Technically Speaking, April 2008

From the Editor

This is an interesting time for technicians and we try to present some examples of that in this month’s newsletter. The collapse of Bear Stearns took its chairman by surprise, according to the testimony he delivered to Congress. Could the charts have provided a clue to the stunning events that impacted that company? We reproduce two charts and ask for your input on that question. If you had an indicator that warned of the carnage in that stock, please let us know and we will publish the details in coming issues.

A chart of housing prices is as bearish as the chart of Bear Stearns. We also have a chart of an index to track that market created by MTA Member Ken Winans. Can technical analysis be applied to this market? If so, perhaps an argument can be made that we are oversold. Again, we’d like to know of any analytical tools that you’ve applied in housing, or other nontraditional markets.

We also have an interview with Dave Keller, a few other articles and some MTA business included in this month’s newsletter. Details for the Annual Meeting and one-day Symposium in New York are still being finalized, but the Seminar Committee is working to bring the best minds in the business to the Bloomberg Building. In coming issues, more information about speakers will be available. Tentatively, Ralph Vince is scheduled to be the keynote speaker. For those unfamiliar with his work, the December 2007 issue of Technically Speaking including an interview with Ralph and a review of his comprehensive book on money management.

Sincerely,
Mike Carr, CMT
Editor

What's Inside...

From the Executive Director

MTA Membership:

A few announcements that may interest you:

  • Recently, the Nominating Committee of the Board submitted its Slate...
Read More

Molly Schilling (MS): Tell me something about your background and school and how you got into technical analysis.

David Keller...

Read More

The Challenge for Technicians

Readers of Technically Speaking are doubtlessly aware of the stunning collapse of Bear Stearns (BSC). The question that naturally arises...

Read More

MTA Benefits: Mentorship

Experience is often thought of as the best teacher. As traders, many of us know that experience is often the...

Read More

Current Trends in the Foreign Exchange Markets

Scott Petruska, a Vice President in the International Department of Commerce Bank, NA, in Kansas City, spoke at a meeting...

Read More

Charting Home Prices

The Winans International Real Estate Index (WIREI) measures U.S. new home prices from 1830. It was developed by Kenneth G....

Read More

MTA and ASTA Collaboration Agreement

It’s a pleasure writing here after signing the MTA/ASTA agreement. Actually, my pleasure is doubled, once as the ASTA (Arab...

Read More

News From the MTA Board of Directors

On March 27th, 2008, the Nominating
Committee of the Board submitted its Slate for
Officers/Directors at-large for voting...

Read More

A Book Review of: “Breakthroughs in Technical Analysis”

BREAKTHROUGHS IN TECHNICAL ANALYSIS: New Thinking from the World’s Top Minds
Edited...

Read More

Would You Like to be Called Professor?

It’s hard to believe that MTA members have been involved on college campuses for the past 30 years. For perhaps...

Read More

From the Executive Director

MTA Membership:

A few announcements that may interest you:

  • Recently, the Nominating Committee of the Board submitted its Slate for Officers/Directors at-large for voting by the Membership at its next Annual Meeting, scheduled for May 17, 2008. In the coming weeks we will open the voting for this slate.

Please view the article on page 9 for full details on the slate and the electronic voting process.

  • A one-day MTA Symposium event will take place at the Bloomberg facility (59th and Lexington Ave) in New York City on May 16, 2008. During this one-day symposium, the MTA will, among other presentations, have a “Favorite Sectors and Best Ideas in 2008” panel (Moderated by Thomas Keene, with Louise Yamada and John Roque confirmed as panelists), celebrate and hear from this years Service and Charles Dow Awards recipients, discuss the current “State of the MTA” and have one or two keynote presentations from some of the most prominent TA leaders in our field. The day’s activity will conclude with a cocktail hour at a nearby saloon.

Both members and non-members of the MTA are invited to attend this one-day event. The initial agenda will be announced shortly, and registration will shortly follow.

  • If you are interested in supporting the MTA and put a footprint on the current efforts at improving and expanding upon the Body of Knowledge then we need your help. We are currently seeking volunteers to act as team members dedicated towards researching and populating the web presence for the Body of Knowledge. You will be assigned a particular domain of interest or expertise area and then work with a group of colleagues performing research and collecting data/information on that subject. We are seeking passionate and driven professionals to support the MTA in a continued move toward improved branding and online presence. If interested, please email our Educational Coordinator, Jim Bartelloni, CMT, at jbartelloni@mta.org.

The Spring CMT examination window is April 24th – May 3rd. Good luck to all test participants.

Regards,
Tom Silveri
MTA Executive Director

Contributor(s)

Tom Silveri

Bio Coming

David Keller, CMT

Molly Schilling (MS): Tell me something about your background and school and how you got into technical analysis.

David Keller (DK): I went to Ohio State, and I actually studied music and psychology. My plan was to go on to study conducting at a conservatory. I ended up with the two degrees, and after six years of school, I was really burned out with music, and so I decided to do something else for awhile.

That’s when my wife and I moved out here and I joined Bloomberg. I started in an entry-level position, but there was no one at Bloomberg to spearhead technical analysis. So a couple of us seized the opportunity and started to study it. We talked to everyone we could to learn and after a while, I ended up being the one to move into a full time position. I found it to be a good match because when you study music seriously, especially contemporary 20th century music, and being inclined toward conducting and score study, I was used to looking at a piece of music and trying to pick out patterns looking to see how all the pieces fit together. I realized that looking at a chart involves the same thought process. So it just clicked immediately, and I knew technical analysis made sense.

MS: Now what about psychology? What did you study?

DK: Studying psychology exposes you to a range of topics from developmental theories to brain structures. My focus and interest was in industrial organizational psychology, where you’re basically looking at group theory. It’s more like sociology – how groups come to a decision, how a company is structured, and what type of people do well in different roles. Today it is called Behavioral Economics, Behavioral Finance.

MS: Behavioral Finance…

DK: Looking at the market and the psychology of it, looking at the relationships. When I started to study technical analysis, I saw the psychological part of it. All these individual traders and investors, their emotions, and how they’re trading relative to their emotions. That was interesting.

MS: When did you come to Bloomberg?

DK: I started in June of 2000.

MS: From your worldwide vantage point, where is TA strongest, and how is it growing and changing?

DK: The United States has a greater concentration of the “higher-end use,” where people are doing a lot of back testing and optimization and more exploration of new techniques. I have spent time recently in South America, and in the emerging markets. There definitely is an interest in technical analysis, but they’re about 10 years behind the US and London.

Techniques that we take for granted are just gaining traction in other parts of the world. That’s so with the markets there in general. A lot of the markets don’t have any derivatives, so there are no options, no shorting. When I went to Colombia, traders told me that there are very limited ways to have exposure to a stock. It is basically long only. Techniques that you can use to try and generate returns are limited. You have to use ones that are going to make sense for that type of environment.

MS: Do you see the role of the technical analyst changing?

DK: Things are changing in that the role of the traditional sell-side technical analyst is going away. We’re seeing a technical analysis role more frequently located at a hedge fund or as an independent research analyst, or maybe a third party independent-research contributor. And you don’t necessarily have to be in New York City or in the financial hub. You could be in Cleveland, or wherever. You have the ability now to be all over the place.

MS: So the TA job opportunities have evolved?

DK: Absolutely. Ten, even 15 years ago, most major banks in the US had a sell-side technical analysis “shop”. Now, Smith Barney and CitiGroup, Prudential, Lehman, and Morgan Stanley – all of those firms have cut their technical analysis group during the last five years. They are tending to use small, niche types of independent research shops. The key idea here is that the jobs are still out there.

MS: Can you say more about these types of jobs?

DK: What basically has happened is, as sellside research overall has changed – and they’ve been segmenting the research, so instead of the idea that “I have a relationship with Merrill Lynch, so I get all of their research”, you’re actually paying hard dollars or you’re selecting what pieces you want to get – and sell-side firms are deciding that technical analysis, quantitative, economic research a lot of times is stuff that isn’t really a big driver, so they don’t really need them as much. 

MS: So, the big players are still buying TA, but…

DK: I think investors, traders, and market participants overall are using more charting and technical analysis now than they ever have before. And I think the need for technical research is greater than it has ever been. The only thing they’re changing is where that research is coming from and whether it’s Dave Keller, the technical analyst at Morgan Stanley, or Dave Keller, the founder of Dave Keller’s Buckeye Technical Research. That’s the only difference. It’s how it’s getting to you as the investor.

MS: So there’s more of an entrepreneurial community of technical analysts now.

DK: Definitely. Absolutely. And really there’s only a handful now of sell-side firms that still maintain an active technical-research group. Merrill Lynch has one with Mary Ann Bartels, and Fred Meissner, and Walter Murphy. Barclay’s has Jordan Kotick and MacNeil Curry, some other guys. But there’s very, very few compared to what they had been before.

MS: How important is the CMT?

DK: That’s a great point and I think it’s actually essential right now because what’s happened is if I’m Dave Keller at Lehman Brothers, the fact that I’m part of a Lehman Brothers’ technical team or the Lehman Brothers’ research has that credibility automatically because Lehman’s a recognizable name, of course, with a great history of investment strategy, etc., etc. Whereas if I’m Dave Keller from Dave Keller Research, there’s really no track record, there’s no implied credibility there at all, unless there’s something that demonstrates my understanding, and something like the CMT designation, I think, is really the best way that you can do that to show, yes, this is recognized that I have expertise and I know what I’m talking about.

MS: You’d have credentials.

DK: Definitely.

MS: You are currently on the board of the MTA.

DK: That’s right.

MS: When did you start?

DK: I actually just joined the MTA Board
August of 2007.

MS: What’s it like?

DK: The organization has a lot of energy driving it now. The Board meets every month on a conference call to discuss what’s going on. And then, of course, there are lots of casual discussions among the members going on all the time.

The MTA is going through a real revival. The leadership continues change. There’s a lot of interest in what the group needs to do for long term goals.  The MTA understands that the market is changing and that technical analysis as a job, as a practice, is changing as well. So I think the organization is really trying to clarify its direction. It is more focused on how we can get the members connected with jobs, what we as an organization can do to promote technical analysis to leverage our members, that kind of thing. I spend a lot of time working as a Board member.

MS: Tell me more about your global vision at Bloomberg.

DK: We’ve become more global in terms of how we are looking at the markets. The average American investor looks overseas and as a professional, you have to understand how other markets are performing, whether they have the potential to take business away or whether there are opportunities there. Bloomberg has 40-50 global offices. Many of those are news bureaus, though, that don’t have a sales force or a core terminal force. Those are just news bureaus. But in terms of our terminal, our core users, we have, I’m going to guess, eight sales offices. So New York, San Francisco, Sao Paolo, Tokyo, Hong Kong, Sydney, London, Frankfurt.

At Bloomberg, we have over a quarter of a million clients; we have about 260,000 users now globally. Many of those are in the financial centers, of course, but in the course of doing this, we have users in Dubai, in Brazil, in Vietnam, pretty much everywhere, and they’re all using charts to some degree. In terms of a guess in how many of those are using technical analysis, my guess, right off the top of my head, would be 65, 70%. You write off 30% because remember half of our business are going to be fixed income users, and a bond trader definitely is going to look at charts to look at interest rates, but someone who’s in muni origination or we have a lot of municipalities that are issuing muni bonds, they’re not going to have a lot of interest in looking at charts. But in terms of the core investor, yes, 70% I think is reasonable.

MS: Are you making world wide relationships?

DK: We’re finding, through the MTA, that we’re starting relationships with, for example, the Arab Society of Technical Analysts. We’ve talked to a group in Hong Kong. At our last major event, our annual seminar in Florida, we met with representatives of a portential collaboration partner in India. They talked of exceptional interest for the need of additional technical analysis information. I think that as those markets become more developed, and as they try to understand how they can better analyze their markets, technical analysis will become an important feature.

MS: What about China?

DK: China is difficult broadly speaking, and at Bloomberg, China is difficult because there are so many regulations regarding who can do business there and how you’re able to do business there. Hong Kong is different because it’s a Western area. We have a lot of Bloomberg clients in Hong Kong. We have an office there. But mainland China is very tough.

MS: What inspired you to write your book, Breakthroughs in Technical Analysis?

DK: Bloomberg Press had written a book back in 1998, bringing together different contributors, and calling it “New Thinking in Technical Analysis.” That book ended up being the most successful book for Bloomberg Press ever. And so they knew that there was an interest in technical analysis, and when they approached me about writing a new version, my response was there really hasn’t been a global technical analysis book where you have contributors from across the world. Our new book was designed to have a contributor from Japan, and one from Australia, some from Europe, some from the US, to really get an idea of people were using techniques and what short of techniques made sense for the different markets everyone was using. And that was the real driver of it.

MS: What did you like most about writing that book?

DK: I didn’t want it to become too scripted where every chapter would be identical and that was a challenge. We didn’t want cookie-cutter chapters, but we needed the chapters to conform to a central theme. We worked to make sure that each chapter could stand alone, but if you moved through all ten, it would feel coherent, and it would flow.

MS: What is your feeling about the state of the market?

DK: I have to qualify it by saying I’m definitely not making a recommendation or anything. But in terms of what our technicals are saying, the indicators we have been looking at and at Bloomberg we put out a weekly “purely educational” technical report, we’ve found two things that have been very interesting: first, a lot of our indicators turned very bearish on the equity markets in the second half of 2007. Probably the most glaring one that we watch is the percent of stocks above the 200-day moving average, on the NYSE is the one that we use.

If you look at that relative to the S&P for the last five years, going back to 2002, they’ve pretty much moved identically. So if the S&P’s rallying, more stocks are above the 200 day, which makes sense, they’re going to be in an uptrend. And what  happened, there’s this very interesting decoupling at the middle to end of last year where the S&P was doing the final move up. You saw the percent of stocks just started to drop off a cliff, and by the time we had that second peak in the S&P, I think it was October of 2007, it was almost right at or just below 50%, meaning over half of stocks had already broken down while the S&P was still going higher, and that sort of weakness was glaring, I mean, it jumped off the page in terms of how key of a divergence that was. Since then, most of those breadth indicators that we followed have stayed fairly negative suggesting that there’s really no necessarily end in a bear move.

Secondly, we keep track of interest rate movement through one of our Sequential indicators which is basically looking at trend exhaustion. And if you look at weekly charts of the 10-year yield, or I think you could also look at the long-bond future, the 10-year future, you’ll find that they all signaled a pretty major reversal about two months ago. And on the 10-year yields, suggested the yields were bottoming out this is a little unusual because assuming the Fed continues to lower rates, you would think that interest rates would probably be starting to come down, but it sort of suggests a steepening in the yield curve. And if you look, the signal still appears to be in place where it’s a long-term bottom and starting to rally. So those are probably two of the key signals we follow. 

MS: David, it’s been a pleasure to learn about your work. Thank you so much.

DK: Thank you.

Contributor(s)

Molly Schilling

Molly Schilling is an independent trader and freelance writer. Molly has been a member of the MTA since 2005.

David Keller, CMT

David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. Dave is a CNBC Pro Contributor, and he recaps market activity and interviews leading experts on his show “The Final Bar” on StockCharts...

The Challenge for Technicians

Readers of Technically Speaking are doubtlessly aware of the stunning collapse of Bear Stearns (BSC). The question that naturally arises in such cases is whether or not technical analysis would have gotten you out of the stock. A classic post mortem of Enron done by Dorsey Wright and Associates (http://www.dorseywright.com/internal/index_enron_int.htm) clearly showed that Enron should have been sold early in its collapse. From the perspective of an individual investor, the case against BSC is no less compelling.

The weekly chart is shown in Figure 1. Some may see a head-and-shoulders top with the head forming at the beginning of 2007. The break below 140, followed by a small throwback, was clearly bearish. That run-up was not confirmed by momentum indicators, RSI in this chart. A larger topping pattern, perhaps a rounding top, and support were broken at 100 in late 2007. The price was decisively below its 50-week moving average by this time. BSC was well below its 200-day moving average and had been for nine months.

Figure 1 – Weekly Chart of BSC from www.stockcharts.com.

The P&F chart in Figure 2 gave a number of clear sell signals (price action is shown from August 2007). Long-term and short-term traders should have been out of this stock based upon the chart. This is another example of how useful P&F charts can be for traders. While individuals could rely on technical analysis, could institutions have sold based upon these indicators? English billionaire Joe Lewis increased his investment in the company near $100 a share. At the time of the plunge, he and many institutions were holding the stock. We’d like to hear from readers about the role of technical analysis in the decision making process of their fi rms. Email any comments to editor@mta.org.

Figure 2 – P&F Chart of BSC from www.stockcharts.com.

Contributor(s)

Michael Carr, CMT

Mike Carr, who holds a Chartered Market Technician (CMT) designation, is a full-time trader and contributing editor for Banyan Hill Publishing, a leading investment newsletter service. He is an instructor at the New York Institute of Finance and a contributor to various additional...

MTA Benefits: Mentorship

Experience is often thought of as the best teacher. As traders, many of us know that experience is often the most expensive teacher in the markets. In many careers, a mentor can share experience and lessen the pain of the learning process.  Technical analysis is no different in that respect.

Mentoring is usually an unstructured relationship that allows less experienced people in a field to benefit from the wisdom of those who have gone before them. With a mix of experienced and inexperienced members, the MTA offers a lot of opportunity for mentorship. This is a benefit that comes with all memberships, but is largely being overlooked and is undoubtedly under utilized.

On a personal level, I have benefitted greatly from the mentoring of more experienced members.  Although I thought I had a grasp of the English language, after joining the MTA I learned that my writing skills needed a great deal of work. A former editor of this newsletter spent a great deal of time mentoring me in that area, without even realizing how important he was to my professional development. To me, that is the essence of the mentoring relationship – mutual benefits and a shared objective.

Michael Kahn’s goal was to produce a high quality newsletter, on time, each month. My goal was to learn about technical analysis and develop my writing skills. The objective was that I would deliver one page a month towards the newsletter. I will always feel I got the better part of this deal. In the days before the internet, relying on what passed as technology, I received a videotape of the presentation made at the New York monthly meeting. I watched the video and prepared a one page summary of the presentation. I learned more about technical analysis than I could have imagined by being exposed to the wide variety of monthly speakers. These meetings were very helpful as I prepared for the CMT exams (another MTA benefit: learning from the experts, now available through videos on the web site).

Summarizing the meetings, I created CMT study notes and I also learned to write. My drafts were edited by Michael, and each month I compared my draft to what was eventually published. When I thought he was wrong, I went to a style guide and learned, invariably, that he was correct. This review process took a few hours each month, but I rarely made the same mistake twice. It was my goal to get published with no changes, indicating I had met the high standards required to be included in the newsletter. More than a year would pass before I achieved that goal. The impact of Michael’s mentoring benefits me to this day.

The success of my mentor relationship depended on my initiative. I never asked Michael to mentor me, and if he reads this, it will be the first time I give him the credit he deserves for my success. Had I simply asked him to be my mentor, neither one of us would have known what the goal was, and I doubt either of us would have benefitted. I knew he was busy and respected his time. I learned from his experience by finding out what I could do to help, and then accepting his feedback.

Another mentor, Charlie Kirkpatrick, helped me to learn what my trading style is. Charlie won the Dow Award in 2001 and I was fortunate to have breakfast with him the next morning at the Seminar. The seminars and meetings are overlooked avenues for mentorship, where the newest member can meet seasoned pros and learn from them. We discussed his paper, which I had read and reread several times the night before. He explained it to me in detail and offered to answer any additional questions I had.

I spent several months programming his technique and then sought his feedback. I also saw he was involved in several committees and asked him if I could help. While working on committees, he continued to provide feedback on trading. Again, without my mentor realizing how valuable his assistance was, I benefitted greatly from a more experienced member. The small amount of help I provided to the MTA committees in no way repays what I learned from Charlie over the years.

Mentorship is available to all within the MTA. I don’t believe it can be forced. In all honesty, we just don’t all get along. Assigning a mentor could easily lead to failure because there might not be a mutual benefit. However, meetings and seminars offer opportunities to interact. The MTA directory can also be used to contact members with specific questions via email or telephone. If the request is sincere, mentoring is a possible outcome to the initial contact. Sometimes, a member might be too busy to respond. This is the unfortunate reality of our business and any other professional field. For those seeking a mentor, my suggestion would be to get involved. Work on a committee and attend functions. You can be involved with email or phone calls; there is no excuse in physical remoteness. If you are working on a paper or a trading system and have a question, there is no harm in asking the expert. I would explain why I was contacting them, instead of just sending the question. And I always mention the MTA, we do share camaraderie.

For those willing to be a mentor, I would encourage you to do the same – reach out at meetings and seminars. Volunteer for a committee and you’ll notice the new names. I am certain that newer members will not be offended to receive an offer of assistance.

Contributor(s)

Michael Carr, CMT

Mike Carr, who holds a Chartered Market Technician (CMT) designation, is a full-time trader and contributing editor for Banyan Hill Publishing, a leading investment newsletter service. He is an instructor at the New York Institute of Finance and a contributor to various additional...

Charting Home Prices

The Winans International Real Estate Index (WIREI) measures U.S. new home prices from 1830. It was developed by Kenneth G. Winans, CMT, with the assistance of Justin Gularte, CMT. This allows for comprehensive long-term analysis of the current market environment and to place current trends into historical context.

Winans found that, historically, new home prices have been the most accurate and consistently tracked real estate dataset. According to the National Bureau of Economic Research there have been five significant studies done on new home prices since 1830:

  • Census Bureau’s New Home Median and Average Monthly Prices (1963 to present)
  • Bureau Labor & Statistics’ New Single Family Housing Studies (1937 – 1962)
  • Long Studies (1869 – 1936)
  • Gottlieb Studies (1837 – 1868)
  • Riggleman Studies (1830 – 1836)

Unlike most real estate indexes, the WIREI incorporates volume. In order to accomplish long-term “apples to apples” evaluations between the WIREI and major stock & bond indices, it’s important to have some idea of trading activity. The number of US new home sales has been continuously available since 1963. A chart, with volume, is shown in Figure 1.

Figure 1: WIREI from 1969 (Winans International, http://www.winansintl.com/index.html, used with permission)

The index is showing a bear market in housing. From its all-time record of 296,000 set in March of 2007, the index has declined -16.8% to its current level of 246,300 in February 2008. This marks the worst price decline in U.S. new home prices since the 17-month decline of -17.8% from May 1969 to October 1970. The worst decline of U.S. new home prices in the last 100 years was the -55% decline from 1929 to 1932.

Applying the tools of technical analysis to real estate indexes may help analysts develop stronger opinion about this market. For more information on the WIREI, please visit http://www.winansintl.com/indicesresearch.html.

Contributor(s)

Michael Carr, CMT

Mike Carr, who holds a Chartered Market Technician (CMT) designation, is a full-time trader and contributing editor for Banyan Hill Publishing, a leading investment newsletter service. He is an instructor at the New York Institute of Finance and a contributor to various additional...

MTA and ASTA Collaboration Agreement

It’s a pleasure writing here after signing the MTA/ASTA agreement. Actually, my pleasure is doubled, once as the ASTA (Arab Society of Technical Analysts) President and once as an MTA member.

As you know, a collaboration agreement has been signed between the ASTA and the MTA, effective April 1. According to this agreement, members of the MTA in the Middle East will be members of the ASTA as well, with access to all support privileges provided by the ASTA to its members.

The ASTA is a not- for- profit professional organization for technical analysis professionals in the Middle East, headquartered in Cairo, Egypt. Our main goal is to promote technical analysis and to help exchange experiences between technical analysis professionals in the region.

Our activities include technical analysis education, and organizing technical analysis conferences, seminars and meetings. According to the agreement, we will also be promoting the CMT program in the Middle East, and helping anyone who is interested in going through the CMT program.

At the moment, we are planning a series of public awareness lectures about the MTA and the CMT program in the Middle East.

At the same time, we are discussing with capital market authorities recognizing the CMT program as an official license for technical analysts. In late 2007, Phil Roth and Ralph Acampora visited us in Cairo, Egypt, where we organized a one day seminar for stock market professionals and a morning lecture for students in Cairo University.

We also arranged for Phil and Ralph to visit the Cairo Stock Exchange and meet its chairman. We took the opportunity to inform him about the CMT program, and we got very positive reactions on the visit from the financial community in Cairo. We were also able to have media coverage for the event.

In January 2008, I attended the Mid Winter Retreat where we finalized the agreement. We believe that this agreement is a great step for the ASTA and the MTA, which, in my opinion, will be helpful in promoting technical analysis in the Middle East and internationally, which of course is our common goal.

Contributor(s)

Sameh Abou Arayes, CMT

Sameh Abou Arayes, CMT is the founder and first president of the Arab Society of Technical Analysts, ASTA which is a not for profit professional organization for technical analysts in the Middle East. He is also a board member of Egyptian Association...

News From the MTA Board of Directors

On March 27th, 2008, the Nominating
Committee of the Board submitted its Slate for
Officers/Directors at-large for voting by the Membership at its next Annual Meeting, scheduled for May 17, 2008.

The recommended Slate, approved by the Board for submittal to the Membership, was as follows:

President: Larry Berman, CTA, CFA, CMT

Vice President: David Keller, CMT

Treasurer: Craig Fullen, CMT

Secretary: Tim Snavely, CFA, CMT

At-Large Directors:

    • Kristin Hetzer, CMT, CIMA, CFP
    • Doaa Fahmy, CMT
    • MacNeil Curry CFA, CMT

Within the next few weeks, Tim Snavely, MTA Board Secretary, will be distributing the Annual meeting Notice/Agenda and new Electronic proxy voting forms for Member voting. All MTA Members, Honorary Members, and Emeritus Members will receive a link, via email, to submit their vote electronically. A link will also be posted on the MTA website as an alternative for you.

We thank the Nominating Committee for their fi ne work–(Jordan Kotick, Chairman and committee members: Matt Blackman, John Copp, Sam Levine, Fabio Verdelli, Kenneth Tower, Katie Townshend)

Contributor(s)

A Book Review of: “Breakthroughs in Technical Analysis”

BREAKTHROUGHS IN TECHNICAL ANALYSIS: New Thinking from the World’s Top Minds
Edited by David Keller
221 pages
Published by Bloomberg Press, 2007

This new book is intriguing on many levels. It serves as a kind of primer for ten fascinating technicians from all across the world, giving a broad sense of the cultural range of applications and creative thinking available to technical analysts today. Each chapter is written by one of the ten “super minds,” and each is concise, informative, and in every case aiming at elaborating the philosophy and character of the technique – the tricky ideas – and uncovering the essence of the theory along with demonstrations of how it works.

The overall feeling is that you are visiting, even having coffee with, one supermind after another. You have the benefit of his/her careful explanation of the model and how it works, but also of his/her experience, strength, and hope, chock full, in some cases, of anecdotes and insights. Variety across the spectrum of technique is as fascinating as is the inevitable home-plate consistency of good principles and sound guidelines.

David Keller, CMT, Technical Analysis Application Specialist for Bloomberg, located in New York City, has given us a peek into the minds of ten brilliant men and women. Lucky for some who have the resource of a Bloomberg terminal, this book is a wonderful companion piece to the DeMark Indicators and Ichimoku Japanese Clouds.

The idea of “breakthroughs” is central. Each chapter hones in on a model’s conceptual uniqueness. For example, Chapter 2, Trend Spotting with TD Combo, by Tom DeMark, opens with a discussion of his philosophy: “Most traders are content to trade with a trend. But what happens when buying and selling pressure move into equilibrium or when buying pressure overcomes selling pressure or when selling pressure overcomes buying pressure?

During these transition periods of buying and selling pressure, market fundamentals, news, and expectations usually remain intact. However, under this veneer, the supply/demand dynamics are in fact being redefined. Maintaining a trading edge by anticipating these internal market changes is imperative to insuring a trader’s good mental health and financial health.”

Yosuke Shimizu authored Chapter 4, Reading Candlestick Charts, and this chapter lives up to its name. Shimizu wastes no time and moves quickly but insightfully through the basics of candlesticks. This is not didactic but full of wisdom about the nature of what you are seeing. He then considers the significance of patterns and clusters, and again the focus is on opening up our eyes in a fresh way. “Candlesticks illustrate… the dynamic movements of price…to let traders feel the rhythm of the market.”

In Chapter 5, Price and Time, by Constance Brown, CMT, we are introduced immediately to the core concept behind Ms. Brown’s work: confluence, “Price projection accuracy is possible when the concept of confluence is clearly understood.” She goes on to explain “Confluence is a precise target zone derived from multiple price projections utilizing the natural expansion and contraction of price movement found in all markets and time horizons. The results form a mathematical grid that allows precise entry and exit strategies prior to any trade with measurable risk-reward ratios.”

In Unlocking Gann, Chapter 6, David E. Bowden explains in detail how he constructed a year in advance his forecast for the Australian share market in 1989 and why he went to the trouble of getting it published. Beyond that, he shares his experience of being both right and wrong in his predictions, and how he has made the most of both.

Nicole Elliott in Chapter 3, Charting with Candles and Clouds, brings us into the world of Japanese Clouds (Ichimoku Kinko Hyo = cloud charting) with a charming anecdotal ease. She offers insights about features of the technique, such as the meaning of the Chicou Span (the lagging span or line), a mysterious but effective tool if you know how to read it. There are also examples of her time-earned wisdoms: “The name Technical Analysis sounds very scientific and rational…It isn’t…”; “Do not try to force a piece of the puzzle in, but try to look at it from a different perspective”; and “Charts are all about reading psychology and smelling raw emotion. Do not forget this.” Other chapters include Ted Hearne on Drummond Geometry: Picking Yearly Highs and Lows in Interbank Forex Trading; Bernie Schaeffer on Options-Based Technical Indicators for Stock Trading; Jeremy du Plessis, CMT, FTSA, on Point and Figure Analysis: Modern Developments in an Old Technique; Robin Mesch on Deconstructing the Market: The Application of Market Profile to Global Spreads; and Robin Griffiths on The Ten Commandments.

The book is beautifully produced, oversized and graceful, and the type and charts are easy to read and follow. There is plenty of white space on each page which makes the mental processing a more comfortable task. I even found myself keeping the book on my bedside table along with my novels — that certainly says something about its charm.

Contributor(s)

Molly Schilling

Molly Schilling is an independent trader and freelance writer. Molly has been a member of the MTA since 2005.

David Keller, CMT

David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. Dave is a CNBC Pro Contributor, and he recaps market activity and interviews leading experts on his show “The Final Bar” on StockCharts...