for non-native English speakers to analyze.

If you meet these requirements and are interested in being considered, please submit your resume.

Contributor(s)

Stanley Dash, CMT

Stanley Dash is the CMT Program Director at the CMT Association, a global credentialing body. In this role, Mr. Dash works with subject matter experts, candidates, and the Association’s members to maintain and improve the curriculum, the test experience, and the value...