
LETTER FROM THE EDITOR
In this month’s issue we sadly note the passing of 2003 MTA Annual Award winner, Richard Russell. The story of his life was inseparable from his work and we present two examples of his work. There are many other examples available and young analysts would benefit from studying Richard’s approach to both work and life.
Young analysts would also benefit from studying the life of Ralph Acampora, CMT, who recently spoke to business students at the University of Denver. He began by talking about a bubble that developed in railroad stocks in the 1800’s. This bubble played out on the charts just like the internet bubble would almost 150 years later. As technical analysts know, history repeats. This time-tested idea is the subject of an article about the failure of a financial firm in 19th century Britain. Overend, Gurney & Co. is a company few traders remember but Dr. Bryan Taylor provides us with the details of one of the most dramatic events in the financial history of Victorian England. The collapse of Overend, Gurney and Co. had a more severe impact on the London financial market than the collapse of Bear Stearns had on U.S. markets over 140 years later. During the financial crisis of 1866, over 200 firms went bankrupt, including a number of banks. The similarities with 2008 are startling but few technical analysts will be surprised to see that history and human nature never seem to change.
This month’s issue also includes calls for papers from the sponsors of the Charles H. Dow Award and the Wagner Award. Research papers can be a valuable source of trading ideas as you can see in this issue’s Chart of the Month feature which shows the indicator highlighted in the 2015 Dow Award winning paper for several key markets around the world. In the next few months, we will be charting several other Dow Award-winning ideas.
Sincerely,
Michael Carr
What's Inside...

RICHARD RUSSELL: THE PASSING OF AN ICON
Richard Lion Russell, 91, of La Jolla, California, passed away on November 21, 2015 from natural causes at his home, surrounded by his family. Russell was founder and publisher of Dow Theory...
THE HISTORY OF THE DOW THEORY
by Richard RussellEditor’s note: this was originally posted at DowTheoryLetters.com and is reprinted here with permission. The following piece is for serious market students. What I wrote below is information that...
RICH MAN, POOR MAN
by Richard RussellEditor’s note: this was originally posted at DowTheoryLetters.com and is reprinted here with permission. MAKING MONEY: The most popular piece I’ve published in 40 years of writing these...
VOLATILITY AND TRADING: RISK AND REWARD
by Kirk Northington, CMTEditor’s note: This article was originally published at The Educated Analyst, an education blog maintained by Market Analyst. The first two articles in this series are available at The Educated...
CALL FOR NAAIM WAGNER AWARD PAPERS
Launched in 2009, the NAAIM Wagner Award is designed to expand awareness of active investment management techniques and the results of active strategies through the solicitation and publication of...
ABSOLUTE STRENGTH MOMENTUM INVESTING STRATEGY
by Jack Vogel, Ph.D.Editor’s note: this was originally published at Alpha Architect on October 13, 2015 and is republished here with permission. Here we highlight an interesting working paper titled “Absolute...
THE UNIVERSITY OF DENVER WELCOMES TECHNICAL ANALYSIS TO THEIR FALL FORUM
Technical analysts and the academic community have not always had a close relationship. This situation could be changing and it is likely students are pushing the change. Ralph Acampora, CMT,...
EXIT FROM WONDERLAND: CHANGE IS NOW ON THE HORIZON
by Ed EasterlingEditor’s note: this was originally published at Crestmont Research on August 11, 2015 and is reposted here with permission. Many investors and advisors are unsure about the current financial market...
ORPHEUS INDICES
by Mukul PalWinners don’t always win Indexing in capital markets has proven to be a popular method to gain broad market participation in a low cost vehicle that tends to outperform active managers net of fees...
OVEREND, GURNEY & CO.: AN INSPIRATION TO KARL MARX AND BEAR STEARNS
by Dr. Bryan TaylorEditor’s note: This article was originally published at the Global Financial Data blog and is reprinted here with permission. One of the most dramatic events in the financial history of Victorian...
CHART OF THE MONTH: FIXING THE VIX
The 2015 Charles H. Dow Award winning paper, Fixing the VIX: An Indicator to Beat Fear by Amber Hestla-Barnhart, demonstrates a market timing technique based on volatility. While the VIX, the CBOE...

Richard Lion Russell, 91, of La Jolla, California, passed away on November 21, 2015 from natural causes at his home, surrounded by his family. Russell was founder and publisher of Dow Theory Letters. To his last day he continued to write his daily opinions and analyses on the stock market. He never skipped his scheduled letter, and after moving to a digital format in 1991, he began writing every market day. His analysis was based on the Dow Theory, which he discovered in the stacks of the NY Public Library in 1958. Russell’s Dow Theory Letters has been the oldest service continuously written by one person in the financial advisory business. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron’s during the late 1950s through the 1990s. Through Barron’s and via word of mouth, he gained a wide international following. Russell
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Editor’s note: this was originally posted at DowTheoryLetters.com and is reprinted here with permission. The following piece is for serious market students. What I wrote below is information that you will rarely see anywhere else. I hope it will dispel some of the misconceptions and utter nonsense that has circulated about Dow Theory. Read on. DOW’S THEORY: From the very beginning (July 1958) I called my report Dow Theory Letters, and there are obvious reasons for that. The reasons are (1) I truly believe in the basic tenets of Dow Theory, and (2) I wanted to teach Dow Theory and I wanted to insure that the Dow Theory tenets, rules and observations were passed on to future generations. Before I start this section let me say that there are hundreds of predictive and trend-following techniques that are now used (some very worthwhile, others less so) by market students. I follow dozens of these techniques and devices, but none of
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Contributor(s)

Richard Russell
Bio coming
Editor’s note: this was originally posted at DowTheoryLetters.com and is reprinted here with permission. MAKING MONEY: The most popular piece I’ve published in 40 years of writing these Letters was entitled, “Rich Man, Poor Man.” I have had dozens of requests to run this piece again or for permission to reprint it for various business organizations. Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline and desire. I say, “for the great majority of people” because if you’re a Steven Spielberg or a Bill Gates you don’t have to know about the Dow or the markets or about yields or price/earnings ratios. You’re a phenomenon in your own field, and you’re going to make big money as
To view this content you must be an active member of the CMT Association.
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Contributor(s)

Richard Russell
Bio coming
Editor’s note: This article was originally published at The Educated Analyst, an education blog maintained by Market Analyst. The first two articles in this series are available at The Educated Analyst or in the September and October issues of Technically Speaking. This is the 3rd article in the series on Volatility & Trading. Please note that this article assumes you have read and understood the first two articles. · Read Part 1 | The Sandpiper & Trading – Part 1 · Read Part 2 | Volatility & Trading – Part 2 Let’s talk about danger. Do you think you are safe? Right now as you read this? How about the next time you eat out at a restaurant? Obviously it depends on all the things that can go wrong and their associated probabilities; food poisoning, choking on a bone, etc. How safe are your exchange traded investments or current positions? Once again it can depend on all
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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)

Kirk Northington, CMT
Kirk Northington, who holds a Chartered Market Technician (CMT) designation, is a quantitative technical analyst and the founder of Northington Trading, LLC. He is also the creator of MetaSwing, advanced analytic software for Bloomberg Professional, MetaStock and...
Launched in 2009, the NAAIM Wagner Award is designed to expand awareness of active investment management techniques and the results of active strategies through the solicitation and publication of research on active management. $10,000 is presented annually for the best paper submitted to the competition. The competition is open to all investment practitioners, academic faculty and doctoral candidates who submit an innovative topic in the area of active investing. This can be either a documented and justified investing approach or an exploration into the validity of active investing. Active investing topics can involve making investment decisions using technical analysis, quantitative analysis, etc. Papers can also address related topics such as position sizing techniques, money management approaches, scaling into and out of trades, exit strategies, etc. The NAAIM Website has a new feature that allows anyone to search for and download (up to 3 at a time) any of the previously-submitted white papers
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Editor’s note: this was originally published at Alpha Architect on October 13, 2015 and is republished here with permission. Here we highlight an interesting working paper titled “Absolute Strength: Exploring Momentum in Stock Returns” by Gulen and Petkova (2015). The abstract is the following: We document a new pattern in stock returns that we call absolute strength momentum. Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have significantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength winner and loser portfolio breakpoints are recursively determined by the historical distribution of realized cumulative returns across time and across stocks. The historical distribution yields stable breakpoints that are always positive (negative) for the winner (loser) portfolios. As a result, winners are those that have experienced a significant upward trend, losers are those that have experienced a significant
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)

Jack Vogel, Ph.D.
Jack Vogel, Ph.D. is CFO/CIO of Alpha Architect. Jack conducts research in empirical asset pricing and behavioral finance, and has collaborated with Dr. Wesley Gray, CEO/CIO of Alpha Architect, on multiple projects. His dissertation investigates how behavioral biases affect the...
Technical analysts and the academic community have not always had a close relationship. This situation could be changing and it is likely students are pushing the change. Ralph Acampora, CMT, recently spoke at the University of Denver. Ralph was part of a panel discussion on the history of technical analysis at the school’s Daniels Finance Forum. Louis Llanes, CMT, CFA, joined Ralph on stage at the event which was attended by approximately 100 students, faculty members and local investment professionals. While the speakers addressed the history of technical analysis, it was apparent to most attendees they were also talking about the present. Railroad bubbles that occurred in the late 1800’s, as Ralph pointed out, are very similar to bubbles in internet stocks or real estate that occurred in more recent times. Comments also highlighted the important role technical analysis can hold in risk management and the complementary nature of technical analysis and fundamental
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Editor’s note: this was originally published at Crestmont Research on August 11, 2015 and is reposted here with permission. Many investors and advisors are unsure about the current financial market environment. They have been wrestling with how to weight equities and whether to include alternative investments. Although equities have performed well in recent years, many alternatives have lagged expectations. This should not be surprising: the financial world is operating just as the Fed has intended. Over the past few years, analysts have pondered whether and when the Fed will start to change its intentionally distortive policies. Many hedged portfolios have remained diversified due to that uncertainty, and unfortunately they have often underperformed expectations. The repeating pattern—and unprecedentedly long era—of interest-rate and bond-market interventions now has many investors capitulating to a new world outlook. As an analogy, it’s as though nine heads in a row from coin flipping has led to an expectation of
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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)

Ed Easterling
Ed Easterling is the author of Probable Outcomes: Secular Stock Market Insights and the award-winning Unexpected Returns: Understanding Secular Stock Market Cycles. He is currently president of an investment management and research firm. In addition, he previously served as an...
Winners don’t always win Indexing in capital markets has proven to be a popular method to gain broad market participation in a low cost vehicle that tends to outperform active managers net of fees and expenses over the intermediate and long term. Index investments worldwide totaled over $9 trillion in 2014 up from $6.1 trillion two years prior. The majority of these indices are market capitalization weighted. This growth stems from cap-weighted indexes providing a low-cost, low-fee broad market exposure that historically has outperformed the majority of active managers over five-year periods. The cap weighted approach links the price of the security to the portfolio weight. Therefore, all over priced securities become over weighted in the portfolio relative to their future return. The converse is true for underpriced securities becoming under weighted relative to their future stock performance. In simple terms, cap-weighted approach suggests an investor to keep buying more of the winner.
To view this content you must be an active member of the CMT Association.
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Contributor(s)

Mukul Pal
Mukul Pal, a technical analyst who holds the Chartered Market Technician (CMT) designation, is the founder of AlphaBlock, a technology group focused on bringing the predictive mapping characteristics of AI to the market mechanisms that use blockchain to create an adaptive...
Editor’s note: This article was originally published at the Global Financial Data blog and is reprinted here with permission. One of the most dramatic events in the financial history of Victorian England was the collapse of Overend, Gurney and Co. Its failure had a more severe impact on the London financial market than the collapse of Bear Stearns had on U.S. markets over 140 years later. During the financial crisis of 1866, over 200 firms went bankrupt, including a number of banks. The failure of Overend, Gurney and Co. also led to one of the first trials for financial fraud in history when all six directors were brought before the courts of London to answer for their alleged crimes. Quaker Origins Overend, Gurney and Co. was formed in 1805 by the merger of Richardson, Overend and Co., originally founded by Thomas Richardson in 1802, and Gurney’s Bank located in Norwich and founded 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)

Dr. Bryan Taylor
Dr. Bryan Taylor President & Chief Economist, Global Financial Data Dr. Bryan Taylor serves as President and Chief Economist for Global Financial Data. He received his B.A. from Rhodes College, his M.A. from the University of South Carolina in International Relations,...
The 2015 Charles H. Dow Award winning paper, Fixing the VIX: An Indicator to Beat Fear by Amber Hestla-Barnhart, demonstrates a market timing technique based on volatility. While the VIX, the CBOE Volatility Index®, might be the most popular volatility measure, its applicability is rather limited. As explained in the paper: VIX is widely known as the “Fear Index” because it often increases when the stock market drops and the fear of further price declines increases. While this concept sounds useful, there are significant limitations to executing trading strategies based on VIX and these limitations make VIX virtually useless for the average investor. Although it is not widely followed, there is a simple volatility indicator available in the public domain that can be used to implement trading strategies based on the concept of VIX. This indicator, the VIX Fix developed by Larry Williams, overcomes the limitations of VIX. This paper will explain the
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New Educational Content This Month
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November 22, 2023
Utilizing Trend & Mean Reversion in Breadth Studies to Gauge Market Conditions
Presenter(s): Victor Riesco
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November 18, 2023
Beating the Bench
Presenter(s): Scott Brown, CMT
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October 25, 2023
Equity Risk & Potential – Q4, ’24 & Beyond
Presenter(s): Timothy Hayes, CMT