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Technically Speaking, October 2012

LETTER FROM THE EDITOR

Once again, we have tried to present a broad array of work in technical analysis to you in this month’s issue. Eric Leake uses economic news and interest rates to discuss the outlook for high yield bonds. Scott Hathaway applies geometric techniques to the gold market.  Larry Berman, CMT, CFA, CTA, and Keith Richards, CMT, offer general trading guidance that they first offered on MTA blogs. While Larry points out that Canadian investors need to watch global events, this is good advice for traders and investors in any country. There is an increasing degree of globalization in the markets and events in any country could set off a global crash. Keith highlights the role of the Federal Reserve, a force that no analyst can ignore anymore. We wrap up with a very brief look at two bubbles – tulips and subprime mortgages share some similarities that could help us spot future bubbles. I would appreciate any feedback you have on bubbles or any comments you have on our newsletter. Email us at

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What's Inside...

AN ALTERNATIVE VIEW ON HIGH YIELD RISK

by Eric Leake

Editor’s note: This was originally published on Sep 26, 2012 at http://go.mta.org/602 Let’s face it, in a zero interest rate world, yield is hard to come by. Maybe that’s why investors have...

GEOMETRY CORNER: GOLD, STARTING FROM NOTHING!

by Scott Hathaway, CFTe

There is no holy grail for analyzing a market. But if King Arthur (or maybe King Midas?) was trading gold for exactly the last 36 years (62), he probably would have wanted to see the third price...

MTA BLOGS

by Larry M. Berman, CMT, CTA, CFA & Keith Richards CMT, CIM, FCSI

Editor’s note: We are again reposting two short blog posts that have previously been posted under the blog section of MyMTA. These blogs offered varied insights into global markets. Access to this...

INTERVIEW WITH LOUIS B LLANES, CMT, CFA

by Louis Llanes, CMT, CFA & Amber Hestla-Barnhart

How would you describe your job? I am a Managing Principal and shareholder of Centric Investment Group, an investment advisory firm based in Denver Colorado. My primary role in the firm is to lead...

TULIPS, SUBPRIME MORTGAGES, AND TECHNICAL ANALYSIS OF BUBBLES

by Michael Carr, CMT

One of the basic precepts of technical analysis is that history repeats itself.  Technicians make it a general practice to learn from history and bubbles are among the most interesting chapters...

AN ALTERNATIVE VIEW ON HIGH YIELD RISK

AN ALTERNATIVE VIEW ON HIGH YIELD RISK

Editor’s note: This was originally published on Sep 26, 2012 at http://go.mta.org/602

Let’s face it, in a zero interest rate world, yield is hard to come by. Maybe that’s why investors have been stampeding into high yield bonds this year.  We certainly aren’t complaining. The long side of our Long-Short High Yield Bond strategy Alternative Income has benefited. But there are emerging signs that it may be time to start reducing risk, and consider opportunities on the short side.

The Federal Reserve announced the latest round of Quantitative Easing (QE III) last week. The consensus view is that this latest round of $85 Billion per month bond buying will send all liquid assets higher. Investors responded by pouring fresh capital into High Yield Bonds driving prices to new highs on the year. In a climate where the Fed is promising a zero interest rate policy from now until eternity it makes sense

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Contributor(s)

Eric Leake

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GEOMETRY CORNER: GOLD, STARTING FROM NOTHING!

GEOMETRY CORNER: GOLD, STARTING FROM NOTHING!

There is no holy grail for analyzing a market. But if King Arthur (or maybe King Midas?) was trading gold for exactly the last 36 years (62), he probably would have wanted to see the third price chart…

This article does not feature geometric shapes or curves in the fashion of my previous articles. Instead I will combine two standard concepts. The first from general geometry; the second from the great mind of W.D. Gann:

  1. Evenly divide a circle consisting of 360 degrees, with the emphasis on a right angle (90 degrees), it’s very important half of 45 degrees, and even its quarter of 22.5 degrees.
  2. Generating a fan of angles from $0 (literally, from nothing!), directly underneath a major low.

The twist here is that the former provides fodder for the latter by generating ratios. But before that step, here is a diagram showing a circle that is cut into quarters: the ‘cardinal

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)

Scott Hathaway, CFTe

Scott Hathaway, CFTe

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MTA BLOGS

MTA BLOGS

Editor’s note: We are again reposting two short blog posts that have previously been posted under the blog section of MyMTA. These blogs offered varied insights into global markets. Access to this content is another valuable benefit of MTA membership.

Canadian Investors Need To Watch Global Events
by Larry M. Berman, CMT, CTA, CFA

When the ECB stated that it would not likely pursue any more aggressive unconventional easing measure at this point, it deflated some of the hope of the QE crowd and hurt the gold sector. Spanish bond yields dropped about 15bps when the ECB cut rates, but have since risen to 7.00% following Mario Draghis’ speech. It had a negative impact on the euro versus the dollar, which in turn hurt lots of commodity prices.

So a speech by the head of the ECB had more to do with what the TSX did yesterday than anything made in Canada. This

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)

Larry M. Berman, CMT, CTA, CFA

Keith Richards CMT, CIM, FCSI

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INTERVIEW WITH LOUIS B LLANES, CMT, CFA

INTERVIEW WITH LOUIS B LLANES, CMT, CFA

How would you describe your job?

I am a Managing Principal and shareholder of Centric Investment Group, an investment advisory firm based in Denver Colorado. My primary role in the firm is to lead the investment management function for our portfolio strategies. In that process, I lead the investment committee and decide the tactical changes to our strategies.

What led you to look at the particular markets you specialize in?

I have always been fascinated with economics. Before I was in college I ran into a book at my grandfather’s house entitled “Microeconomics”. It had a bunch of graphs and theories that blew me away. I started to read it and immediately was hooked. I was curious about why prices moved higher or lower and why certain people became wealthy and others struggled. I changed my major initially to economics at college but then switched to finance. All of this led me 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)

Louis Llanes, CMT, CFA

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TULIPS, SUBPRIME MORTGAGES, AND TECHNICAL ANALYSIS OF BUBBLES

TULIPS, SUBPRIME MORTGAGES, AND TECHNICAL ANALYSIS OF BUBBLES

One of the basic precepts of technical analysis is that history repeats itself.  Technicians make it a general practice to learn from history and bubbles are among the most interesting chapters of market history. Looking beyond just the price chart, there is a great deal to be learned from any bubble.

The early seventeenth century was an important period in the development of technical analysis.  If CNBC had been covering the markets about 400 years ago, their attention would have been focused on the relatively small country of Holland where the biggest story in market history up to that time was unfolding. Tulips had gone from being just a beautiful flower prized by collectors to the most actively traded commodity of its time.  While it often took years to fully cultivate the actual flower, it

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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New Educational Content This Month

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