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Technically Speaking, October 2011

LETTER FROM THE EDITOR

The MTA Educational Foundation (MTAEF) will be cosponsoring an event marking the 160th anniversary of the birth of Charles Dow. On November 3, there will be a celebration at the Museum of American Finance. You can learn more at http://go.mta.org/117 Among the speakers will be Robert W. Colby, CMT. We have included an article he wrote several years ago about Dow Theory in this month’s newsletter. It is the first of several articles we are offering on the revered technical tool in this month’s Technically Speaking. Paul Shread, CMT, offers a more detailed look at several aspects of the Theory. We are also offering highlights of a presentation that Ralph Acampora, CMT, made in May 2009 on the Dow Theory. Ralph will be the Master of Ceremonies at the event. We are continuing our efforts to provide members and affiliates with more information about ethics, not because that is a problem area within our organization but because it is what helps define us as professionals. Like the Dow Theory, the MTA’s Code

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What's Inside...

DOW THEORY: AN INTRODUCTION AND UPDATED APPROACH

by Robert Colby, CMT

The following is excerpted from The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill Publishing, 2003, by Robert W. Colby and used with permission of the author. Editor’s...

DOW THEORY: A CENTURY OF SUCCESS AND UNCERTAINTY

by Paul Shread, CMT

Dow Theory is considered the cornerstone of modern technical analysis – and yet more than a century of practice has yet to yield a definition that most market participants agree on. It’s...

DOW THEORY AND THE DOW INDEXES IN THE TWENTY FIRST CENTURY

by Michael Carr, CMT

With its roots in the nineteenth century, Dow Theory is among the oldest techniques in technical analysis. Some will argue that it has withstood the test of time and others will argue that it needs...

VIDEO ARCHIVES: DOW THEORY BY RALPH ACAMPORA, CMT

by Michael Carr, CMT

On May 9, 2009, Ralph Acampora gave a presentation on Dow Theory as part of the MTA Web Educational Series. It can be found at http://go.mta.org/119. The ideas of Dow Theory are well known to all...

LIBRARY UPDATE

by Bruce Kamich, CMT

The MTA/MTAEF Library continues to grow at Baruch College. Last week Philip Roth, CMT, David Aronson, CMT, and I visited the Library with Baruch’s Head Librarian, Arthur Downing. For those...

MTA ANNUAL AWARDS

The MTA Award Committee would like to solicit your nominations for the MTA Award, as well as for the Service and Recognition Awards. The MTA Award recognizes excellence in the field of technical...

INTERVIEW WITH FRED MEISSNER, CMT

by Fred Meissner, CMT & Amber Hestla-Barnhart

How would you describe your job? My current function is publishing The FRED Report. I do much of what I did at Robinson – Humphrey and Merrill Lynch, which is consulting with Financial Advisors...

MTA LONG RANGE PLANNING COMMITTEE MEETING RECAP

by Tim Snavely, CFA, CMT

The Long Range Planning Committee met on Saturday, September 10th in Rye Brook, NY – roughly twenty-five MTA volunteers and board members sharing their time to exchange ideas on how the MTA can...

UNDERSTANDING PUBLIC PERCEPTIONS ON THE MARKET WITH TECHNICAL ANALYSIS

by Michael Carr, CMT

A number of Nobel Prize winning theories start with the assumption that  investors are rational. In the real world, many investment professionals discover through their daily interactions with...

MTAEF TO HOST PANEL AT FMA ANNUAL MEETING IN OCTOBER

The MTA Educational Foundation (MTAEF) will be presenting four panelists to discuss integrating technical analysis within a Chartered Financial Analyst (CFA) track undergraduate finance course...

ETHICS CORNER

by Michael Carr, CMT

This is part of a series of case studies related to the MTA Code of Ethics. If you have any questions you’d like to see specifically addressed, please email them to editor@mat.org. QUESTION: Trudy...

MOMENTUM DIVERGENCES CAN BE USEFUL

by Amber Hestla-Barnhart & Michael Carr, CMT

Technical analysts often look at momentum indicators. Over the years there have been a number of tools developed that try to measure momentum. Most variations simply add complexity to a calculation...

MTA SEEKING NEW HIRE: DIRECTOR, CMT STUDIES

The CMT Board of Governors (BoG) is pleased to announce the creation of the full time position of Director, CMT Studies. The immediate responsibility of this position is the development and...

DOW THEORY: AN INTRODUCTION AND UPDATED APPROACH

DOW THEORY: AN INTRODUCTION AND UPDATED APPROACH

The following is excerpted from The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill Publishing, 2003, by Robert W. Colby and used with permission of the author.

Editor’s note: The test results presented in this article may be out of date and are presented here as an example of the type of work that is possible with Dow Theory. The ideas merit further testing and could prove to be a very useful for technicians.

The Dow Theory is a major corner stone of technical analysis. It is one of the oldest and best known methods used to determine the major trend of stock prices. It was derived from the writings of Charles H. Dow from 1900 to 1902 published in the daily newspaper he founded, The Wall Street Journal. Dow’s Theory was further refined by analysts and writers S. A. Nelson, William P. Hamilton, and Robert Rhea in the first few decades

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Contributor(s)

Robert Colby, CMT

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DOW THEORY: A CENTURY OF SUCCESS AND UNCERTAINTY

DOW THEORY: A CENTURY OF SUCCESS AND UNCERTAINTY

Dow Theory is considered the cornerstone of modern technical analysis – and yet more than a century of practice has yet to yield a definition that most market participants agree on.

It’s helpful to understand that Dow Theory was initially an economic theory developed in the pages of the Wall Street Journal by Charles Dow from 1899 to 1902. Dow’s theory was simple: if goods were being produced and moving through the economy, then it should show up in the action of both the Industrials and Transports, the makers and transporters of raw and finished products. If either the Industrials or the Transports weren’t confirming the direction of the other, then it was a warning that conditions might be about to change. And if both were headed substantially south, then the economy was likely to follow.

Simple enough, but a lot of trees have been felled trying to define when a Dow

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Contributor(s)

Paul Shread, CMT

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DOW THEORY AND THE DOW INDEXES IN THE TWENTY FIRST CENTURY

DOW THEORY AND THE DOW INDEXES IN THE TWENTY FIRST CENTURY

With its roots in the nineteenth century, Dow Theory is among the oldest techniques in technical analysis. Some will argue that it has withstood the test of time and others will argue that it needs to be updated. Most debates in technical analysis will never be fully resolved to the satisfaction of everyone, but this one can at least be detailed and understood.

Charles Dow developed indexes to track the stock market action and the economy, and his first effort at this became the Dow Jones Transportation Average (DJTA). This average can be traced back to July 1884 and it originally included eleven transportation companies, nine of which were railroads. The original components of the DJTA were:

  • Chicago, Milwaukee and St. Paul Railway
  • Chicago and North Western Railway
  • Delaware, Lackawanna and Western Railroad
  • Lake Shore and Michigan Southern Railway
  • Louisville and Nashville Railroad
  • Missouri Pacific Railway
  • New York Central Railroad
  • Northern Pacific Railroad
  • Pacific Mail Steamship Company
  • Union Pacific Railway
  • Western Union

Union

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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)

Michael Carr, CMT

Michael Carr, CMT

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VIDEO ARCHIVES: DOW THEORY BY RALPH ACAMPORA, CMT

VIDEO ARCHIVES: DOW THEORY BY RALPH ACAMPORA, CMT

On May 9, 2009, Ralph Acampora gave a presentation on Dow Theory as part of the MTA Web Educational Series. It can be found at http://go.mta.org/119.

The ideas of Dow Theory are well known to all technicians. They are also covered elsewhere in this month’s issue of Technically Speaking. Turning to the MTA’s extensive video archives, it is useful to watch Ralph Acampora run through the Dow Theory in a real time analysis.

Ralph begins with the basic concepts and delivers a comprehensive review that CMT candidates might find helpful. He also presents several historical examples that provide insight into how to apply Dow Theory.

It is important to remember that Dow Theory is used to spot very long-term trends in the market. Ralph points out that a primary bull or bear market, the trend that the theory is useful for determining, can last years and a secondary reaction could last months.

A historic

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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)

Michael Carr, CMT

Michael Carr, CMT

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LIBRARY UPDATE

LIBRARY UPDATE

The MTA/MTAEF Library continues to grow at Baruch College. Last week Philip Roth, CMT, David Aronson, CMT, and I visited the Library with Baruch’s Head Librarian, Arthur Downing. For those newer MTA members who might not know, the Library was rebuilt after 9-11 with purchases, donations from publishers and the generous contributions of many members. Keeping the Library in Woodbridge NJ at the MTA’s “backup facility” was not ideal and became impractical when the MTA made the decision to return to NYC.

After negotiations and with the critical assistance of David Krell, the Library and the materials from the Foundation for the Study of Cycles were moved to Baruch College under a bailment agreement (a legal relationship where the physical possession of the property is transferred but the ownership is retained). Baruch has carefully catalogued and maintained the approximately 5,000 volumes now housed on their campus. The collection is stored 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)

Bruce Kamich, CMT

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MTA ANNUAL AWARDS

MTA ANNUAL AWARDS

The MTA Award Committee would like to solicit your nominations for the MTA Award, as well as for the Service and Recognition Awards.

The MTA Award recognizes excellence in the field of technical analysis.

The Service Award recognizes contributions to our organization.

The Recognition Award recognizes contributions to the MTA and technical analysis by people who are neither members nor technicians.

Please forward your nominations via e-mail with the subject “MTA Awards” to BBands@BollingerBands.com.

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Not a member? Join the CMT Association and unlock access to hundreds of hours of written and video technical analysis content, including the Journal of Technical Analysis and the Video Archives. Learn more about Membership here.

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INTERVIEW WITH FRED MEISSNER, CMT

INTERVIEW WITH FRED MEISSNER, CMT

How would you describe your job?

My current function is publishing The FRED Report. I do much of what I did at Robinson – Humphrey and Merrill Lynch, which is consulting with Financial Advisors and other clients, and write research. I also give several speeches and present at several events each year.

What led you to look at the particular markets you specialize in as opposed to another tradable?

In my research, I look at all tradable units. But, when I got into the business there were no ETF’s, so the most efficient way to trade indexes was the futures markets. With ETFs. this has changed, which makes everybody’s job more interesting as well as more complicated. Bottom line, I think this is a plus – as there are more hedging opportunities available to the average client, and more ways to balance a sector allocation.

Do you look at any fundamental or economic inputs

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Contributor(s)

Fred Meissner, CMT

MTA LONG RANGE PLANNING COMMITTEE MEETING RECAP

MTA LONG RANGE PLANNING COMMITTEE MEETING RECAP

The Long Range Planning Committee met on Saturday, September 10th in Rye Brook, NY – roughly twenty-five MTA volunteers and board members sharing their time to exchange ideas on how the MTA can improve. After focusing on key initiatives such as the CMT program and Internet strategy these past few years, the committee spent time this year on issues including advocacy, member services, organizational structure, and international initiatives.

The committee focused much of its time this year on the question of advocacy and, in particular, what our organization can do to advance the discipline and opportunities for charterholders. Sam Levine, CMT, CFA led a discussion which generated thoughts and actionable items on how technical analysis can be better positioned for success in the investment community and media especially.

We also discussed things the MTA can do for the membership as members address the media. We shared some recent successes, and discussed plans

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)

Tim Snavely, CFA, CMT

UNDERSTANDING PUBLIC PERCEPTIONS ON THE MARKET WITH TECHNICAL ANALYSIS

UNDERSTANDING PUBLIC PERCEPTIONS ON THE MARKET WITH TECHNICAL ANALYSIS

A number of Nobel Prize winning theories start with the assumption that  investors are rational. In the real world, many investment professionals discover through their daily interactions with investors that there are occasional bouts of irrationality. In discussing the markets with the public, it’s important to understand this since questions and firmly held beliefs could be rooted in that irrational behavior.

Rational investors most likely only exist in Modern Portfolio Theory. The argument makes sense intuitively. Investors will buy the portfolio that maximizes the potential returns while minimizing their personal preference for risk. But in the rule world, emotions like far and greed, infiltrate the decision making process.

Potential returns are generally defined by discounting the future cash flows of an investment back to its present value. In theory, some investments will be undervalued and these should be bought. Others will be overvalued and would be avoided, or sold short if 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)

Michael Carr, CMT

Michael Carr, CMT

MTAEF TO HOST PANEL AT FMA ANNUAL MEETING IN OCTOBER

MTAEF TO HOST PANEL AT FMA ANNUAL MEETING IN OCTOBER

The MTA Educational Foundation (MTAEF) will be presenting four panelists to discuss integrating technical analysis within a Chartered Financial Analyst (CFA) track undergraduate finance course currently taught by Jerry Stevens, Professor of Finance at the University of Richmond. The session is part of the Financial Management Association’s (FMA’s) International Annual Meeting which will be held in Denver, CO on October 19-22, 2011.

Professor Stevens’ session, Integrating Technical Analysis with a CFA Undergraduate Investment Track, discusses building an undergraduate investment track in finance that integrates both the Chartered Financial Analyst (CFA) and the Chartered Market Technician (CMT) body of knowledge. The overall goal is to complement the college degree with a program that gives graduates a head start in earning the CFA and CMT designations. The CFA student program will be reviewed and followed by an in-depth discussion of the CMT student program. Panelists will first present an overview of the CMT

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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.

ETHICS CORNER

ETHICS CORNER

This is part of a series of case studies related to the MTA Code of Ethics. If you have any questions you’d like to see specifically addressed, please email them to editor@mat.org.

QUESTION: Trudy Elliott Waverly is currently employed at ABC Investment Management. In her current position, she provides technical analysis of various markets and individual securities to the firm’s traders and frequently interacts with clients and prospective clients. She travels with the sales team on occasion and offers an overview of the firm’s short-term investment strategy. Follow-up with some of these prospects is required at times to address their individual questions, and client interaction is a large part of her job. Typically, Trudy believes that she spend about 75 percent of her time discussing market opinions with clients. 

She has been offered a position and in the new position, she will be providing only written analysis. Sales reps and account representatives

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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)

Michael Carr, CMT

Michael Carr, CMT

MOMENTUM DIVERGENCES CAN BE USEFUL

MOMENTUM DIVERGENCES CAN BE USEFUL

Technical analysts often look at momentum indicators. Over the years there have been a number of tools developed that try to measure momentum. Most variations simply add complexity to a calculation that is rather straightforward.

Momentum measures the force that drives an object’s motion in physics, and that is the idea applied in technical analysis. Technicians are gauging the likelihood that a price move will continue by looking at momentum. Strong momentum usually signals that the trend, whether up or down will continue, and lagging momentum can be a signal that a reversal is near.

Dividing the most recent price by the price six months ago (or 26 weeks ago or 130 days ago) is the simplest way to calculate momentum. There are a number of other ways that momentum can be calculated. Each technique has advantages and disadvantages and different analysts will find some degree of value with each technique. For

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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)

Michael Carr, CMT

Michael Carr, CMT

MTA SEEKING NEW HIRE: DIRECTOR, CMT STUDIES

MTA SEEKING NEW HIRE: DIRECTOR, CMT STUDIES

The CMT Board of Governors (BoG) is pleased to announce the creation of the full time position of Director, CMT Studies. The immediate responsibility of this position is the development and integration of CMT study materials, including Learning Outcome Statements and a customized curriculum for our candidates. This full time staff member will also participate in coordinating the work of Subject Matter Experts in the preparation of CMT exams. This position will report to the Executive Director of the MTA, with a strong working relationship to the Chairperson of the BoG and the BoG itself.

The ideal candidate will have, as a minimum, a graduate level degree and at least 5 years of relevant teaching experience, with an emphasis on distance learning. They will have a strong, comprehensive knowledge of the financial markets, with the Chartered Market Technician (CMT) designation preferred, but not required. This individual must have excellent verbal and

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New Educational Content This Month

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