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Technically Speaking, November 2009

Letter from the Editor

We are again presenting only a few articles in this month’s newsletter. MTA members are among the leading technicians doing great research and we are featuring a few samples of the work being done. In coming months, we hope to continue highlighting this type of original work. As always, if you’d like to share your work with your colleagues, please send it to us at editor@mta.org. In “An Interesting Application of Neural Nets,” we highlight how Parallax Financial Research is using neural networks to develop a complete investment methodology. Their combination of fundamental and technical inputs has resulted in a long-term winning strategy. Robin Carpenter presents a detailed analysis and thought-provoking piece on VIX, challenging the standard interpretation of this widely used indicator. Short-term traders will be interested in “Candlestick Kicker Signal = Powerful Profits” by Stephen W. Bigalow. While candlesticks are widely used, this article offers a fresh insight into the patterns. “Individual Monthly Charts for The 1924 to 1935 Period” is a partial reprint of a Safian Investment Research piece. The collection

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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...

An Interesting Application of Neural Nets

by Michael Carr, CMT

Neural networks have been around for a long time, and many traders use them to find buys in the markets. In simple terms, neural networks are a mathematical modeling tool that tries to predict the...

A New View of VIX

by Robin Carpenter

This paper describes material originally distributed but not discussed at Fraser Management’s Contrary Opinion Forum of 2009. It presents a contrarian view of the meaning embedded in option-implied...

Candlestick Kicker Signal = Powerful Profits

by Stephen W. Bigalow

This article was originally published at http://www.candlestickforum.com/ and is reprinted with the permission of the author. Do you chase a stock that is already up 12% on the day? What do you do...

Individual Monthly Charts for The 1924 to 1935 Period

by Ken Safian

Earlier this year, Safian Investment Research, Inc., reissued this historical report with a new introduction. We are fortunate to be able to reprint some of that report below, and urge anyone with an...

A Fundraising Reception in celebration of the Opening of the MTAEF/MTA Library at Baruch College

by Bruce Kamich, CMT

With almost $17,000 raised for the Market Technicians Association Educational Foundation (MTAEF) with winning bidders from as far away as Kuwait and all across the United States this first of its...

MTA Announcements

MTA Educational Web Series – New Additions, Archives, and Upcoming Schedule! Registration is now open for the following upcoming presentations of the FREE MTA Educational Web Series. Sign Up...

An Interesting Application of Neural Nets

An Interesting Application of Neural Nets

Neural networks have been around for a long time, and many traders use them to find buys in the markets. In simple terms, neural networks are a mathematical modeling tool that tries to predict the future by using the past data. This difference between this and other technical analysis tools is that neural nets learn as they go. 

They are explained very well by Parallax Financial Research, Inc at http://www.pfr.com/wiz/wiz.html:

“This is an extraordinarily useful ability, especially in financial modeling, where the predictive inputs are usually known and there are countless example forecasts. Networks first need to be trained by being presented with hundreds of facts, each fact consisting of inputs and corresponding outputs. Through a unique feedback process, the network learns how those inputs are related to the outputs, and develops a general model that describes the relationship.

Neural networks use a different technique from standard analysis that

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 New View of VIX

A New View of VIX

This paper describes material originally distributed but not discussed at Fraser Management’s Contrary Opinion Forum of 2009. It presents a contrarian view of the meaning embedded in option-implied volatility. The model is a work-in-progress. Comment and suggestion are welcome by the author who has allowed us to reprint his work here.

Is VIX Really a “Fear Index”?

The CBOE VIX index measures the S&P volatility implied in options prices. Given stock price, strike price, and time to expiration, implied volatility is the value of standard deviation that balances the Black-Scholes equation with actual option prices. It’s the volatility that “must be” expected by the market to justify actual observed option prices.

VIX values vary inversely with market prices. The VIX generally goes up when the market does down, and vice versa. As declining prices can be fearful, the VIX has come to be often referred to as a “fear index.” Here is 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)

Robin Carpenter

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Candlestick Kicker Signal = Powerful Profits

Candlestick Kicker Signal = Powerful Profits

This article was originally published at http://www.candlestickforum.com/ and is reprinted with the permission of the author.

Do you chase a stock that is already up 12% on the day? What do you do when one of the your stocks announces an earnings warning? What do you do when one of your stock positions announces an SEC investigation and after a pleasant up-trend, it crashes and goes the other direction? Or a company you own announces a huge new surprise contract, reversing its down-trend, gaps up, continues higher. Will prices bounce right back after the news is digested? These situations baffle most investors. However, having the knowledge of Candlestick formations  provides huge advantages. The formation that the price move creates is an important function of how to profit from that price movement.

Big dramatic moves! What do you do? Many investors act like deer in the headlights, do nothing as most advisors suggest.

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)

Stephen W. Bigalow

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Individual Monthly Charts for The 1924 to 1935 Period

Individual Monthly Charts for The 1924 to 1935 Period

Earlier this year, Safian Investment Research, Inc., reissued this historical report with a new introduction. We are fortunate to be able to reprint some of that report below, and urge anyone with an interest in market history to read or download the entire report at http://www.safian.com/reports/4-6-09_ISR.pdf.

Enclosed is a study we issued to our clients in May 1987 when stock prices experienced one of the largest one day declines in history. Fundamental factors did not suggest a coming recessionary trend at that time as measured by our Composite Forecasting Index. There were no early signs of a recession at that time until 1989. That drop was caused in large part by the beginnings of major leverage being used by large portfolio managers. It was interesting to us that the regulatory authorities did not take stronger action at that time to limit the use of derivative products rather than just put 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)

Ken Safian

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A Fundraising Reception in celebration of the Opening of the MTAEF/MTA Library at Baruch College

A Fundraising Reception in celebration of the Opening of the MTAEF/MTA Library at Baruch College

With almost $17,000 raised for the Market Technicians Association Educational Foundation (MTAEF) with winning bidders from as far away as Kuwait and all across the United States this first of its kind auction event made the newswires. Bloomberg News interviewed Robert Prechter and noted the generous bid for Louise Yamada who together raised over $10,000 from two gentlemen eager to hear their views on the markets.

Starting in the late summer, Bruce Kamich, president of the MTAEF, started calling technicians and traders to be part of this unique on line auction. “Nearly everyone I called immediately said yes and they were a pleasure to work with,” Kamich said.

Bidding on eBay started slow, but as word spread electronically across blogs, emails, and home pages the interest and the dollars built. Some people familiar with eBay auctions came in aggressively at the end to snatch their prize. In addition to the right to

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)

Bruce Kamich, CMT

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MTA Announcements

MTA Announcements

MTA Educational Web Series – New Additions, Archives, and Upcoming Schedule!

Registration is now open for the following upcoming presentations of the FREE MTA Educational Web Series.

    • Sign Up Now – Wednesday, November 4th, Charles Kirkpatrick II, CMT, author of Technical Analysis: The Complete Resource for Financial Market Technicians, will present “Recent Studies in Relative Strength” at 12 Noon EST. Register for this webcast.
    • Sign Up Now – Tuesday, November 10th, Thomas Dorsey, President and founding member of Dorsey, Wright & Associates, will present “Creating ETFs & the Future of Investing” at 12 Noon EST. Register for this webcast.
    • Sign Up Now – Wednesday, November 18th, Linda Raschke, CTA, CPO, President of LBRGroup, Inc., will present “Quantifying Structure and Identifying the Sweet Spots in the Data” at 4:30 PM EST. Register for this webcast.

New Additions to the Schedule – The MTA is pleased to announce the following presentations

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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