Technically Speaking, April 2022

Hello readers!

Guess what? It’s 3D time!

It’s been a two-year consolidation and now we have a breakout! #cmtsymposiumbasebreakout

After two years of going online, we’re happy to share with you that we’re going offline again. The CMT Symposium will be a hybrid event in April 2022, and we’re all ready for it. So, brush up your social skills and make sure the bottom half of your clothes match the top half—since you’re finally meeting people in flesh and bones.

The CMT Association has been working tirelessly to get to this point of organizing an event in the post pandemic world. And we look forward to you attending this special event as we get back to some form of normalcy again. Gotta do a mental revision of what it was like to be at a conference. I’m just hoping I don’t blurt out “Is my audio and video all right?” to someone standing right in front of me.

This is going to be my first time attending the conference, so I am definitely counting down the days. Technical Analysis is a field where there are as many methods of analysis as there are people. Every brain thinks and acts differently and that’s the beauty of it. Such conferences are like learning bootcamps where you are exposed to multiple perspectives that aid in better understanding of any given product. I know I’m carrying my notepad everywhere.

So, what’s been happening in our world recently? Rates are rising, bonds are falling, and Commodities, Stocks and Crypto are jiving. Which means they’re moving around in their designated area; save for some exceptions. The first quarter is behind us and we saw the value areas of the market outperform the growth areas. Developing/Emerging markets have dominated the list of the top ten performers over the last quarter with developed economies accumulating at the bottom of the pile. Several markets are in a sideways range, waiting to find future direction. In the midst of all this has been the rates. The one asset class with a clear direction. Yields are rising, and bonds are falling. This is being observed across the globe. Sure, we saw the yield curve invert briefly, but we’ve also seen that such an inversion does not translate to doomsday instantly. It is only a sign of caution and not a confirmation of a selloff. Essentially, the market is in a transitory phase. There’s a phrase that’s been used too often.

In this messy market environment, we have some blogs that can help you identify the market direction, when to take profits, current market scenarios and a note on Algo Trading.

The Symposium fever is here, and I’m looking forward to meeting and interacting with the great minds of the beautiful world of technical analysis. It’s going to be intense, but a lot of fun.

Hope to see you at the symposium, online or offline.

Until next time, Think Technical!

 

Rashmi Bhatnagar, CMT

Editor

What's Inside...

President's Letter

by
Brett Villaume, CMT, CAIA

Your CMT Board of Directors serves to govern the Association’s business affairs, including overseeing our financial and operational performance, and...

Read More

How much profit are traders leaving on the table?

by
Ryan Hysmith DBA, CMT

We studied over 20,000 trades to measure the average time between return extremes over the life of a trade. From...

Read More

History shows S&P 500 has never feared a rates "liftoff"

by
Akshay Chinchalkar, CMT, EPAT

The Federal Reserve hiked the Fed Funds rate by 25 bps to 0.5% in March — the first hike since...

Read More

Markets Environments: Participation > Labels

by
William A. Delwiche, CMT, CFA

It’s easy to get fixated on percentages when discussing and labeling market moves, especially when those moves are to the...

Read More

Fill the Gap Episode 16 with JC Parets, CMT: CMT Association's Official Podcast

by
Tyler Wood, CMT
by
David Lundgren, CMT, CFA
by
JC Parets, CMT

Summary: This month’s guest on Fill the Gap is a household name in the field of technical...

Read More

CMT Association Newsletter

by
Marie Penza

Membership

The CMT Association would like to congratulate the following members on their new positions:

  • Joseph Farrell, CFA, CMT,...
Read More

Technical Analysis & Algo Trading: The Perfect Match

by
Deep Shah, CMT

Algorithmic trading or Algo-trading, in simple words, means automated trading which involves placing a set of rules with the help...

Read More

Breadth Study on the Indian Market

by
Raj Sharma

Nifty 500 has spent the past two quarters consolidating in a range while remaining in a primary uptrend.

It’s crucial...

Read More

Hindsight 2020: Explaining the 2022 Symposium to my 2020 self

by
Joel Pannikot

There is this hilarious series of videos that YouTuber comedian Julie Nolke has created, where she imagines explaining the...

Read More

Job postings on Discord

by
Joel Pannikot

Late last month we received a call for applications for the role of Portfolio analyst at FSC Wealth Advisors,...

Read More

President's Letter

Your CMT Board of Directors serves to govern the Association’s business affairs, including overseeing our financial and operational performance, and helps to set the long-term strategic initiatives we undertake to further our Mission. The Board consists of unpaid volunteers who are passionate about our success as an organization and even more so about Technical Analysis. This month’s President’s Letter provides a brief introduction to the nominees on this year’s slate of incoming Directors.

 

All CMT Members should have recently received an email notifying you of our upcoming Annual Meeting on June 21, 2022 at 10:00 am EDT, as well as the proposed slate of candidates for Director At Large and Board Officers. Voting will begin on May 2, 2022, and closes on June 10, 2022.

 

The Governance Committee, which oversees the annual Board refreshment process, sets as its goal the development of a Board of Directors which possesses the necessary skills to best execute the Board’s responsibilities. In other words, the Board should consist of Directors with diverse areas of expertise, professional backgrounds, and perspectives, which taken together makes the Board extremely effective in doing its job.

 

As I explained in the January edition of Technically Speaking, the focus areas for this year’s refreshment process included adding Directors residing within APAC countries; adding Directors with prior career experience in marketing, branding, and social media; and continuing to diversify the Board in terms of gender, race, and ethnic background.

 

This year’s proposed slate includes:

 

  • Gina Martin Adams, CMT, CFA
  • Gina is the Global Head of Portfolio Strategy and Chief Equity Strategist for Bloomberg Intelligence. In her job role, Gina manages a global team of analysts and has clients all over the world. She is one of the Association’s strongest advocates of the CMT designation and demonstrates daily to an audience of thousands the importance of utilizing Technical Analysis. Gina’s participation on the Board will strengthen our efforts to build brand awareness and focus on increasing demand for the CMT designation as an attractive professional credential.

 

  • Vishal Mehta, CMT
  • Vishal is an independent trader and founder of marketscanner.in. He has been instrumental in increasing awareness about Technical Analysis across South Asia, having worked with many of the largest financial information providers, central banks, financial institutions, and corporations in the APAC Region. Vishal currently serves on the CMT’s APAC Committee and is Co-Chair of the Mumbai Chapter. It is not an exaggeration to say that Vishal is largely responsible for the success the CMT Program has seen in India in recent years.

 

  • Jay Woods, CMT
  • Jay is Chief Market Strategist at DriveWealth Institutional and was previously a Designated Market Maker on the NYSE floor for over 25 years, working with Spear, Leeds and Kellogg; Goldman Sachs; and IMC. Jay is also Co-Chair of the New York Chapter. To say Jay has an impressive network of financial professionals is a colossal understatement – he is well known and liked by many on Wall Street. Jay has a passion for utilizing technology to access markets and is going to contribute strongly to the development of the CMT’s marketing strategy.

 

Note that I did not mention public speaking credits for these nominees, as all three are what I’d characterize as highly-decorated veterans in making financial media appearances, including TV, social media, magazine articles, etc., all of which, of course, has helped to increase awareness of the CMT Association, the CMT designation, and more broadly, Technical Analysis (Google their names along with “CMT” after it and see the results).

 

Concluding their terms and coming off the Board this year are Salma Abdulla, CFA, CMT; Akshay Chinchalkar, CMT, EPAT; and Stella Osoba, Esq., CMT. All three are to be commended for their service to the CMT Association, having contributed their time for years toward helping the Board execute its duties and ensure the future success of the organization. Salma served as Chair of the Governance Committee for the past three years and has been instrumental in shaping our governance policies. Akshay was the key Board member responsible for our growth in India, which includes our highly successful 2019 APAC Summit and 2020 India Summit. Stella worked behind the scenes on many important committees and working groups of the Board, often providing her insightful perspectives and sometimes crucial legal recommendations to the Board. If you know one or all of these individuals, please reach out to thank them for their service.

 

As a reminder, the CMT Annual Symposium is April 28-29 in Washington DC. The Symposium is one of the most rewarding benefits of membership in the CMT Association and I’m extremely pleased to say, “we’re back!” Members can register here and attend in-person for only $799 (a crazy cheap price for an industry conference of this caliber) or attend virtually for free. Please consider attending in-person, where you’ll have the opportunity to meet the Board nominees and get to know them personally, as well as yours truly.

Contributor(s)

Brett Villaume, CMT, CAIA

Brett Villaume, CMT, CAIA, is Past President of the CMT Association, having served on the Board of Directors since from 2014 to 2023. Additionally, Brett is a Wealth Advisor at Dogpatch Capital, a registered investment advisor in San Francisco, CA. From 2015...

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How much profit are traders leaving on the table?

We studied over 20,000 trades to measure the average time between return extremes over the life of a trade. From all that data and research, see what stands out.

Traders hate leaving money on the table. But, how do you know when to exit a position? How much profit do you give up by closing a trade early? What if a winning trade goes against you because you held out for more profit?

These are real scenarios traders face every day, and this article gives you valuable context for making those decisions.

We examined over 20,000 options trades to see how long it takes for winners to turn into losers, losers to turn into winners, and the length of time between position extremes.

We know no one has a crystal ball and hindsight is 20/20. The next time you consider your position management decisions, we hope this research gives you actionable context as you weigh the possibilities. Let’s dig in.

Position Types and Market Conditions

We studied more than 20,000 options trades on eight different strategies over six months. The market had been in a steady uptrend, so traders held mostly bullish positions during the period studied.

Most positions were short duration, with the average trade open for 5.4 days.

After the extended uptrend, markets became choppy, providing ideal conditions to study swings in position value.

The Magnitude of Position Value Swings

A position’s final P&L only tells part of the story. Position returns can vary widely before exiting the trade.

Two metrics describe these position swings.

  • Maximum favorable excursion (MFE) is the highest profit reached at any point while the position is open.
  • Maximum adverse excursion (MAE) is the largest unrealized loss during a position’s duration.

MFE tells the trader how much profit they “left on the table.” MAE quantifies how the position performed relative to its largest drawdown.

During the period studied, traders missed out on the most upside while trading iron butterflies, long calls, and long puts.

Interestingly, iron butterflies also had the highest MAE. This can probably be attributed to short at-the-money contracts’ gamma exposure.

Trying to capture all the missed profit and catch every market move for each position is a fool’s errand and unrealistic. Still, smart adjustments to strategy decisions and personal trading rules could enable traders to capture a few dollars of lost profit to produce more powerful compounding.

For example, traders could adjust profit targets depending on days until expiration, implement trailing stops once a profit target is reached, or adjust all of these parameters and more based on current market conditions.

Timing of Position Profitability

We can go one step further and analyze the time between profit extremes.

Why? Understanding the time between position extremes gives you insight into position duration and trade management.

For example, knowing that iron condors had a longer average time between their max profit and loss can help you adjust exit criteria or give you more confidence when being patient with your exits.

There is high variability in the time between a position’s maximum and minimum profit. The average iron condor was open 9.1 days and the average days between max profit and max loss was 5.4 days. So, swings in position value relative to the time the position was open are significant.

How This Impacts Your Trading

From all that data and research, here’s what stands out.

Some strategies have much higher favorable and adverse excursions (e.g., iron butterfly, long calls, and long puts). If you know your strategy’s typical return profile, you can make more informed trading decisions.

For example, if you trade iron condors, you have to consider their return profile looks different than trading put credit spreads. An iron condor’s neutral profile means two sides of the trade are in play. So, the time between a position’s maximum and minimum return can be longer than a one-sided trade like a put credit spread or call credit spread.

Meanwhile, the variability between position highs and lows is smaller for iron condors than any of the eight strategies tested.

The point is not to extol the virtues of the iron condor but to demonstrate that strategies have their own unique return profiles.

Can a position turn around? You bet. It goes both ways, though. There’s often a two or three-day difference between the position’s highest and lowest unrealized returns on short-duration trades.

Understanding the variability of your favorite strategy’s returns gives you unique insight into your management decisions and can help remove emotional decision-making from your trading.

Contributor(s)

Ryan Hysmith DBA, CMT

Ryan loves thinking about, talking about, and writing about markets. Ryan is the Chief Market Strategist for Option Alpha, a no-code automated trading platform for stocks and options. Before joining Option Alpha, Ryan taught undergraduate finance and worked in institutional fixed-income sales....

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History shows S&P 500 has never feared a rates "liftoff"

The Federal Reserve hiked the Fed Funds rate by 25 bps to 0.5% in March — the first hike since end of 2018 — with the recent minutes sending a rather clear message that fighting inflation was a priority and that Quantitative Tightening would be undertaken at a maximum pace of $95 bln each month starting as early as May. The most recent evidence — the FAO food price index jumped the most over in March to a new record, Peru and Sri Lanka are witnessing social unrest due to food crises — is increasingly pointing to price pressures going truly global and that means the world’s central banks, including the Fed, will have to tighten monetary policy and at the same time hope that growth suffers a “soft landing”. How they will pull this off is anyone’s guess, really.

The big question in investors’ minds is: Can global equities survive central bankers’ “policy tightening”, at the centerpiece of which of course, lies the US Federal Reserve?

American equities have been in correction mode since Oct 2021 as it became obvious that inflation was anything but “transitory”; the added uncertainty from Russia’s invasion of Ukraine hasn’t exactly helped the bull case for obvious reasons and now the Fed’s latest minutes have left no doubt in anyone’s mind that more and bigger hikes are on their way. What does that mean for the S&P 500 going forward? What does history tell us about how the SPX has done when the Fed has tightened policy?

So we ran a 30-year backtest to gauge the SPX’s performance 12 months out considering the first Fed hike after being in status quo mode for atleast 12 months before such a hike. The results are interesting:

 

Hike Date

 Prior Fed Funds Rate Reset To SPX Start SPX End SPX Return 12m Fwd In % (Close Only) Largest Peak To Trough Drawdown In % (Close Only)

Feb-94

 3 3.25 470 479 4.2 -6.6

Mar-97

 5.25 5.5 790 1101 33.2

-10.8

Jun-04

 1 1.25 1128 1194 5.70%

-7.2

Dec-15

 0.25 0.5 2073 2262 8.70% -11.8

Mar-22

 0.25 0.5

Avg 13%

-9.1
(Source: Bloomberg)

Looks encouraging for SPX bulls, doesn’t it? Yes, but when was the last time you had inflationary pressures like you have now? Warrants a think.

Contributor(s)

Akshay Chinchalkar, CMT, EPAT

Akshay Chinchalkar is an APAC Equity Derivatives Strategist at Bloomberg, where his work centers around expanding derivatives coverage with round-the-clock support from a wonderful group of colleagues. Formerly, he was an Asia Cross Asset Editor where he covered all beats that included...

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Markets Environments: Participation > Labels

It’s easy to get fixated on percentages when discussing and labeling market moves, especially when those moves are to the downside. The S&P 500 can be 9.99% below its peak and its crickets – cross the 10% threshold and it’s a “Correction” – cross the 20% threshold and banner headlines announce a “Bear Market.”

 

There are plenty of problems with this approach. A market environment that has the S&P 500 down 9.9% from its peak is likely not materially different from one that has the index down 10.1%. The same can be said on either side of the bear market threshold. Problems go beyond the arbitrariness of the specific thresholds. The questions it raises reflect its lack of utility for everyone except headline writers. Is a market that is on its way to, but has not yet achieved a 20% peak to trough decline in a bear market, or is it still a bull market? And what happens after it enters bear market territory but nudges higher so that the peak to trough decline is now less than the 20% threshold? Is this still a bear market?

 

Pundits can wrestle with these questions. Historians can come in after the fact and put dates on market cycles (in the same way that dates are put on economic cycles) after peaks and troughs are clearly established. When trying to identify and operate within a market environment in real time, we don’t have those luxuries.

 

So how can we proceed?

 

Rather than looking at thresholds, I choose to look at participation when it comes to identifying market environments. Specifically, if more stocks (across the NYSE & NASDAQ) are consistently making new 52-week highs than lows, that seems like a bull market. If we are seeing more new lows than new highs, that is bear market behavior. All of the net gains in the indexes (looking particularly at the S&P 500 and the Value Line Geometric Index) over the past 2+ decades have come when our net new high A/D line has been trending high. In other words, when new 52-week highs have persistently outnumbered new 52-week lows. This isn’t rocket science, it’s a reality that index-level strength will struggle to persist if more stocks are moving lower and making new lows than moving higher and making new highs.

 

This dynamic has been playing out in recent months. Go back to early 2021 and the number of stocks making new highs started to wane and new low lists were expanding. Until November, however, news highs still outnumbered new lows. That changed in the final six weeks of 2021 and new lows began to outnumber new highs. The S&P 500 managed to hold up for a time and made a new high on the first trading day of 2022. It’s been underwater the year since then. From early January to late March, we experienced 57 consecutive days of more stocks making new lows than new highs. By the time the conventional questions about bear markets were being asked in late-February and early-March, we were already in the longest consecutive stretch of more lows than highs since the financial crisis (in 2008/2009).

 

That streak has since ended. We could start a new streak of more new lows than news highs. In which case I would conclude that the bear market remains intact (this, in fact, is what happened in late-2008/early-2009). Alternatively, we could begin to accumulate more new highs and the net new high A/D line, which has been moving lower since November, could turn higher. In either case, we can listen to the market, lean on the data and let the evidence write the headlines.

Contributor(s)

William A. Delwiche, CMT, CFA

Willie Delwiche has over two decades of experience providing perspective on the financial markets and the economy, including 15+ years of active risk management through a suite of proprietary tactical ETF portfolios. Prior to pursuing a more independent path, he was Managing...

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Fill the Gap Episode 16 with JC Parets, CMT: CMT Association's Official Podcast

Summary: This month’s guest on Fill the Gap is a household name in the field of technical analysis – one of the most widely read market commentators of this generation and a role model to aspiring financial professionals around the globe. JC Parets, CMT is what you might call “an All-Star.” He has spent years within the community learning from the men and women of Wall St who discovered, engineered and created the tools and methods we use today.

When he is not crushing grapes at Chateau Fibonacci or watching the Miami Dolphins crush rivals, JC and his many colleagues at All-Star Charts are ripping through thousands of charts to see the markets from every perspective. Their comprehensive cross-asset multi-timeframe perspective is at the forefront of what JC brings to the interview this month.

In the April episode of Fill the Gap, JC will discuss the emerging data sources made available on-chain and how DeFi terminology is the only difference between these new market internals and the data we’ve seen from traditional equity and futures exchanges for decades.

To kick off this month’s episode, we’ve brought the architect of the annual CMT Symposium for the past decade – Bill Kelleher, CMT, CFA who shares a bit about this year’s phenomenal conference, the impact this member community had on his own career, and some fond memories of a young JC Parets discussing the early days of FinTwit with Wall St. legends at the Symposium in 2013.

Enjoy episode #16 with our special guest JC Parets, CMT!

Contributor(s)

Tyler Wood, CMT

Tyler Wood serves as Managing Director of CMT Association with the aim of elevating investors’ mastery and skill in mitigating market risk and maximizing return in capital markets through a rigorous credentialing process, professional ethics, and continuous education. He is a seasoned business...

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David Lundgren, CMT, CFA

David Lundgren has more than three decades of investment industry experience, with a focus on technical analysis strategies, particularly momentum and trend following. He is the former Director of Technical Research at Wellington Management, where he was also a Managing Director and portfolio...

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JC Parets, CMT

JC Parets, who holds a Chartered Market Technician (CMT) designation, is the founder of All Star Charts and is one of the most widely followed Technical Analysts in the world. All Star Charts is a research platform for both professional and retail...

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Technical Analysis & Algo Trading: The Perfect Match

Algorithmic trading or Algo-trading, in simple words, means automated trading which involves placing a set of rules with the help of computer programming languages such as Python, R-Program, Java, and C++ that follow a set of instructions in developing any kind of strategy from simple to complex. According to me, any robust and tested algorithm can make profits at a pace and frequency that would be hard for a human trader to achieve.

In my trading career, I experienced multiple benefits and a major positive shift in my trading style which I will explain here:

  1. Timing
    • Algos have helped me avoid substantial price swings, trades were timed precisely and promptly.
  1. Price
    • Since my timing was quick, I got the best prices.
  2. Quantity
    • It gets difficult to manage large quantities when you are trading manually due to the fear of volatility and mental pressure whereas my Algo can manage high quantities seamlessly in liquid instruments.
  1. Manual Intervention Avoided
    • When placing transactions, there’s a lower chance of making a mistake and also Algo works emotionlessly.
  1. Validation of the Strategy
    • I had many hypotheses which were not backtested and hence led to my lack of confidence while trading whereas backtesting my hypotheses helped me understand whether or not my strategy was profitable.
  1. Higher Capacity
    • Algo can trade on multiple instruments at the same time which is highly impossible for a human to monitor and trade at the same time.
  1. Multiple Indicators
    • A system can be created by adding multiple technical indicators and we can also instruct the system to consider multiple-time frames if needed and the system will calculate the data accurately.
  1. Statistics
    • There can be human error in calculating different stats but with the help of technology, I was able to generate essential stats of the Backtesting Report.

Disadvantages:

  1. Lack of programming Language
    • Since I am not a coder, it was difficult for me to avail any algo. But that can be omitted as today there are many firms such as AlgoBulls and others that develop simple to complex strategies accurately and also have real trading support services for competitive fees.
  2. Regulatory Checklist
    • In India, users have to abide by the rules and regulations set by SEBI.
  3. Lack of Resources
    • Accessing high-tech devices and purchasing historical and live data can be challenging. But this can be avoided or reduced if it is outsourced to firms that develop algorithms.

Steps I took to create an Algo System:

  1. Define the trading rules such as Entry, SL, Target, and Exit.
  2. Create a Flow of Orders
  3. Backtest the strategy with necessary stats.
  4. Execute Paper Trading to understand if the strategy is working as per the rules defined
  5. Once you are satisfied after considering that all errors that occurred while testing have been solved, deploy the strategy in real-time.

An Example of Algo Trading System:

Let’s consider a simple technical strategy for a better understanding.

Relevant Info:

  1. Scanning of the signal should be done on Nifty 50 Stocks.
  2. 15 Min Time Frame
  3. Start Time: 9:15 and End Time: 15:15
  4. Strategy Mode: Intraday Only

Entry Condition:

  1. Buy when Close Price crosses above MA
  2. Sell when Close Price crosses below MA

Stop Loss Condition (Buy Entry) :

  1. Sell when Close Price crosses below MA

Stop Loss Condition (Sell Entry) :

  1. Buy when Close Price crosses above MA

Target Condition:

  1. 1% from Entry Price

Who is benefiting:

  • Trend followers, pairs traders, hedge funds, and other systematic traders find it far more efficient to program their trading rules and have the computer trade for them.
  • Retail Traders, High-Frequency Traders, Low-Frequency Traders, Hedge Funds, Mutual Funds, pair traders, Mid and Long Term Investors by deploying Delivery based strategies and so on.

 

Closing Note: 

Algo Trading in India is still in its early stage and many traders (existing and new) are attracted to avail such services for the obvious reason of generating profits from trading. In other parts of the World, Algo Trading is not a new concept and has been in use for quite some time.

Keep in mind that Algo Trading doesn’t mean the trader can start the system and go to bed. Instead, it has to be monitored in real-time when deployed, as unforeseen errors can occur due to which the trader may face a huge loss. The curriculum of CMT has taught me to improvise and refine my trading strategies. Over a period of time, multiple algo trading strategies can be deployed for generating alpha. One can have a portfolio of Automated Trading Strategies in a systematic manner.

I believe that having the knowledge of Technical Analysis and Coding goes hand in hand.

I suggest those who have an understanding of Technical Analysis should reach out to professionals who can develop their strategy and make it more efficient. On the other hand, if you are a developer then you should learn Technical Analysis and create your strategy.

Contributor(s)

Deep Shah, CMT

Deep is an Associate Trader at Zishka Capital. He trades options based on basic techniques and volatility. He completed his Masters in Banking and Finance from Narsee Monjee College of Commerce and Economics and Bachelor’s of Commerce in Financial Market (BFM) from...

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Breadth Study on the Indian Market

Nifty 500 has spent the past two quarters consolidating in a range while remaining in a primary uptrend.

It’s crucial for us to know if the market move is back by broader participation or if it’s a handful of stocks that are moving it higher or lower.

This post will look into breadth indicators to measure the degree of participation for defining a trading bias.

Percentage of Nifty 500 stocks above the 50-day moving average works as a medium-term breadth oscillator.

I have done signal testing starting 2011 for the oscillator crossover above the oversold region of 10.

This has generated 17 signals with an 80% probability of gain. The mean return has been 4.8% in the next 30 days and 9.7% in the next 3 months.

It could be used as a measure to define the oversold market conditions. Recently, we saw fresh signals develop on 25th February and 8th March which has resulted in a gain of 8.4% and 12% till April 5th, 2022.

Percent of stocks above their 200-day moving average is a long-term market breadth oscillator. It helps in recognizing the market environment over a longer period of time.

Every time the oscillator value crossed above 15, Nifty generated a mean return of 8% in the next 30 days and 11.4% in the next 60 days.

Since 2011, this indicator has generated 15 signals with a 93.33% probability of gains.

Another observation is that every time it crosses above the overbought level of 80, we’ve observed divergence between the indicator and price. It shows that the market is moving higher with lower participation.

Starting January 2021, this indicator peaked out, whereas the Nifty 500 continued to go up with fewer stocks remaining above the 200-day moving average. After this market environment, stocks typically had a broader drawdown, as observed post October 2021.

Our final indicator is the Market Mood indicator (MMI) by tickertape.in. It’s a Greed and Fear styled sentiment indicator for the Indian market.

MMI uses 6 data points.

 

FII Activity covers the net open interest of Foreign Institutional Investors in Nifty 50 index futures. A higher average value is positive for longs.

Volatility is measured using India VIX index. It’s the implied volatility of 1-month Nifty 50 options. Since Vix doesn’t indicate the direction, it uses skew. Skew is calculated as the difference between IV of OTM put options and OTM call options of Nifty 50. An above-average skew value indicates a higher chance of downward movement.

For Momentum, it takes a difference between 90-Day & 30-Day exponential moving averages of Nifty 50, divided by 90 Day moving average. Here a higher value is positive for longs.

For Market Breadth, it uses Modified Arms Index on Nifty 500 stocks.

Price strength is measured using the net % of stocks near their 52-week high.

Demand for Gold relative to Nifty over the two weeks analyzes the risk appetite.

The final indicator value is calculated by normalizing the component on a scale of 0-100.

It had generated positive results in signal testing when the indicator came out of the extreme fear zone by crossing above 20.

Since 2012 the indicator generated 50 signals with a 79% probability of gain and a mean return of 4.2% in the next three months.

One interesting observation from this indicator is a case for bullish divergence. It occurs when the indicator moves higher after crossing above 20, and the price continues to go lower. Each observation has acted as a significant inflection point for the Nifty 500 and resulted in a positive up move.

Working on multiple breadth indicators, I found it more useful to test the extreme historical lows for the oversold condition instead of the overbought condition. We have more data on the market trending higher over a period. So it’s easier to find high-probable conditions for the market bottom instead of the top.

Contributor(s)

Raj Sharma

Raj Sharma is the Editor for The Chart Report India. It’s a daily newsletter providing traders and investors with commentary on the financial markets from a technical perspective. Raj attended BML Munjal University and graduated with a Bachelor of Technology degree in...

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Hindsight 2020: Explaining the 2022 Symposium to my 2020 self

There is this hilarious series of videos that YouTuber comedian Julie Nolke has created, where she imagines explaining the pandemic to her past self, in a world that for two years kept spiraling increasingly out of control.

I often think of what I would say to my 2020 self, one week before I was to fly to New York to attend my second Symposium. How would I explain that not only would that year’s Symposium not happen, the world would stand still for what was going to seem like forever?

The 2019 Symposium was my first, and it was a stellar learning experience.

I brushed shoulders with the late great Gerard Appel (inventor of MACD), top global technicians, and the inspiring Ralph Acampora, CMT (one of the founders of CMT Association, see above). I came away with lifelong friendships. It was striking to see not only the breadth and depth of knowledge and experience on display, but also the humility and camaraderie among the 350+ practitioners at the top of their game. To watch Ralph sit in the first row and ask the speakers thoughtful, persuasive questions, showed me how much more I need to learn.

That is why, if my 2022 self was to ask me to cancel my plane tickets a week before departure, I would have said’ “It would take an unprecedented global disaster to keep me from going to the Symposium!” And well…

CMT Association too felt the impact of the pandemic, with the cancellation of the Symposium and the June 2022 exams. From there on we managed to rally, and over the next year and a half, we managed to pivot to highly successful global virtual events, a new Discord server that has now become a vibrant space for the CMT community to network, and record breaking numbers of candidates in successive exam cycles.

This is why, as we emerge into the post-pandemic world, the new hybrid 2022 Symposium assumes greater significance. We come back to what CMT Association does best, hosting a world class live event at a historic location where the best minds in technical analysis, connect, engage and share ideas. We also leverage the power of technology to make the knowledge sessions accessible to all our members for free through the virtual event platform.

There is no substitute to the power of engaging in person, shaking each other warmly by the hand, looking each other in the eye, (as opposed to the awkward angle that webcams provide) and laying the foundation to lifelong friendships. However, as technology continues to develop, it opens the doors to connecting with likeminded technical analysis practitioners from around the world, collaborating with the top minds in your profession, and indeed laying the foundation to lifelong friendships.

So with that thought, I convince my 2020 self to look forward to the 2022 Symposium. In a VUCA world, what better way than to spend your time learning how to deal with VUCA markets than spending time with market technicians, in person and virtually.

Sign up for the summit here:

 

Contributor(s)

Joel Pannikot

Joel Pannikot (pronounced as Punny-Quote) is the Managing Director of Chartered Market Technician Private Limited and serves as the Head of the Asia-Pacific region for the CMT Association. In this role, he is committed to advancing the field of technical analysis through...

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Job postings on Discord

Late last month we received a call for applications for the role of Portfolio analyst at FSC Wealth Advisors, LLC, based in the New York Metropolitan Area, inviting CMT charter holders to apply.

We have posted details of this and other roles on the #job-board on our Discord Server.

If you are interested in looking for roles to apply for, please do visit the board.

If you are hiring, feel free to DM me on Discord, and share the Job Description. I would be happy to post it and spread the world.

Contributor(s)

Joel Pannikot

Joel Pannikot (pronounced as Punny-Quote) is the Managing Director of Chartered Market Technician Private Limited and serves as the Head of the Asia-Pacific region for the CMT Association. In this role, he is committed to advancing the field of technical analysis through...

Read More
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