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Technically Speaking, October 2013

LETTER FROM THE EDITOR

Like every other field of study, technical analysis has a history that is important to study. The history of technical analysis includes research related to charts and indicators. This history also includes the stories of the people who advanced the field. This month we look at one of those individuals in detail. Joe Granville rose to fame as a technical analyst in the 1960’s and 1970’s. In the future, it might not be possible for any other analyst to achieve his level of popularity. Markets are larger now and the time when one individual’s forecasts can move markets has likely passed. But Joe lived when that was possible and he did move the market on several occasions. In addition to the past, articles in this issue of Technically Speaking also cover the present state of technical analysis with several pieces of applied analysis. You can always email us at editor@mta.org to share your perspectives on the past, present and future of technical analysis. Michael Carr

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What's Inside...

JOSEPH GRANVILLE: “WE’RE SCIENTISTS”

by Bill Voelker

Editor’s note: Bill Voelker was a long-time friend of Joe Granville and prepared this to honor his friend several years ago. It is reprinted here with permission. Science’s job is to reduce all...

JOSEPH GRANVILLE: A LIFE WELL-LIVED

by Michael Carr, CMT

In his obituary, The New York Times noted, “when the stock market prognosticator Joseph E. Granville talked, his subscribers listened. “ In the early 1980’s, Joe Granville reached a level of...

WHO IS JOSEPH GRANVILLE?

by The Granville Letter Website

For the past 24 years Joseph Granville has been living with his wife Karen in Kansas City Missouri. He is best known as a stock market Technical Analyst. Now almost 85, his latest book How to Read...

P&F TRAPS: RULES THAT DEFINE WEAKENED BULLS & BEARS

by Prashant Shah, CMT, CFTe, MFTA, MSTA

We often use the words “bull trap” and “bear trap” in conventional pattern analysis. We usually mean pattern failures or false breakouts by that but it is difficult to precisely define the...

THE 1545 TRADING SYSTEM

by Anthony Trongone

Although the market has been on a tear, the performance of the SPYDRs (SPY), in the 15 minutes prior to the ringing of the closing bell (15:45 to 16:00 ET), has not been profitable. Below are the...

INTERVIEW WITH FRANK CAPPELLERI, CFA, CMT

by Frank Cappelleri, CMT, CFA & Amber Hestla-Barnhart

How would you describe your job? I currently work as an equity sales trader for Instinet, LLC, a Nomura Company. My primary responsibilities include providing high touch and electronic trading...

PHASES AND CYCLES: THE MARKETS COULD HAVE SOME WEAKNESS BEFORE THE BULL LAUNCHES ITS NEXT MAJOR ADVANCE

by Ron Meisels

Editor’s note: This report was originally published by Phases & Cycles on September 30, 2013 and is reprinted here with permission. This bull market continues to throw a few curve balls at both...

GOODYEAR TIRE & RUBBER STATUS

by Monica Rizk & Ron Meisels

Editor’s note: This is an example of the analysis published by Phases & Cycles. It is reprinted here with permission as an example of a structured research report. Goodyear Tire & Rubber is...

ETHICS CORNER: HOW DO YOU DEFINE AN ADEQUATE AMOUNT OF TIME?

by Michael Carr, CMT

After last month’s article on ethics, we received a question that shows how difficult it can be to apply ethics on the job: I have an ethics question that has bothered me for years. It is in...

CHART OF THE MONTH

This month, several European stock markets are highlighted. All charts are courtesy of Trade...

JOSEPH GRANVILLE: “WE’RE SCIENTISTS”

JOSEPH GRANVILLE: “WE’RE SCIENTISTS”

Editor’s note: Bill Voelker was a long-time friend of Joe Granville and prepared this to honor his friend several years ago. It is reprinted here with permission.

Science’s job is to reduce all mysteries to trivialities.

                                                                  – Niels Bohr

There was no successful mathematical treatment to physics before the 16th century, nor to chemistry and biology before the 18th century. This, the 20th century, has seen similar stirrings applying the science of mathematics to the successful treatment of economic and financial problems and concepts.  No one has done more in this area than Joseph Ensign Granville, born in 1923 in Yonkers, NY. 

He’s been compared to Elmer Gantry and

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Contributor(s)

Bill Voelker

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JOSEPH GRANVILLE: A LIFE WELL-LIVED

JOSEPH GRANVILLE: A LIFE WELL-LIVED

In his obituary, The New York Times noted, “when the stock market prognosticator Joseph E. Granville talked, his subscribers listened. “

In the early 1980’s, Joe Granville reached a level of success that few market forecasters reach. His forecasts seemed to move markets and his track record was the subject of an academic study. In the Spring 1982 issue of the Journal of Portfolio Management, the lead article was called “Can Joe Granville Time the Market?” and the article began with a simple one-word answer “Yes.” A study by Jerome Baesel, George Shows and Edward Thorp provided a detailed analysis that demonstrated Granville’s predictions beat buy and hold over the test period (1978 – 1981). Their results showed that Granville’s track record was not due to chance, with significance better than the 0.01 level.

While some may view an academic study focused on their work to be a measure of success, in

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Contributor(s)

Michael Carr, CMT

Michael Carr, CMT

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WHO IS JOSEPH GRANVILLE?

WHO IS JOSEPH GRANVILLE?

For the past 24 years Joseph Granville has been living with his wife Karen in Kansas City Missouri. He is best known as a stock market Technical Analyst. Now almost 85, his latest book How to Read the Stock Market explains and applies his entire theory of On-Balance Volume.

Granville was born on August 20, 1923 in Yonkers, New York. His early education and training was music, improvisingat the piano at 3.

Finished his high school training on a music scholarship at the Todd School For Boys in Woodstock, Illinois, a school made famous by the recent graduation there of Orson Wells. Following a school bus tour to Monterrey and Saltillo in Mexico, he was inspired to write his first book, A SCHOOL BOY’S FAITH which was published by Fleming Revell, New York and London, in 1941. It not only was a travelogue in

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P&F TRAPS: RULES THAT DEFINE WEAKENED BULLS & BEARS

P&F TRAPS: RULES THAT DEFINE WEAKENED BULLS & BEARS

We often use the words “bull trap” and “bear trap” in conventional pattern analysis. We usually mean pattern failures or false breakouts by that but it is difficult to precisely define the terms. The objectivity of Point & Figure patterns helps us in defining this set up.

Pattern Explanation:

Point and Figure Traps are four-column patterns that are clearly defined.  Examples of the Bull Trap and Bear Trap P&F patterns are shown in Figure 1.  In simple terms, the Bull Trap pattern occurs when a Double Bottom sell signal is generated immediately after a Double Top buy. The Bear Trap is a pattern where a Double Top buy signal is generated immediately after a Double Bottom sell occurs.

Figure 1: P&F Trap Pattern

A Double Top buy signal is generated when the current column of

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Contributor(s)

Prashant Shah, CMT, CFTe, MFTA, MSTA

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THE 1545 TRADING SYSTEM

THE 1545 TRADING SYSTEM

Although the market has been on a tear, the performance of the SPYDRs (SPY), in the 15 minutes prior to the ringing of the closing bell (15:45 to 16:00 ET), has not been profitable.

Below are the performance results of four different trading sessions when trading the SPY in the 418 trading days from January 2, 2012 until August 30, 2013

Despite an impressive gain of $28.11 in the 9:00 to 15:00 session, our storyline focuses on the $12.31 summary loss in the 15 minutes prior to the ringing of the closing bell (15:45 to 16:00 session). Certainly such a performance discrepancy is striking, but the question is, how can we best profit from this loss?

This study addresses the reasons for this downward trending pattern. And, more importantly, it demonstrates how you can turn a profit when trading in the final 15 minutes of

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Contributor(s)

Anthony Trongone

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INTERVIEW WITH FRANK CAPPELLERI, CFA, CMT

INTERVIEW WITH FRANK CAPPELLERI, CFA, CMT

How would you describe your job?

I currently work as an equity sales trader for Instinet, LLC, a Nomura Company. My primary responsibilities include providing high touch and electronic trading services to buy side clients – both hedge funds and large asset managers.

Specifically, when working orders for high touch clients, there are a number of factors to consider. Traditionally, a sales trader should know how liquid a stock is, how wide the bid-ask spread typically is, if any news is out in the name and if the stock is tracking its group, as well as the overall market.  The buy side has many brokers who do this for them. Thus, to distinguish myself, I use technical analysis to provide a deeper understanding of market action. Given the fact that various time frames often tell divergent stories, I use intra-day, daily and weekly charts to gain perspective. For example, if a stock

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Contributor(s)

Frank Cappelleri, CMT, CFA

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PHASES AND CYCLES: THE MARKETS COULD HAVE SOME WEAKNESS BEFORE THE BULL LAUNCHES ITS NEXT MAJOR ADVANCE

PHASES AND CYCLES: THE MARKETS COULD HAVE SOME WEAKNESS BEFORE THE BULL LAUNCHES ITS NEXT MAJOR ADVANCE

Editor’s note: This report was originally published by Phases & Cycles on September 30, 2013 and is reprinted here with permission.

This bull market continues to throw a few curve balls at both investors and forecasters. In recent Market Comments we suggested that the current 105- day calendar cycle, which started in late June, was likely to have a negative bias and might even threaten to take out the June lows. We viewed this scenario as a positive one for the longer term health of the bull market, which periodically needs refreshing through a more extended corrective process.

The S&P 500 duly rose from its late June low on the back of the new 105-day cycle. The July advance was followed by a weak August that coincided with the maturation of some shorter-term cycles. Soon thereafter, one of our recent “Ron’s Briefs” mentioned the prospect that, contrary to the popular belief, September

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Contributor(s)

Ron Meisels

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GOODYEAR TIRE & RUBBER STATUS

GOODYEAR TIRE & RUBBER STATUS

Editor’s note: This is an example of the analysis published by Phases & Cycles. It is reprinted here with permission as an example of a structured research report.

Goodyear Tire & Rubber is in the Consumer Discretionary – Tires & Rubber sector.

Weekly Chart from January 2009

In our most recent report (June 27, 2013 – $14.91) we confirmed that Goodyear Tire & Rubber had a breakout from a large triangle formation (dotted lines) and that it had started a new major up-leg. The stock quickly followed with a sharp rise to $23.24 (A) for a 56% appreciation since our report. This produced an extremely over-bought condition. Therefore, a pullback toward ±$19 would be quite normal as the next entry level. Only a decline below $17-18 would be negative. Technical indicators including the rising

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Contributor(s)

Ron Meisels

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ETHICS CORNER: HOW DO YOU DEFINE AN ADEQUATE AMOUNT OF TIME?

ETHICS CORNER: HOW DO YOU DEFINE AN ADEQUATE AMOUNT OF TIME?

After last month’s article on ethics, we received a question that shows how difficult it can be to apply ethics on the job:

I have an ethics question that has bothered me for years. It is in regards to giving clients/subscribers time to acts on a BUY/SELL signal. My subscribers always know what level they will get a BUY/SELL signal at. Let’s randomly pick a stock, ABT Abbott Laboratories, and let’s assume it is on a BUY signal. Let assume that I own it as well. If I publish a newsletter that says to SELL ABT, I would need to wait several days before selling my position. BUT, what if the subscribers always know what the stop loss is?  Meaning, my newsletter says, “SELL ABT on a close below $33 per share.” If price goes below the cited level, would I still need to wait the 2 days after

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Contributor(s)

Michael Carr, CMT

Michael Carr, CMT

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CHART OF THE MONTH

CHART OF THE MONTH

This month, several European stock markets are highlighted. All charts are courtesy of Trade Navigator.

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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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New Educational Content This Month

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