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Technically Speaking, October 2022

Its 3-D time yet again, and this time it’s the APAC Summit 2022 to watch out for!

Covid has changed our world and our habits in innumerable ways, but what remains unchanged is the fact that human beings are social creatures. Sure, we can work from home given a choice, or go to the office, but personal interactions will continue to hold importance. Regardless of whether you’re a part of the market or not, it’s the team work and team interactions that lead to growth and awareness. If not anything else, you’ll learn how to deal with different personalities. Which will make you better at dealing with different stocks (because they’re basically just personalities with varied temperaments).

The 2022 Symposium was our first step back into the real world. We’re ready to take that step in other parts of the world as well. Presenting to you, the Asia Pacific Summit 2022! We have a host of brilliant speakers who will be joining us LIVE from Mumbai, India. Be prepared for an exciting day of market bootcamp as the speakers take us through their rich experiences and share their tips and tricks. If you haven’t registered already, click here and register now!

This will be my first CMT Summit in India and I’m looking forward to interacting with Industry leaders and market technicians. This will be a brilliant opportunity to meet the CMT community and pick their brain. You’ve gotta bring a notepad along, because believe me, you’re going to want to take notes!

Now here is what I did for the first Summit I attended, which was held in April earlier this year in Washington D.C.:

  1. Read up about the Speakers and understand their background better.
  2. You may not relate to every single session being held, but believe me, it will widen your perspective and may even answer some of your queries.
  3. ALWAYS have a notepad handy. The Summit can feel slightly overwhelming with a ton of information coming at you all at once, taking notes definitely helps with that.
  4. Network! The Summit is the perfect place for you to meet the gang! Never mind your experience, depth of knowledge, etc, strike a conversation with speakers and attendees. Those one-on-one discussions give you A LOT to think about and build upon.
  5. Have fun. This should just be on every list.

Are you looking for a bird’s eye view on the market? We’ve got that covered.

Are you looking for a worm’s eye view on the market? We’ve got that covered too!

Think of a view, and we have a lineup of speakers to help you understand the market better.

Let’s Navigate the GAP together and enjoy the Summit!

Hope to see you soon,

Rashmi Bhatnagar, CMT

Editor

What's Inside...

President's Letter

by Brett Villaume, CMT, CAIA

CMT Association members are passionate. That is self-evident. You are passionate about learning. You are passionate about applying new methods, about analyzing markets, and have a passion for...

US Equities Forming A Potential Base; Indian NIFTY To Stay Relatively Strong

by Foram Chheda, CMT

The calendar year of 2022 has remained quite rough for global equities; equities in general and the US markets in particular. The beginning of 2022 saw the US broad market benchmark S&P500...

Dow Jones Industrial Average: Still Underrated

by JC Parets, CMT

There is a constant conversation among market participants about which indexes are the better representation of the stock market, particularly in the United States. While the media often quotes the...

Bonds Slice and Dice

by Ian Culley, CMT

Don’t catch falling knives! It sounds simple enough. But in reality, traders continue to lose fingers as they reach for downtrending assets. Diving after downtrends isn’t one of my many...

While I prepare for the APAC Summit 2022…

by Milan Vaishnav, CMT, MSTA

CMT Association’s Asia Pacific Summit, 2022! This event is approaching fast, faster than I think, and while I prepare myself to attend this marque event, a myriad of thoughts cross my...

Spotlight on the board - Jamie Coutts, CMT

Coming...

Spotlight on the Board October 2022 | Jamie Coutts, CMT with Rashmi Bhatnagar, CMT

by Rashmi Bhatnagar, CMT & Jamie Coutts, CMT, CFTe

...

President's Letter

President's Letter

CMT Association members are passionate. That is self-evident. You are passionate about learning. You are passionate about applying new methods, about analyzing markets, and have a passion for understanding the price behavior of individual securities. But what really makes us unique among other professional associations is that our members have a strong desire to communicate with other members what they have learned and how they are applying the tools of Technical Analysis. In this month’s President’s Letter, I will highlight two ways in which members and CMT Program candidates can not only learn new concepts and share ideas, but also, more importantly, be a part of our thriving global community. Trust me, you need to check these out! Discord (https://discord.com) is a VoIP and instant messaging social platform. It is software you download to your PC or mobile device that gives users the ability to communicate with voice calls, video calls, text messaging, media

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)

Brett Villaume

Brett Villaume, CMT, CAIA

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US Equities Forming A Potential Base; Indian NIFTY To Stay Relatively Strong

US Equities Forming A Potential Base; Indian NIFTY To Stay Relatively Strong

The calendar year of 2022 has remained quite rough for global equities; equities in general and the US markets in particular. The beginning of 2022 saw the US broad market benchmark S&P500 beginning its decline from 4800 levels. By June, the corrective decline kept the S&P500 index in a falling channel where it attempted to find a base near 3640 levels. A technical pullback followed; SPX went on to cross above the 50-, and the 100-DMA in the process but resisted exactly at the 200-DMA which is currently placed at 4203. A corrective decline followed; SPX gave up all the recovery to test the double bottom support near 3640 levels and even slip below that point briefly.

While the year saw major geopolitical tensions, the factors contributing to the turmoil in the equity markets were more than one; one among the recent ones was the Fed continuing with its strong increase of 75 bps multiple times during this year. This saw the Dollar Index  (DXY) testing its 22-year high levels of 114.50 and retracing from there.

Indian markets too have remained quite volatile in recent times, but they have held on to their relative strength. The Relative Comparison chart of Indian headline index NIFTY50 and the US broad market index S&P 500 shows that while SPX lost (-20.46%), NIFTY has lost just (-0.46%) on a YTD basis as of 4th October 2022.

However, despite some disturbing volatility and weakness in the equities, few technical signs suggest that a potential bottom may be in place for US equities, which in turn, would benefit emerging markets like India.

The weekly chart of SPX shows that although there was a brief intra-week violation of the support levels of 3640, the index has made a strong attempt to form a potential base for itself. The current week remains incomplete, but the index has made a strong white-bodied candle near a very crucial support point of 200-Week MA which placed at 3595. The occurrence of such a strong candle highlights the credibility of the 200-WMA as a strong support zone.

Although the SPX has formed lower tops near 4630 and 4325 after 4818 which was the peak, the most recent price action has seen a development of a bullish divergence of the RSI against the price. SPX made a lower low, but the RSI did not. If all this leads to laying a base for a strong technical pullback in the US equities, the possibility of the SPX showing an up move and testing the 100- Week MA of 4183 cannot be ruled out over the coming weeks. The SPX has room for a technical up move even if it does not reverse its trend and stays within the current downtrend.

If the expected stability in the US Markets and the anticipated technical pullback play out on expected lines, it will auger well for the global equities in general and Indian equities in particular. The RS line of NIFTY against SPX remains in a strong uptrend after a pattern breakout; it also stays well above the 50-Period MA.

All in all, from a technical perspective, a stage looks set for SPX for some technical pullback within the current trend; its price behavior against the 200-Week MA would be crucial to watch in the immediate near term.  

Contributor(s)

Foram Chheda, CMT - 2022

Foram Chheda, CMT

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Dow Jones Industrial Average: Still Underrated

Dow Jones Industrial Average: Still Underrated

There is a constant conversation among market participants about which indexes are the better representation of the stock market, particularly in the United States.

While the media often quotes the Dow Jones Industrial Average daily changes, professionals tend to steer towards the S&P500.

The argument normally revolves around the price-weighted nature of the Dow Jones Industrial Average vs the market-cap driven S&P500.

The diversity of 500 stocks in the S&P is also a key point when compared to just 30 stocks for the Dow.

Today, I just wanted to remind everyone why I think the Dow Jones Industrial Average is underrated and why I think it is still one of the most useful indexes for any stock market participant.

High Positive Correlation With The S&P500

First of all, the Dow Jones Industrial Average and the S&P500 have a very high positive correlation to one another.

While one is a price-weighted index with just 30 stocks, and the other is a market-cap weighted index with 500 stocks, the correlation coefficient over the past year is almost a perfect 1.0.

If you go back even further, 2 years, 3 years, 5 years, etc the numbers just get even closer to 1.

So whether you think the mechanics are wrong, in the case of a price-weighted index, or one is not diversified enough with just 30 stocks, they still move together.

Ed Clissold, Chief U.S. Strategist at Ned Davis Research Tweeted at me yesterday, “I know the methodology is outdated, but it’s highly correlated to the SPX. The correlation coefficient of 1-wk returns of DJIA and SPX since 1928 is 0.965. Last 10 yrs: 0.966. Use SPX to benchmark, but DJIA is acceptable for historical studies IMO. Displace your anger elsewhere”

This was his response to my question of why the Dow gets people so angry.

Here are both indexes together going back to 1950. I left the colors the same on purpose. Can you even tell which one is which?

Now, what often gets overlooked is the fact that the Dow Jones Industrial Average, having just 30 components, is a good thing.

If you want to go through every stock in an entire index, do you want to go over 500 of them or just 30?

From an efficiency standpoint, knowing that the two indexes move together anyway, sign me up for just the 30 stocks any day!

Analysis of the Dow

Every week I go over every single Dow Component on both weekly and daily timeframes.

One by one I start with the weekly chart to get structural perspective on the stock looking back 10 and sometimes 20 or 30 years.

I take note of any overhead resistance, downside support, the direction of the price trend and momentum readings.

Then I turn to the daily chart for a more tactical perspective.

Once we have an idea of the longer-term trends, shorter timeframes are good for execution: entry and exit points.

Dow Weight-of-the-evidence Conclusion

In addition to making buy, sell or hold decisions on 30 of the most important stocks in the market, it’s the weight-of-the-evidence conclusion here that I find the most valuable.

By going over each stock within the index, we can make a sum-of-the-parts based decision for the direction of the index itself.

If more of the 30 stocks are going up, it’s hard for the index to fall. On the other hand, if the majority of the 30 Dow components are in downtrends, it’s hard for the index to rise.

It’s just math.

Sometimes, you’ll notice that the majority of the stocks in the Dow are neutral and not showing much of a trend at all. This is evidence that the index itself is likely to remain stagnant or continue to consolidate.

Identifying a lack of a directional trend is trend recognition as well.

Relative Strength Within the Dow

From a relative strength standpoint, looking at just 30 stocks throughout this exercise makes the outliers really stand out.

Are most stocks making new lows, but one or two are near new highs? It’s easy to see if that’s the case.

We can make similar conclusions if there are a few stocks making new lows, while the rest are all hitting new highs.

We want to ask ourselves in which sectors do these outlier stocks belong to? Because of the massive market capitalization of the Dow 30 components, they are usually one of the larger holdings within their sector.

For example, Apple is the biggest stock in Technology. P&G and CocaCola are the two largest components in Consumer Staples. Honeywell has the biggest weighting in the Industrials Sector.

From a sector rotation and relative strength perspective, this exercise can be very rewarding and can be done within a very short period of time.

I’m not sure why some people tend to prefer the S&P500 over the Dow Jones Industrial Average. When someone asks you what the market did today, what are they referring to?

They want to know what the Dow did.

Charles H. Dow published his Dow Theory tenets in the Wall Street Journal back in the late 1800s. The principles he detailed can still be applied today.

I think the Dow Jones Industrial Average is a very valuable tool, particularly for overall market trend recognition, finding relative strength & weakness between sectors and simply by chance, finding individual trade ideas.

Give it a shot. Start doing this exercise on a weekly basis and tell me that you don’t find it extremely valuable. I dare you.

Contributor(s)

JC Parets, CMT - 2022

JC Parets, CMT

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Bonds Slice and Dice

Bonds Slice and Dice

Don’t catch falling knives!

It sounds simple enough. But in reality, traders continue to lose fingers as they reach for downtrending assets.

Diving after downtrends isn’t one of my many afflictions. But I do have a theory…

Traders and investors don’t realize they’re catching a falling knife in the moment. They believe they’re bargain-hunting.

So if you’re one of the many investors out there mending fresh wounds this week, I want to make one thing clear…

Bonds are a falling knife.

Check out the chart of the 30-year T-bond:

Do you really want to buy this chart?

Sure, the downtrend is stretched and ripe for some mean reversion. But as long as it’s below 127’23 we’re short with a target of 116. 

It’s the same story with $TLT:

I can’t buy a chart that’s breaking down to fresh 8-year lows. It doesn’t make sense to me.

If and when it reclaims the 101.50 level, we can talk about a potential mean reversion trade. But even then, we’re trading against the trend.

I’d rather see some sort of tradeable low similar to the multi-month reversals in 2011 and 2014, or the multi-year base completed in 2019. 

For now, our outlook remains bearish with a target of 88.

But bonds are so cheap right now!

You’re absolutely correct, and this is the chart for you:

No matter where you look, new lows dominate the bond market. That’s not a good reason to step in and start buying.

Remember: The best remedy for low prices is lower prices.

If you’re one of the many traders that likes to grab for a good falling knife from time to time, take bonds off your buy list. I’ll let you know once they hit the ground and are safe to handle. I prefer to pick them up off the ground and throw them on the floor until they bounce back and cut me.

I have a tendency to press shorts well after I should just feed the ducks and move along. It’s one of the many faults I need to monitor as I trade.

We all have them.

If you’re just starting to realize some of your bad habits – don’t worry! It’s all part of the process. 

We’ll help you figure it out.

Contributor(s)

Ian Culley, CMT - 2022

Ian Culley, CMT

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While I prepare for the APAC Summit 2022…

While I prepare for the APAC Summit 2022…

CMT Association’s Asia Pacific Summit, 2022! This event is approaching fast, faster than I think, and while I prepare myself to attend this marque event, a myriad of thoughts cross my mind.

Starting to write about this itself is exciting in its own way. Over the past two years, while the world largely stood paralyzed by the pandemic, the hybrid nature of work took center stage. Speaking positively of this, even on the personal side of our lives, we got more connected than ever. Video meetings became the only way to “meet” people, both in professional and personal lives.

Regardless of how the electronic means of connecting, meeting, and interacting kept the wheels moving in both our professional and personal lives, I strongly believe there is nothing, literally nothing, that can supplement in-person meetings and one-on-one interactions.

While I prepare myself for the in-person APAC Summit in Mumbai on November 5th, vivid memories of the CMT India Summit 2019 come to me; this event too was held in Mumbai on November 23, 2019. I was fortunate to contribute my bit as a member of the core committee; it was a great blend of fun and excitement as that event was slated to be the first large-format non-US event to be ever hosted by the CMT Association.

For me, attending such in-person events has always been something that I look forward to. It is that one day in a year when you get to meet your friends, interact with stalwarts of the industry, meet subject experts, exchange knowledge, enhance your skills and widen your horizons as you hear and meet those very people whose books you have read while learning the discipline.

The 2022 APAC Summit has a theme of “Strength In Diversity”. While staying so true to its theme, the summit will bring leading regional and global practitioners of technical analysis under one roof. Apart from noted Indian speakers, the Summit will host eminent professionals from the US, Australia, and South Asia. They will also bring along their wonderful work and contributions to the field of Technical Analysis, their insights, and their unique perspectives on the ever-evolving financial landscape.

It doesn’t matter what stage of your career you are at; I would strongly recommend that if possible, this in-person event is something that one should never miss. No matter if you have just obtained your CMT Charter or if you are a seasoned professional, the Summit is all set to have something or the other as a takeaway for everyone.

Even if traveling to Mumbai is not feasible, I would strongly recommend taking advantage of the hybrid nature of this event and attending this virtually. With the kind of knowledge sessions lined up, I am sure that every minute spent would be worth it.

So, while I sign off, I look forward to meeting you all in Mumbai at the APAC Summit 2022.

Contributor(s)

Milan Vaishnav, CMT, MSTA

Milan Vaishnav, CMT, MSTA

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Spotlight on the board - Jamie Coutts, CMT

Spotlight on the board - Jamie Coutts, CMT

Coming soon

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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Spotlight on the Board October 2022 | Jamie Coutts, CMT with Rashmi Bhatnagar, CMT

Spotlight on the Board October 2022 | Jamie Coutts, CMT with Rashmi Bhatnagar, CMT

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)

Rashmi Shastry

Rashmi Bhatnagar, CMT

Jamie Coutts, CMT, CFTe - 2022

Jamie Coutts, CMT, CFTe

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New Educational Content This Month

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