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Technically Speaking, October 2016

What's Inside...

WILLIAM S. DOANE, RIP

Bill Doane, founder of Fidelity’s Chart Room, passed on recently. He was a great technician–he liked to think of himself as the father of big base investing–and a good friend of...

BROAD BOTTOM CONFIGURATIONS AND THEIR APPLICATION TO INVESTMENT STRATEGY

by William S. Doane

Editor’s note: this is an extract of an article that was originally published in Issue 8 of the MTA Journal in May 1980. The original article includes several other examples of board bottom...

BIS: AN EARLY WARNING INDICATOR OF FINANCIAL CRISES

Editor’s note: this is an example of how the tools of technical analysis are gaining wider acceptance in economics. Economists with the Bank for International Settlements are now tracking the...

EDUCATIONAL FOUNDATION SETS HIGH GOALS FOR NEXT YEAR BUT NEEDS YOUR HELP

Julie Dahlquist, Ph.D., CMT, was recently elected as President of the Board of the Directors of the MTA Educational Foundation (MTAEF). Over the next year, Julie hopes to remind members of the value...

USING STANDARD PORTFOLIO ANALYSIS OF RISK MARGIN (SPAN) TO YOUR ADVANTAGE

by Carley Garner

Editor’s note: this is an extract from the recently published book, Higher Probability Commodity Trading. Understanding margin management and adjustments magnifies the lasting power of traders in a...

PHASES & CYCLES: A NORMAL AND EXPECTED CORRECTION IS UNDERWAY. THIS IS NOT A MAJOR TURN IN THE MARKETS

by David Tippin, PhD & Ron Meisels

Editor’s note: this was originally published on September 19, 2016. Our post-Labor Day Market Comment ended by forecasting that “a period of heightened volatility and increased risk of a...

FROG IN THE PAN: IDENTIFYING THE HIGHEST QUALITY MOMENTUM STOCKS

by Wes Gray, Ph.D.

Editor’s note: This was originally posted at AlphaArchitect.com on November 23, 2015 and is reposted with permission. Frog in the Pan: Continuous Information and Momentum By Da, Gurun and...

THE NARRATIVE MACHINE

by Ben Hunt

Editor’s note: this was originally published on August 17, 2016 and is reprinted with permission. To subscribe to Dr. Hunt’s free newsletter, Epsilon Theory, click here. Alex: There was me, that...

WILLIAM S. DOANE, RIP

WILLIAM S. DOANE, RIP

Bill Doane, founder of Fidelity’s Chart Room, passed on recently. He was a great technician–he liked to think of himself as the father of big base investing–and a good friend of mine for many years. As chairman of the Awards Committee, it was a great honor for me to present him with the MTA’s Annual Award. I am absolutely bereft. The past few years have seen so many of the great technicians pass on to the boardroom in the sky. Bill’s passing strikes me as especially poignant as he had such a deep command of the history of our craft and its practitioners. I like to think that I am a good historian, but Bill’s grasp was so much wider than mine that I was forever asking him questions. All of these passing’s leave me feeling like I am in a library that is burning down a section at a

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BROAD BOTTOM CONFIGURATIONS AND THEIR APPLICATION TO INVESTMENT STRATEGY

BROAD BOTTOM CONFIGURATIONS AND THEIR APPLICATION TO INVESTMENT STRATEGY

Editor’s note: this is an extract of an article that was originally published in Issue 8 of the MTA Journal in May 1980. The original article includes several other examples of board bottom configurations which are also known as “big bases.” Low Risk vs. High Risk The Investor vs. The Speculator The Conservative Approach vs. The Aggressive Approach Broad Bottom Configuration vs. Relative Strength / Momentum Back in the early 1960s this writer interviewed George Chestnutt of American Investors. “Bill,” he said, “how do you pick next year’s winners?” “Well,” I explained, “I’d look for a breakout of a big base pattern and then I would buy the stock as it settled back on top of that broad bottom.” “Fine,” he said, “you’ll probably do a bit better than average. Top performance will come, however, by buying last year’s winners.” I had to give that some thought–and I have pondered that statement ever since. As we

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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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BIS: AN EARLY WARNING INDICATOR OF FINANCIAL CRISES

BIS: AN EARLY WARNING INDICATOR OF FINANCIAL CRISES

Editor’s note: this is an example of how the tools of technical analysis are gaining wider acceptance in economics. Economists with the Bank for International Settlements are now tracking the credit-to-GDP gap. This indicator: captures the build-up of excessive credit in a reduced-form fashion. It is defined as the difference between the credit-to-GDP ratio and its long-run trend, and it has been found to be a useful early warning indicator of financial crises. This data set covers 43 economies, starting in 1961 for the economies with the longest run of data. As input, we use the data on the credit-to-GDP ratio as published in the BIS database of total credit to the private non-financial sector. The credit series capture total borrowing by the private non-financial sector (ie households and non-financial corporations) from all sources. Technical analysts might know this indicator as the price-to-moving average ratio. Now, economists are finding that the more 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.

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EDUCATIONAL FOUNDATION SETS HIGH GOALS FOR NEXT YEAR BUT NEEDS YOUR HELP

EDUCATIONAL FOUNDATION SETS HIGH GOALS FOR NEXT YEAR BUT NEEDS YOUR HELP

Julie Dahlquist, Ph.D., CMT, was recently elected as President of the Board of the Directors of the MTA Educational Foundation (MTAEF). Over the next year, Julie hopes to remind members of the value of the MTAEF. Julie Dahlquist is associate professor of professional practice in economics and finance at the Neeley School of Business at Texas Christian University. She has three decades of teaching experience at both the undergraduate and graduate levels.  Her research has appeared in a number of academic and practitioner publications, including Financial Analysts Journal, Managerial Finance, Applied Economics, Working Money, Financial Practices and Education, Journal of Technical Analysis, and the Journal of Financial Education. Julie has authored or co-authored several books including: Technical Analysis: The Complete Resource for Financial Market Technicians (with Charles Kirkpatrick) and Technical Analysis of Gaps (with Richard Bauer).  She is the recipient of the Charles H. Dow award and the Mike Epstein award. Julie graduated

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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USING STANDARD PORTFOLIO ANALYSIS OF RISK MARGIN (SPAN) TO YOUR ADVANTAGE

USING STANDARD PORTFOLIO ANALYSIS OF RISK MARGIN (SPAN) TO YOUR ADVANTAGE

Editor’s note: this is an extract from the recently published book, Higher Probability Commodity Trading. Understanding margin management and adjustments magnifies the lasting power of traders in a predicament. To understand the premise of margin adjustment, it is necessary to be familiar with the mechanics of margining in a futures and options account. Futures margin is straightforward in that there are concrete initial and maintenance margin requirements, and although the requirements are adjusted from time to time, they are relatively static. If you are still unsure of the difference between maintenance margin, initial margin, and the basics of SPAN portfolio margin, it might be worthwhile to review Chapter 1 of Higher Probability Commodity Trading “Commodity Refresher”. Controlling futures margin with net delta The most common question I receive from beginning traders is, “What do I do if I receive a margin call?” The answer is simple: Don’t panic! In most situations, there is usually

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)

Carley Garner - 2022

Carley Garner

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PHASES & CYCLES: A NORMAL AND EXPECTED CORRECTION IS UNDERWAY. THIS IS NOT A MAJOR TURN IN THE MARKETS

PHASES & CYCLES: A NORMAL AND EXPECTED CORRECTION IS UNDERWAY. THIS IS NOT A MAJOR TURN IN THE MARKETS

Editor’s note: this was originally published on September 19, 2016. Our post-Labor Day Market Comment ended by forecasting that “a period of heightened volatility and increased risk of a correction is fast approaching.” After spending much of August in a tight trading range the S&P 500 took the end of the summer holidays as the cue to begin a pull back, and as we expected, volatility and volume increased noticeably. The first point to emphasize about the recent corrective action is that to date it is entirely normal and healthy. The S&P 500 has had an impressive run over the summer and, indeed, for most of 2016. It spent all of July and August trading well above its 50-day Moving Average. We now see the S&P 500 (a) probing the space between its 50-day and 200-day Moving Averages and (b) moving back towards the support offered by the “neckline” that was 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)

David Tippin, PhD

Ron Meisels - 2022

Ron Meisels

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FROG IN THE PAN: IDENTIFYING THE HIGHEST QUALITY MOMENTUM STOCKS

FROG IN THE PAN: IDENTIFYING THE HIGHEST QUALITY MOMENTUM STOCKS

Editor’s note: This was originally posted at AlphaArchitect.com on November 23, 2015 and is reposted with permission. Frog in the Pan: Continuous Information and Momentum By Da, Gurun and Warachka A version of the paper can be found here. Abstract: We test a frog-in-the-pan (FIP) hypothesis that predicts investors are inattentive to information arriving continuously in small amounts. Intuitively, we hypothesize that a series of frequent gradual changes attracts less attention than infrequent dramatic changes. Consistent with the FIP hypothesis, we find that continuous information induces strong persistent return continuation that does not reverse in the long run. Momentum decreases monotonically from 5.94% for stocks with continuous information during their formation period to –2.07% for stocks with discrete information but similar cumulative formation period returns. Higher media coverage coincides with discrete information and mitigates the stronger momentum following continuous information. Alpha Highlight: The account of the boiling frog is an anecdote describing a frog in a pan of water. If

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)

Wes Gray

Wes Gray, Ph.D.

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THE NARRATIVE MACHINE

THE NARRATIVE MACHINE

Editor’s note: this was originally published on August 17, 2016 and is reprinted with permission. To subscribe to Dr. Hunt’s free newsletter, Epsilon Theory, click here. Alex: There was me, that is Alex, and my three droogs, that is Pete, Georgie, and Dim, and we sat in the Korova Milkbar trying to make up our rassoodocks what to do with the evening. The Korova Milkbar sold milk-plus, milk plus vellocet or synthemesc or drencrom, which is what we were drinking. This would sharpen you up and make you ready for a bit of the old ultra-violence. “A Clockwork Orange” (1971). Society is a clockwork, with gears constructed of language and guns. A house is a machine for living in. ― Le Corbusier (1887 – 1965), pioneer of modern architecture. We live our lives inside machines, visible and invisible, tangible and intangible. HATE. LET ME TELL YOU HOW MUCH I’VE COME TO HATE YOU SINCE I

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)

Ben Hunt - 2022

Ben Hunt

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New Educational Content This Month

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