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Market Technician Issue 82 - March 2017

The Journal of the Society of Technical Analysts

MYANMAR: A NEW CHAPTER OF THE STA 24

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Unravelling the DNA of the Market

The Manifestation of Universal Law

Applying the Double Helix Framework to Wyckoff and Elliott

Complexity, Chaos and the Elliott Wave Principle by Peter Goodburn


Contents Foreword 06 • Our thanks to Deborah Owen News 07 • Current and former presidents come together • Our new Myanmar Chapter • Introducing the STA Forum Research 10 • The Crash of 2017 • Space and Time: The final frontier • Unravelling the DNA of the Market: Applying the Double Helix Framework to Wyckoff and Elliott • The Manifestation of Universal Law: Complexity, Chaos and the Elliott Wave Principle • Did you know? Analyst Focus 37 • The STA has been instrumental to my success • Head and Shoulders Above: Humans are the problem Book Review 40 • “#TradingThought” by Stephen Hoad The Society of Technical Analysts • Benefits of STA Membership • STA Calendar • STA Library • The Education Channel • The STA Executive Committee

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Disclaimer: The Society is not responsible for any material published in The Market Technician and publication of any material or expression of opinions does not necessarily imply that the Society agrees with them. The Society is not authorised to conduct investment business and does not provide investment advice or recommendations. Articles are published without responsibility on the part of the Society, the editor or authors for loss occasioned by any person acting or refraining from action as a result of any view expressed therein.


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3

Editor's Letter It’s with delight and trepidation that I write this, my first letter to STA members. I’m honoured but also worried because I’ve got some very big shoes to fill - those of my talented friend Deborah Owen who has been doing this job brilliantly for many years.

Nicole Elliott Technical Analyst, Private Investor, E-journalist for the STA

You will have already noticed the new layout of the journal and I should warn you that from now on it will only be available in electronic format. I’m guessing several other IT dinosaurs like me will miss the printed edition, but postage costs have become prohibitive - as has the sheer physical effort of stuffing and lugging envelopes. All is not lost though as the new version has its advantages: lots more pages for a start, and we can embed links to other articles and to the STA website that might be relevant and useful. Likewise, the Home Study Course is downloadable via a link format only and this has proven popular with those who find it difficult to get up to London as well as people who prefer working at their own pace. Talking of on-line, the STA’s Library offering has also changed and, I’m sure you’ll agree, improved. You can see the most popular books we own on The STA library or CloudCollectorz.com and UK based members can borrow them. They will be posted to you but this does, of course, mean missing out on an outing to the Barbican Library or the City Business Library, a reference library, where hard copies are held. In financial circles, technical analysts are known for their collegiate and cooperative attitude, for being friendly, and for enjoying each-others’ company. What with our summer and winter parties, monthly networking and drinks, and annual dinner, I’d say we’re quite the party animals. High spirits were out in force on the 30th November as we celebrated the 30th anniversary of the incorporation of the STA. The gorgeous National Liberal Club did us proud so no wonder a record crowd of 120 showed up. You might have thought that was enough for a year, but we’ve already got a new date for your diaries. Pencil it in now: Thursday 7th June 2018, a very special celebration for the 50th year since the Association of Chart and Technical Analysts (ACTA) was established (ACTA was the predecessor of the STA). It will be at London’s Living Room - City Hall’s Venue with a View - sometimes known as the Citroen headlamp building almost next to Tower Bridge on trendy South Bank. We can’t guarantee that Mayor Sadiq Khan will be there for ‘selfies’, but we’ve got other surprises in store. It’s not all fun and games though. The Society takes its educational role seriously and continues to offer the highly regarded Diploma Course, now with CISI accreditation. A thank you to Simon Warren, who has organised and coordinated the University Trading Challenge at the Cass Business School. We must also mention Tom Hicks who manages to convince or strong-arm top notch speakers to address us on the second Tuesday of the month. And now, in this new format Journal of the STA, you have more pages of fresh research. Enjoy!


PART I VIDEO - DRIVERs/ThEmEs: ‘RE-SYNCHRONISATION’ between DM & EM Stock Indices + 2nd Phase of the ‘INFLATIONPOP’ [Elliott WavE/CyClEs - REpoRt/8,400 WoRds +38 gRaphs – vidEo 1hR 30 mins.]

PART II VIDEO - DRIVERs/ThEmEs: ‘RE-EMERGENCE OF COMMODITY REFLATION’ to record highs – Base Metals/ Miners, Precious Metals/Miners, Energy Sectors/Crude/Brent Oil [Elliott WavE/CyClEs - REpoRt/9,200 WoRds +68 gRaphs – vidEo 1hR 30 mins.]

PART III VIDEO - DRIVERs/ThEmEs: ‘8-YEAR US$ DOLLAR CYLCLE’ – completion in 2017 – Major Reversal-Signature – G8 Currencies, EM Currencies, Commodity-related Currencies, U.S./European Interest Rates [Elliott WavE/CyClEs – REpoRt/5,000+/- WoRds +52 gRaphs – vidEo 1hR 30 mins.]

Institutional subscription enquiries, please contact Peter Goodburn @ services@wavetrack.com or visit the ‘Help-Desk’ @ www.wavetrack.com

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SERVICES@WAVETRACK.COM

INSTITUTIONAL CLIENTS


Business trip to Dubai? Learn on the go with STA's Home Study Course

This Home Study Course (HSC) is for students who wish to learn at their own pace, rather than in a classroom, or who are unable to attend the weekly lectures in London due to either time or geographical constraints. The STA Home Study Course is the official publication from the STA, containing chapters written by leading authors in their field. The program is divided into 12 units designed to cover all relevant aspects of the STA Diploma Part 1 and 2 syllabus and examinations. Each unit carries a series of multiple choice questions to test the student’s understanding of each topic before he/she sits the Part 1 Exam. Advice on report writing, commentaries and exam preparation are also included in the package.

Cost: ÂŁ495.00 For more information click here

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6

FOREWORD

Our thanks to Deborah Owen Our editor for nearly 25 years, Deborah retired from the Board of the STA at the end of June 2016. Over more than two decades, she had contributed to every aspect of the Society, helping to raise our profile, expand our membership and achieve global standards in financial qualifications. She initially became involved as the Editor of the Society’s Journal, The Market Technician, in 1992, and joined the Board shortly after. She was always an active Board member and, in addition to editing the Journal, she was also part of the Ethics and Grandfathering Committees, helping to draft our policies on both of these important matters. In 2008 Deborah became Chairman of the Society and served in that position until 2013. During this time, the education work of the Society continued to grow, and the Home Study Course, which had been in development for some years, was finally completed and published. When she finished her term as Chairman, Deborah took over as Head of Education and held this role until she left the Board, contributing to still further expansion of this aspect of our work. Over the 2012-15 period Deborah was also a member of the IFTA Board. During this time she was the Conference Chair for the 2014 IFTA conference held in London. This was a very successful event, attracting some 220 delegates to the United Kingdom.

The STA Board thanks Deborah for her work for the Society over more than two decades.

The STA Board thanks Deborah for her work for the Society over more than two decades. We look forward to seeing her at future events and meetings. Keep up to date with the conversation by joining us on:


The Society of Technical Analysts: www.sta-org.uk

NEWS

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Current and former presidents come together The STA recently celebrated its 30th Anniversary of Incorporation dinner at the National Liberal Club

On Wednesday, 30th November, the Society of Technical Analysts celebrated its 30th Anniversary of Incorporation dinner at the National Liberal Club in London, commemorating three decades as the industry’s guiding body. The STA is in fact the oldest professional body of its kind in the world - its predecessor, the Association of Chart and Technical Analysts, or ACTA, was founded in 1968. “Looking around at everyone here this evening, old members and new, brings home to me just how far we have come since 1968 in expanding awareness and understanding of technical analysis and behavioural finance,” said STA Chair Axel Rudolph, FSTA MCSI. “Half a century ago, technical analysis was about as mainstream as reading runes. Today, our discipline is accepted and welcomed as a vital investment

tool in an increasingly complex financial universe.” Rudolph was able to thank two of his predecessors for their many years of hard work. The STA’s very first leader Philip Gray, Chairperson from 1986-89, made an audio presentation to the 120 guests assembled, while the after dinner speech was given by Robin Griffiths, who chaired the society from 1989-92. Griffiths reminded members just how much financial techniques have advanced along with modern technology. His first adventures with technical analysis involved laboriously filling in sheets of graph paper - the methodology pre-dates modern computers and spreadsheets by many years. Also thanked at the dinner were STA Administrative Services, Katie and John Abberton and Shirley Kimber,

as well as Head of Marketing Karen Jones, responsible for the society’s Marketing Committee, who was made a Fellow. Fellows Luise Kliem and Mark Tennyson d’Eyncourt were also thanked, Luise for her sterling work on education and Mark for the impressive achievement of being on the STA board for the past 30 years. Please click here to see photos taken at the event.


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NEWS

Myanmar Market Analysts Society becomes a Chapter of the STA

Myanmar Market Analysts Society (STA Myanmar Chapter) Knowledge Sharing Seminar and CPD Event for CISI/STA members 15th January 2017 Yangon Stock Exchange Building

The STA Executive Committee is pleased to announce that the Myanmar Market Analysts Society (MMAS) has become a chapter of the STA, thanks to the cooperation of Mr Aung Thein Tun (Chartered MCSI, MSTA, CFTe). This marks the third such chapter, alongside those established in Ireland and Scotland. By making the Myanmar society one of its chapters, the STA marks its first step in helping the MMAS become an IFTA developing society. Even though the MMAS is only a few months old, it has already 24 members! This is a tremendous achievement and bodes well for the future.

We wish Mr Aung Thein Tun and the Myanmar STA chapter every success.


The Society of Technical Analysts: www.sta-org.uk

9

The STA Forum: a new way to find out more about technical analysis and the STA exams Rajan Dhall

The STA Forum is a great tool for any member looking to ask a professional any questions about technical analysis or the STA’s exams. It is run by Rajan Dhall MSTA/ CFTe who has been working as a professional technical analyst for more than nine years. If you have upcoming exams or just have general questions about technical analysis, the Forum is a great resource. Even if the questions asked are not about a specific lecture, we ensure that they are answered by the correct person.

How to use the forum:

We hope that you will find this new forum to be a useful tool and study guide, and welcome any feedback you may have on this new venture.

Log on to www.sta-uk.boards.net where Rajan Dhall MSTA, from the STA, will answer any questions you may have regarding technical analysis, the course and future examinations. Once you are registered, you will also be able to post questions to the STA that a course lecturer, author or fellow will answer during the week.

How to register: 1. 2. 3. 4.

Click on www.sta-uk.boards.net Click on the register button in the top right hand corner Follow the registration procedure instructions to create a Forum account You will then receive an email with an activation key. Insert this as requested by ProBoard.

We ask that you adhere to the forum guidelines which are available here.


10

RESEARCH

The Crash of 2017

David McMinn David completed a Bachelor of Science degree from the University of Melbourne in 1971 (geology major) and subsequently became a Minerals Economist in ANZ Banking Group Ltd. Since leaving this position in 1982, he has conducted private research on cycles arising in seismic and financial trends, publishing numerous papers on cycle theory, especially in relation to the 9/56 year cycle.

1.0 Introduction This paper discusses three of the most consistent trends in US stock market patterns - the 60-year October intervals, the lunar phase effect for major DJIA highs and the Decennial Cycle. The first two have been published on previously but received little publicity, even though they are superior to many other cyclic patterns. The Decennial Cycle, by contrast, was first written about in 1939 and has been widely appreciated for its endurance in DJIA history. A good coverage is offered on these three cycles and their relevance in the timing of US stock market panics occurring since 1990. By extrapolation, another autumn panic may be looming on the horizon in 2017. The findings offer support for the Moon Sun Hypothesis, in which financial markets are viewed as being mathematically structured in time, in tune with Moon Sun tidal harmonics. An annual one-day (AOD) rise or an AOD fall is taken as the biggest one-day percentage rise or fall in the DJIA during the year commencing 1st March. They represent the most extreme one day shifts in market sentiment during a given year and are very important in financial patterns (McMinn, 2000, 2004). Moon Sun data was timed at noon (New York) on the relevant trading day with daylight saving being ignored. Degrees on the ecliptic circle have been given as E°, while the angular degrees between the Moon and Sun (lunar phase) were abbreviated to A˚. Thus, 00 A˚ denotes a new Moon, 90 A˚ a first quarter Moon, 180 A˚ a full Moon and 270 A˚ a third quarter Moon. Pre 1896 data was based on the 12 Stock Average index. The closing daily DJIA data has been used throughout the assessment.

2.0 Key Financial Patterns The following three cycles are among the most important in US financial history. 2.1 60 Year October Intervals According to McMinn (2010), “Since 1885, some 10 major DJIA AOD falls (≥ -3.60%) occurred between 10 September and 31 October. Adding or subtracting 60 years to each of these dates gave a corresponding AOD fall (≥ -2.45%) between 19th August and 20th December, with no exceptions.” A full coverage of the 60 year October intervals has been presented in Table 1.


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TABLE 1: 60-YEAR INTERVALS AND US OCTOBER PANICS

Source: McMinn (2015)

Date

DJIA % AOD Fall

Event

Oct 09, 1839

na

US banking panic

Dec 18, 1899

-8.72

Two leading NY financial firms fail

Oct 14, 1857

na

US banking panic

Nov 01, 1917 Nov 08, 1917

-4.16 -4.14

Bolshevik Revolution in Russia

Oct 09, 1927

-3.65

DJIA AOD fall

Oct 19, 1987

-22.61

Black Monday

Sep 24, 1869

na

US Black Friday. Gold panic

Oct 28, 1929

-12.83

US Black Monday

Oct 13, 1989

-6.91

Friday 13 panic

Oct 09, 1871

na

Chicago Fire panic

Sep 24, 1931

-7.07

UK suspended gold standard

Nov 15, 1991

-3.91

DJIA AOD fall

Oct 18, 1937

-7.75

DJIA AOD fall

Oct 27, 1997

-7.65

US Blue Monday

Nov 03, 1948

-3.65

Upset of Truman’s presidential win

Oct 15, 2008

-7.75

After Lehman Bros failure

Dec 18, 1895

-6.61

Monroe Doctrine scare

Sep 26, 1955

-6.54

President’s heart attack

Aug 24, 2015

-3.39

Chinese Black Monday

Sep 21, 1897 Oct 12, 1897

-3.95 -3.90

DJIA AOD falls

Oct 28, 1957

-2.54

USSR launches Sputnik

2017

?

?

Aug 19, 1903 Oct 19, 1903

-4.07 -4.17

DJIA AOD falls

Nov 22, 1963

-2.89

DJIA AOD fall. JFK assassination.

In recent centuries there have only been two exceptions to the 60-year effect. The major banking panics of 1847 (Britain, 23rd October) and 1907 (US, 22nd October) did not produce a crisis in 1967, while the 1873 US Black Friday (19th September) gave a DJIA AOD fall in 21st July 1933 (-7.84%), about a month earlier than could have been expected. 60-year intervals were also evident for the 11 major DJIA AOD rises (≥ +4.00%) happening between 24th September and 5th November since 1885 (McMinn, 2010). By adding or subtracting 60 years, most of these rises had a corresponding DJIA AOD rise (≥ +2.50%) between 20th August and 30th December. There were two exceptions. In 1914, the US stock market was closed for more than four months after the outbreak of WWI. Presumably, a rally would have taken place once the US Government confirmed that it would remain neutral in the conflict. The stock market rose +7.65% on 5th September 1939, after President Roosevelt announced that the USA would not enter into WWII. In 2008, the AOD rise happened on 13th October (+11.08%), minus 60 years gives 1948. However, this year did not record any significant one day rises over +2.20% and was anomalous. From the DJIA AOD rises in 1897 (+2.97%, 31st August) and 1957 (+4.12%, 23rd October), the AOD rise for 2017 could be expected to occur in the latter part of the year. 2.2 Peaks, Seasonality and Lunar Phase Similar market outcomes and similar lunar phases were observed for those DJIA peaks at the beginning of a bear market and occurring around the same time of year (McMinn, 2015). The links between the timing of the tops and lunar phase have been summarised in Table 2. Only the 26th September


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RESEARCH to 10th December timeframe did not exhibit this phenomenon for whatever reason. When a major peak is forming, it is always worthwhile assessing its lunar phase and the time of year because these can be indicative of an emerging bear market. The lunar phase effect held up very well for the peaks at the beginning of a DJIA decline over -18.5% since 1890. However, several anomalies arose for post WWII corrections registering declines of between -12.5% and -18.5%. Thus the technique is less reliable for moderate slumps in the DJIA (McMinn, 2015). TABLE 2: A SUMMARY OF LUNAR PHASE AND SEASONAL DJIA PEAKS, 1890 - 2012

Source: McMinn (2015)

Solar Interval

Number of Highs

Sun E˚

Moon E˚

Phase A˚

Jan 16 - Feb 09

3

295 - 325

195 - 235

235 - 295

Feb 10 - Apr 28

3 3

350 - 040 345 - 000

310 - 325 030 - 065

270 - 335 030 - 080

Apr 29 - Jun 30

4

055 - 090

040 - 105

340 - 015

Jul 01 - Jul 31

2

110 - 120

035 - 040

280 - 290

Aug 01 - Sep 10

3 2

150 - 165 160 - 170

160 - 180 340 - 350

000 - 015 175 - 185

Sep 11 - Sep 25

2

165 - 180

150 - 160

330 - 350

Sep 26 - Dec 10

8

Dec 11 - Jan 15

3

No overall pattern 260 - 295

335 - 030

075 - 095

NB: The 1st March - 15th April and 1st August - 10th September time frames each had two lunar phase clusterings. Source of Raw Data. Bespoke Investment Group (2008) for the beginning of DJIA bear markets post 1900. The author expanded this listing to cover the period 1890 to 1899 and included five additional corrections with declines from -18.5% to -19.9%.

2.3 The Decennial Cycle The widely appreciated Decennial Cycle was first proposed by Smith (1939). Under this scenario, the US stock market tended to bottom in a 2-ended year and then progressively rose to a peak until a year ended in a 6 or 7, followed by a crisis and a major slump. The stock market recovered to reach another peak in a 9- or 0-ended year and then experienced another collapse in the prices. This cycle can be used very effectively for stock market speculating. According to R W Miller, “if one were out of the market at the beginning of the ‘0’ year, entered the S&P 500 on June 30 of the ‘2’ year, then were out from August through October of the ‘7’ year, and re-entered until the end of the ‘9’ year, the value of $1 invested in 1900 would be worth $6,660.86 in 2002 versus just $148.41 were you instead fully invested over the entire period of time. An awareness of the 10-year cycle would have produced 44.9 times the return.” A major stock market peak usually occurs in a 6- or 7-ended year, followed by a bear market (see Table 3). Mild corrections in 1927 and 1997 were the exceptions. The market troughs nearly always occurred in the six months ending 31st March of 8-ended years and were followed by a strongly rising market. Thus 8-ended years were historically very favourable for US equities, although there were two anomalies. The May 1946 and October 2007 peaks were followed by poor returns in 1948 and 2008 respectively, reaching a low in the ensuing 9-ended year. In 1966, the market decline commenced in February and was over by early October, although a mild correction commenced in September 1967.


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13 TABLE 3: BEGINNING OF DJIA BEAR MARKETS IN 6- AND 7- ENDED YEARS 7 Ended Yr

DJIA High

DJIA Low

% Decline

1887

Dec 03, 1886

Apr 02, 1888

-20.1

1897

Sep 10, 1897

Mar 25, 1898

-24.6

1907

Jan 19, 1906

Nov 15, 1907

-48.5

1917

Nov 21, 1916

Dec 19, 1917

-40.1

1927

Oct 03, 1927

Oct 22, 1927

-10.2

1937

Mar 10, 1937

Mar 31, 1938

-49.1

1947

May 29, 1946

June 13, 1949

-24.0

1957

Apr 06, 1956

Oct 22, 1957

-19.4

1967

Feb 09, 1966 Sep 25, 1967

Oct 07, 1966 Mar 21, 1968

-25.2 -12.5

1977

Sep 21, 1976

Feb 28, 1978

-26.9

1987

Aug 25, 1987

Dec 04, 1987

-35.1

1997

Aug 06, 1997

Nov 12, 1997

-13.2

2007

Oct 09, 2007

Mar 09, 2009

-53.8

Then there is the “7 Autumn jinx” to consider. Of the 11 AOD falls (≥ -2.20%) in 7-ended years, eight happened in the two months commencing 15th September (see Table 4), whereas 1.8 could have been expected by chance. (NB: The twin autumn AOD falls in 1887, 1897 and 1917 were each treated as one event.) The three exceptions were in 1907 (a major banking panic happened on 22nd October, 1907), 1947 and 2007. Furthermore, there were five October AOD rises in 7-ended years. Why the US stock market often experienced AOD rises and/or falls in the autumn of 7-ended years remains unknown.

TABLE 4: DJIA AOD RISES AND FALLS IN 7-ENDED YEARS Year

AOD Fall ≥ -2.20%

AOD Rises ≥ +2.20%

1887 (a)

Sep 19 (-2.24%) Oct 12 (-2.29%)

Oct 20 (+2.32%)

1887 (a)

Sep 21 (-3.95%) Oct 12 (-3.90%)

Aug 31 (+2.97%)

1907

Mar 14 (-8.29%)

Mar 15 (+6.69%)

1917 (a)

Nov 01 (-4.16%) Nov 08 (-4.21%)

Jan 31, 1918 (+3.66%)

1927

Oct 08 (-3.65%).

Sep 06 (+2.95%)

1937

Oct 18 (-7.75%)

Oct 20 (+6.07%)

1947

Apr 14 (-2.95%)

(b)

1957

Oct 21 (-2.48%)

Oct 23 (+4.12%)

1967

(b)

(b)

1977

(b)

(b)

1987

Oct 19 (-22.61%)

Oct 19 (+10.17%)

1997

Oct 27 (-7.18%)

Oct 28 (+4.71%)

2007

Jan 21, 2008 (c)

Jan 24, 2008 (+4.75%)

(a) Two days of almost equal percentage declines occurred in 1887, 1897 and 1917 and thus both have been included. (b) No significant AOD rise or fall exceeding 2.20% occurred in this year. (c) Worldwide stock market panics occurred on January 21, 2008. This has been taken as the AOD fall for 2007, even though the US market was closed due to the MLK Jr holiday.

Strangely, there are two types of October panics - those that occur a few days prior to a new Moon (300–340 A˚) and those that form around the full Moon (150–205 A˚) (McMinn, 2004). October panics also occurred almost exclusively in years ended in an odd number - the October 2008 panic being the exception.


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RESEARCH 3.0 US Stock Market Panics The following section discusses the timing of major US crashes since 1990.

3.1 Panic of 2015 A panic was expected to occur in the four months to December 20, 2015 from the 60-year series 1895 – 1955 – 2015 (McMinn, 2010). The DJIA record high on 19th May 2015 had lunar phase at 019 A, which was within range for other DJIA peaks between 29th April and 30th June (see Table 5). Therefore, market outcomes in 2015 were expected to follow similar patterns as experienced after the 1901, 1946 and 2001 highs (McMinn, 2015), which recorded major one-day falls six days apart in early September. However, the panic happened in late August rather than early September and there was no six-day interval between major one day falls. The 2015 anomaly may have arisen due to a weekend distortion.

TABLE 5: LUNAR PHASE AND DJIA PEAKS 29TH APRIL TO 30TH JUNE DJIA Peak

Phase A˚

1st OD Fall

Source: McMinn (2015)

Phase A˚

2nd OD Fall

Phase A˚

Panics of 1901, 1946 & 2001 Jun 17, 1901

015

Sep 07, 1901

298

Sep 13, 1901

010

May 29, 1946

343

Sep 03, 1946

091

Sep 09, 1946

159

May 21, 2001

342

Sep 11, 2001

281

Sep 17, 2001

004

May 19, 2015

019

Aug 24, 2015

113

na

na

Panics of 2008 & 2011 May 02, 2008*

321

Oct 09, 2008

115

Oct 15, 2008

192

Apr 29, 2011**

321

Aug 04, 2011

067

Aug 10, 2011

143

* Market high for the calendar year ** Beginning of a -15.9% correction Abbreviation: OD: One Day

The first one day fall in the 1901 and 2001 panics had lunar phase between 280 and 300 A° (after the 3rd quarter Moon), while for the 1946 and 2015 panics it was between 90 and 115 A° (near the 1st quarter Moon). 3.2 Panics of 2008 and 2011 In 2011, the author presumed another autumn panic was imminent because the high on 30th April 2011 had lunar phase at 321 A°. This was the same as occurred on the 2nd May 2008 high prior to the Lehman Brothers failure. However, the 2011 panic happened in early August and was thus out by several weeks. A 60-year interval effect did not apply as 1891 and 1951 experienced no crises let alone an October panic. The 60-year effect showed up in the timing of the 2008 AOD fall (-7.75, 15th October). Minus 60 years from this date gave the AOD fall in 1948 (-3.65%, 3rd November). A six-day interval between two major one day falls happened during the 2008 and 2011 panics. Notably, the AOD rise in 2008 occurred four days after the first one day fall, whereas the AOD fall showed the same timing in 2011 (see Table 6).


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15 TABLE 6: THE 2008 AND 2011 DJIA PANICS

Source: McMinn (2015)

Panic of 2008 OD Fall

AOD Rise

Oct 09, 2008 -7.33%

+4 days

AOD Fall

Oct 13, 2008 +11.54%

+2 days

Oct 15, 2008 -7.87%

Panic of 2011 (a) OD Fall

AOD Fall

Aug 04, 2011 -4.31%

+4 days

AOD Fall

Aug 08, 2011 -5.55%

+2 days

Aug 10, 2011 -4.62%

(a) Occurred during a DJIA correction of -15.9%. Abbreviations: OD: One Day. AOD: Annual One Day.

3.3 Panic of January 2008 Eight DJIA peaks were recorded from 26th September to 10th December, but there was no lunar phase clustering. It was the only time frame during the solar year that did not show a lunar phase effect for DJIA highs. The peaks of 30th September 1912 and 9th October 2007 formed at about the same time of year, but they did not share a similar lunar phase (see Table 7). Even so, the AOD falls took place on 20th January and 21st January respectively. The latter date saw major stock market panics around the world, due to troubles experienced by Société Générale. The US market was closed on the day because of the Martin Luther King Jnr holiday. Even so, it was taken as the AOD fall for 2007.

TABLE 7: DJIA PEAKS BETWEEN 26TH SEPTEMBER AND 10TH OCTOBER

Source: McMinn (2015)

Panics of 2008 DJIA High

Interval

AOD Fall

Sep 30, 1912 230 A°

112 Days

Jan 20, 1913 153 A°

Oct 09, 2007 346 A°

104 Days

Jan 21, 2008 169 A°

3.4 Panic of 2001 The 21st May 2001 high happened in tune with highs in 1901 and 1946, because lunar phase ranged between 340 and 020 A° (see Table 3). The ensuing outcomes were very similar with other panics in early September (see Table 5). The parallels were particularly notable for the 1901 and 2001 episodes, even though the trigger was completely different. In 1901, President McKinley was shot on Friday 6th September, causing a stock market panic the following Saturday morning. He survived the shooting but lingered for several days. His impending death caused another panic on Friday 13th September and he died on the Sunday. In 2001, the New York stock market failed to open on the day of the 11th September terrorist attack and remained closed for four trading days. It reopened on 17th September with the DJIA plunging -7.13%. 3.5 Panic of 2000 Between 11th December and 15th January, there were three highs in 1961, 1973 and 2000, with lunar phase between 75 A° and 95 A° (see Table 8). The correction commencing on 5th January 1960 also had its lunar phase within this range. There were no parallels in the timing of the ensuing panic.


16

RESEARCH TABLE 8: DJIA PEAKS 11TH DECEMBER - 15TH JANUARY

Source: McMinn (2015)

DJIA Record High

Lunar Phase A*

DJIA AOD Fall

US Crisis

Dec 13, 1961

076

May 28, 1962

US recession

Jan 11, 1973

084

Nov 26, 1973

OPEC oil crisis

Jan 14, 2000

092

Apr 14, 2000

After tech mania

No panic

US recession

16.7% 1960 Correction Jan 05, 1960

089

3.6 Panic of 1998 The 16th July 1990 and 17th July 1998 highs had lunar phases at 286 A° and 284 A° respectively. The AOD falls occurred on 6th August (-3.32%) and 31st August (-4.98%) respectively and the bear market slumps were both around -20%. Lunar phase did not align closely for the AOD falls or the post-crash lows. 3.7 Panic of 1997 This could have been predicted by adding 60 years to the October 1937 panic, which would have given 1997. Additionally, there were five DJIA tops between 1st August and 10th September, all of which had lunar phase around the new Moon or the full Moon. The five biggest one day percentage falls in DJIA history (≥ -8.70%) occurred after the new Moon peaks in 1899, 1929 and 1987. The remarkable parallels between the 1929, 1987 and 1997 October panics have been commented upon by Carolan (1998) and McMinn (2004). For these three panics, the prior record highs happened between 6th August and 3rd September and around a new Moon. The 1895 and 1899 highs occurred on 4th September and 5th September respectively with the former happening around the full Moon and the latter around a new Moon. The ensuing AOD falls took place at about the same time of year on 20th December and 18th December respectively, with the AOD rises occurring a few days later. The 1897 peak was anomalous as it did not align with trends in Table 9.

TABLE 9: LUNAR PHASE AND DJIA PEAKS 1ST AUGUST TO 10TH SEPTEMBER

Source: McMinn (2015)

1929 and 1987 Bear Markets Record High

AOD Fall

AOD Rise

Post-Crash Lows (a)

Sep 03, 1929 003 A°

Oct 28, 1929 313 A° -12.83%

Oct 30, 1929 338 A° +12.34%

Nov 13, 1929 137 A°

Aug 25, 1987 013 A°

Oct 19, 1987 324 A° -22.61%

Oct 21, 1987 347 A° +10.17%

Dec 04, 1987 173 A°

Oct 28, 1997 330 A° +4.71%

Nov 12, 1997 155 A°

-13.2% 1997 Correction Aug 06, 1997 037 A°

Oct 27, 1997 320 A° -7.18%

1895 and 1899 Bear Markets DJIA Highs

AOD Fall

AOD Rise

Sep 04, 1895 185 A°

Dec 20, 1895 051 A° -6.61%

Dec 23, 1895 084 A° +4.38%

Sep 05, 1899 006 A°

Dec 18, 1899 199 A° -8.72%

Dec 19, 1899 210 A° +4.72%

(a) The DJIA lows for 1987 and 1997 occurred on the day of the panic. The post-crash lows were taken as the lows after the panic.


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4.0 Discussion and Conclusions The three trends outlined in this paper have one thing in common - they have proven reasonably persistent throughout DJIA history. From the 60-year intervals and the ‘7 Autumn jinx’, both the DJIA AOD rise and AOD fall should occur in the four months to 10th December 2017. This was derived from the series 1897 + 60 1957 +60 2017 (see Table 1). From the Decennial Cycle, a bear market could also be expected to accompany this panic. It will be very interesting to see if this prediction is realised. The 60year intervals were a very accurate forecasting technique, remarkable considering the simplicity of the approach. According to the Moon Sun Hypothesis, financial markets are mathematically structured in time and fluctuate in tune with changing Moon Sun cycles (McMinn, 2004). The links between DJIA peaks, the Sun’s ecliptic position and lunar phase offered support for this proposition. How lunisolar effects influenced market trading remains completely unknown. According to the prevailing paradigms, such weak lunisolar forces should have little or no impact, but this contradicts the observed facts. The techniques outlined in this paper are based upon extrapolations from history. Such approaches leave a lot to be desired in their forecasting accuracy. Only by deciphering the mathematics associated with the Moon Sun tidal harmonics can more precise predictions be realised. The Sun’s ecliptic position and lunar phase were very important in the timing of major DJIA peaks at the beginning of a bear market. By implication, the changing angles between the Moon, Sun and spring equinox point (000 E°) are crucial in solving the mystery. Nothing more can be stated. Further breakthroughs in cycle theory offer the potential to achieve the Holy Grail of technical analysis - accurate financial forecasting. Alas, such findings probably will not be published given the potential profits to be made. It would give traders ‘in the know’ a huge speculative advantage.

References • • • • • • • • • •

Bespoke Investment Group. 2008, Historical Bull and Bear Markets for the Dow: 1900-Present. 14 October. www.bespokeinvest.com/thinkbig/2008/10/14/historical-bull-and-bear-markets-for-the-dow-1900-present.html Carolan, C. 1998. Autumn panics: a calendar phenomenon The Market Technician. Journal of the Society of Technical Analysts. Issue 32. p 12-18. July. McMinn, D. 2000. Lunar Phase & US Crises. The Australian Technical Analysts Association Journal. p 20-31. January/February. McMinn, D. 2004. Market Timing By The Moon & The Sun. Twin Palms Publishing. McMinn, D. 2010. 60 year intervals and October panics. Market Technician, Journal of the Society of Technical Analysts. Issue 67. p 13-15. June. McMinn, D. 2015. DJIA Peaks, Seasonality and Lunar Phase. New Concepts In Global Tectonics Journal. Vol 1, No 2. p 15-22. September. Miller, R W. The Decennial Cycle: Dow at 40,000 by 2009. www.triplescreenmethod.com/MonthlyArticles/MonthlyArticle1204.asp Smith, E L., 1939. Tides and the Affairs of Men. Macmillan. 178p.


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RESEARCH

Space and Time: The Final Frontier Introduction With this paper, Shaun returns to his first book published in 2007 Trading Time: New Methods in Technical Analysis and explains how those studies and codings have developed into what today is called the Fourth Dimension. It includes Multiple Time Frame analysis from a single picture and highlights his work on divergence, time based momentum, step theory and fractal qualification, as shown on CQG, eSignal and the Technician platforms. Shaun Downey Shaun Downey MSTA is a grandfathered member of the STA and winner of the Technical Analysis Book of the Year 2014 'Mapping Your Voyage of Discovery'. Shaun is a veteran of the markets, trading, commentating and mentoring on all asset classes since 1979 to the professional market via his 4th Dimension by Trading Time Homepage website. www.trading-time.com

The Fourth Dimension (Part 1 of 2) Over the decades, I have spoken with thousands of traders across the globe and in all asset classes, and a few consistent themes emerge. 1. Timing of any trade is a key factor as, with the wrong timing, even the best ideas in the world will lose money. 2. Trade location is also vital as, unless trades are placed at levels of true points of support or resistance, the trader can get picked off by incorrect stop placement and have no framework for applying the correct volume. 3. It is essential to understand the correct timeframe to use in relationship to trading objectives. 4. Traders must overcome the conflicts in direction that analysis of different time frame charts often create. 5. Trades can be missed due to not seeing the opportunity. 6. Screen Real Estate: traders don’t have enough space to see all the charts that they wish. This last point struck a chord, especially as the vast majority of traders I have visited all used multiple time frame charts. The reality is that there is a physical limit to how many instruments and timeframes can be monitored at once. For sure, the use of alerts can help in that area, but in my experience, setting them up is an onerous task that’s easily neglected. My first book, Trading Time: New Methods in Technical Analysis, published back in 2007, concentrated on what I regarded as a massively neglected sphere of analysis and study creation. Surely if trading is all about time and timing then having an understanding of price in relationship to time is essential? Check out any software programme and there can be hundreds of different ways of measuring momentum, but a mere fraction of that number on price and time. This led to the release of 20 new indicators and concepts that have remained unchanged since their emergence into the public domain. What has changed since that point, though, is how I have re-visualised those concepts so that now traders can see up to 10 timeframes of analysis in just one picture. This means for strategic traders the use of a daily chart, and for day traders whatever intraday timeframe, is preferred. The problem of Screen Real Estate is solved and opportunities are no longer missed. For the purposes of this article I am going to concentrate on the strategic trader but


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19

Surely if trading is all about time and timing then having an understanding of price in relationship to time is essential?

the principles and concepts are identical to intraday charts and apply to any market and any asset class. Users of what is called the 4th Dimension exist across the globe. The definition is as follows: Using the Fourth Dimension to create a third spatial visualisation from a two dimensional image. The first building block is the creation of true support and resistance. Think of this as the foundations to a house. How many times does a piece of analysis reference some previous high or low as a support or resistance, without any quantification or calculation about how relevant that high or low actually is. The reality is that some previous highs or lows have far more relevance on the chart you are viewing, but a higher timeframe may also have some relevant highs or lows that are not visualised unless you look at that chart. Those higher timeframe qualified highs or lows also have more power. The studies Peak Expansion and Peak Energy measure the relationship to range and volume on any swing or fractal point and compare that to an average of those values over the previous 1000 bars. Only if they breach that average by a certain percentage will that swing pattern of fractal be deemed to be important. It should also be referencing higher timeframes than the one being viewed so for a daily chart it is weekly and monthly levels. Figure 1 shows a daily continuation of the Bund. The black lines represent weekly swing levels and the blue lines monthly ones. There are a variety of patterns and relationships that can be utilised but two of the most potent are the combination of weekly and monthly levels shifting to indicate major tops or bottoms, and the length of time that has elapsed since the last time that a support or resistance line changed in value. Three features of the data have been highlighted. The first is when the weekly resistance moves to the top of the trend. The second is when the monthly line does likewise. That line had not changed in value since over a year previously. The longer a line has not changed in value and then does, the greater the importance of that shift. Subsequent to those weekly and monthly levels indicating a major top to be in place, price returns to those points before reversing back down sharply. The final circle is on the current bar and shows that weekly support has shifted higher from 151.41 to the recent low. This level represents major but final support.

FIGURE 1: 10-YEAR EURO BUND, EQUALISED ACTIVE DAILY CONTINUATION


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RESEARCH Figure 2 shows how the Buxl (like the Bund but the name of the futures contract for the 30-year Euro) moved its monthly resistance in October which coincided with the Bund high. The same happened in US T-Bonds and the Ultra Bond, whilst US 10-year T-Notes also failed at a monthly level on the same day. FIGURE 2: 30-YEAR EURO BUND FUTURES, EQUALISED ACTIVE DAILY CONTINUATION

Chapter 3 of Trading Time concentrated on the Stepping process of trends and how they had to consistently move up through timeframes in order to keep the trend intact. This was done by referencing the price when a study such as the Stochastic crossed up or down. This was visualised in a somewhat primitive manner by only showing one timeframe at a time. The premise was that if the Stochastic crossed up from a higher price value than the previous time it crossed up then the uptrend was intact. The trending timeframe is indicated once that stepping process reaches 4. No trend can last within its own timeframe for ever, so the extensions of trends need to move up timeframes with positive crossovers to indicate that the trend was extending and maturing. The major development of this theory came in two parts and is highlighted in Figure 3. Again it is the daily Bund chart which has a multi-coloured histogram beneath it. This represents the stepping process of the 60, 120, 240 and 420 minute chart. Each time a timeframe steps high the histogram goes up by one and visualises the performance of each timeframe in one picture. On the chart itself, a diamond is highlighted. There are two others as well and they compute when a timeframe has gone above the critical stepping limit of 6 and then reset to zero. This means that the trend in that timeframe has exhausted itself, which is the 120 minute. The exhaustion of a lower timeframe stepping process that is at support or resistance indicates that the trend is either over or must have a period of reflection. The higher the timeframe resistance the higher the likelihood that the trend has ended as occurred here, with the stepping process ending at the monthly resistance point.


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21 FIGURE 3: 10-YEAR EURO BUND FUTURES, EQUALISED ACTIVE DAILY CONTINUATION

Whilst the cessation of the stepping process is useful when at support or resistance, the reality is that this confluence of events is not always going to occur. Therefore a further layering of code and patterns is required in order to increase both the frequency and the opportunities that can be exploited. The first is in the area of divergence. Divergence is easily visualised and in fact nearly all trends diverge, but it is the ability to quantify which divergences are relevant that is critical. Without this, premature exits to good trend-following trades will occur, or worse, counter trend signals will appear that give false indications that the trend is changing. Those familiar with my work will know I have spent decades on this topic creating a variety of patterns, with the concepts and theories associated with it (dealt with in detail in chapter 4 of the book). Whilst those concepts are powerful in their own right, it is the connection between those patterns and support and resistance itself that hold the key. The Bund chart shows the first pattern I ever created called UFO that is highlighted by the Blue arrow. This represents two separate patterns that quantify divergence in its traditional sense, but more importantly also possess the properties to highlight what I refer to as divergence as a continuation pattern. It is RSI based and simply states that in order to be true price must be making a 9 bar high and the RSI a three bar low. There is no value placed on the RSI, which is why it can also produce a continuation pattern. As a traditional divergence signal, if they are appearing randomly it is simply a warning sign, but if it appears at resistance then it indicates a potential reversal in trend. The chart shows two such signals. The first occurs at weekly resistance and simply creates a period of sideways reflection. The second appears at what is the more powerful zone of weekly and monthly resistance and confirms the top.


22

RESEARCH FIGURE 4: 10-YEAR EURO BUND, EQUALISED ACTIVE DAILY CONTINUATION

Since the publication of Trading Time, the visualisation has advanced but at that point I had not worked out how to discern whether a pattern at a major line would be the instant catalyst for a change in trend or breakout, or what the target would be. The signals had undoubted power but I was often asked where I expected price to go to. The opposite supports or resistances were obvious magnets but I had no method for knowing whether there was the space and time for this to occur, or that the timing was indeed optimal for it to happen. This led to the creation of the final study which is called Splits and is shown in Figure 5. Splits or Time Area expands on the multiple timeframe concept, but increases the number to include Daily (Green), Weekly (Black), Monthly (Blue), Quarterly (Pink), Semi-Annual (Brown) and Yearly (Red). The first two simply track momentum, but it is the relationship between the monthlies and higher in terms of their stepping process and its relationship to current price that holds the key. I have condensed the chart to show more of that stepping process. The rally through the first part of 2016 sees a period whereby both the monthly (Blue) and Quarterly (Pink) step higher, which indicates that the uptrend remains intact. However, the critical timing point arrives as highlighted in October when the quarterly jumps to be above the current price. This jump allows for space to develop underneath as suddenly the nearest support is the semi-annual value and now the target of the new trend at 160.32. It is this shift or flip in dynamics of time and price that creates the switching from support and uptrends to resistance, reversals and downtrends. The process of the patterns mentioned earlier in combination with the weekly and monthly support and resistance levels are what create the set-up, but it is the stepping process shifts that create the ultimate timing point and subsequent target.


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23 FIGURE 5: SPLITS

...to be continued in the next Journal. Shaun will be discussing the above indicators and his latest book in the 14th March 2017 STA Monthly Meeting at the British Bankers Association. For more information please click here

Special introductory offer To celebrate the launch of our new look journal we have put together a great offer for you. Book onto any of our courses, including the Home Study Course, before 30th July 2017 and save ÂŁ50.

SIMPLY CLICK HERE and enter code JNLPROMO in the coupon box to redeem your ÂŁ50 discount.


24

RESEARCH

Unravelling the DNA of the Market: Applying the Double Helix Framework to Wyckoff and Elliott Preface • DNA was first isolated by the Swiss physician Friedrich Miescher in 1869. • In 1953, James Watson and Francis Crick suggested what is now accepted as the first correct double helix model of DNA structure. • A metaphor is a figure of speech that describes a subject by asserting that it is, on some point of comparison, the same as another otherwise unrelated object. (Wikipedia) Henry O. “Hank” Pruden Henry O. (Hank) Pruden, Ph.D., is a Professor of Business and Director of the Technical Market Analysis Program at Golden Gate University, San Francisco, CA, USA. He is a past Chairman of the Technical Securities Analysts Association of San Francisco (TSAASF). A few among his many plaudits are the Judith E. Browning Award for Outstanding Teaching (2012), the Lifetime Achievement Award from the International Federation of Technical Analysts for his many services to the discipline of Technical Market Analysis (2013), and a Certificate of Recognition from Golden Gate University for Outstanding Scholarship of Application, Integration and Discovery (2007, 2010).

So DNA, which is in itself a kind of metaphor; is one more, and perhaps the ultimate, way to consider how markets possess a kind of life of their own. This is useful in encouraging the analyst to identify ever more basic structural components, how they interact, and ultimately to predict outcomes... Robert Miltner, Scientist, Chemist and Entrepreneur, Larkspur, California Introduction The following series of visuals were inspired by the theme of the IFTA 2014 Conference in London: “Unravelling the DNA of the Market.” I found the topic particularly appealing because for years in both active trading for my own account or in teaching classes at Golden Gate University, I had found synergy in combining the Wyckoff Method with the Elliott Wave Principle. The two approaches working together created something that was greater than the sum of their two respective parts. I believe that Wyckoff and Elliott represent ever more basic structural components of the market. I further believe that the double-helix framework of DNA is a very useful metaphor for combining Wyckoff and Elliott for better, more profitable market timing decisions.


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Wyckoff is a straight-forward price and volume method for analysing the present technical position and probable future trend of price behaviour in stocks, bonds and commodities.

FIGURE 1: THE DOUBLE HELIX FRAMEWORK

Figure 1 is an abstract of the double helix structure of DNA. This shall be used metaphorically as the market structure that combines or binds together the analytical components of the Wyckoff Method of Market Analysis with the Elliott Wave Principle of Market Analysis. The Wyckoff Method FIGURE 2: THE WYCKOFF METHOD STRAND

Figure 2, The Wyckoff Method Strand, is defined in Table 1.


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RESEARCH TABLE 1: DISTINCTIVE CHARACTERISTICS OF THE WYCKOFF METHOD • Wyckoff is a straight-forward price and volume method for analysing the present technical position and probable future trend of price behaviour in stocks, bonds and commodities. The method is a collection of the best practices and concrete experiences of the old time pool operators observed and recorded by Mr Richard D. Wyckoff. He gave primary emphasis to price and volume behaviour reflected on the ticker tape and shown on charts. Mass behaviour (the public) was generally on the other side of the trades from the “smart money” operators. Wyckoff condensed the “smart money” into a construct he named the Composite Man. • The Wyckoff Method is a judgmental approach to interpreting the behaviour of the market. Mr. Wyckoff and his associates condensed the patterns of market behaviour they observed into three laws, nine tests and several schematics, plus additional principles and procedures. • It was a “bottom up” approach based upon the best practices of actual traders and not a top down set of hypotheses deduced from a grand theory.

FIGURE 3: SCHEMATIC OF THE WYCKOFF CYCLE

Wyckoff Theory

Distribution

Re-accumulation

Markdown

Re-distribution

Markup

Accumulation

Figure 3 is a schematic of the Wyckoff Cycle. This is a drawing of the price action depicting the key Wyckoff stages of Accumulation, Markup, Distribution, and Markdown.


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27 FIGURE 4A: ILLUSTRATION OF WYCKOFF APPLIED

FIGURE 4B: ILLUSTRATION OF WYCKOFF APPLIED

Source: September 1998, Technical Analysis of Stocks & Commodities, pg.77

Source: September 1998, Technical Analysis of Stocks & Commodities, pg.77

Figure 4A, is an idealised illustration of the Wyckoff Method applied to the stock market behaviour using the vertical or bar chart.

Figure 4B, continues the idealised illustration of Wyckoff applied using a figure or point and figure chart.

FIGURE 5: THE ELLIOTT WAVE PRINCIPLE STRAND

Figure 5: The Elliott Wave Principle Strand, is defined Wikipedia, the free encyclopaedia, as follows: The Elliott wave principle is a form of technical analysis that some traders use to analyse financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors. Ralph Nelson Elliott (1871–1948), a professional accountant, discovered the underlying social principles and developed the analytical tools in the 1930s. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves. Elliott published his theory of market behaviour in the book 'The Wave Principle' in 1938, summarised it in a series of articles in Financial World magazine in 1939, and covered it most comprehensively in his final major work, ‘Nature’s Laws: The Secret of the Universe’, in 1946. Elliott stated that “because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable.”


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RESEARCH FIGURE 6: SCHEMATICS OF THE ELLIOTT WAVE PRINCIPLE

Figure 6 is an assembly of Elliott Wave Principle cycles in three different degrees of refinement, thus wave 1 in the first level, top schematic that is the first of five waves found in a bull market. Wave 1 in turn is composed by another five smaller wave bull movement, illustrated immediately below it. The third level schematic is in turn sub divisible into 21 sub waves that reflect the five wave bull movement of the immediate higher degree. Wyckoff and Elliott: Partners in command •

Partners in Command (New York, The Penguin Press, 2007) was written by Mark Perry to review the remarkable relationship forged between U.S. Army Generals George Marshall and Dwight Eisenhower. That partnership in command helped lead the Allied Forces to victory during WW II. In this acclaimed book: “Perry shows that Marshall and Eisenhower were remarkably close colleagues who brilliantly combined strengths and offset each other’s weaknesses in their strategic planning, on the battlefields, and in their mutual struggle to overcome bungling, political sniping and careerism of both British and American Commanders that infected nearly every battle and campaign”[ I]. Marshall and Eisenhower were titans in war and peace.

In a loosely parallel fashion, the teachings of Richard D. Wyckoff and Ralph N. Elliott can be brought closer together to benefit the analyst-trader. Wyckoff and Elliott can combine strengths and offset each other’s weaknesses. As David Penn had written in the Technical Analysis of Stock and Commodities magazine [2], both Wyckoff and Elliott were titans of Technical Market Analysis. Then in a more recent TSAA Review article [3], I wrote about the ways Wyckoff and Elliott were sufficiently independent, yet complementary. They are powers. When used together; Wyckoff plus Elliott generate synergy or the famous 2+2=5 formula.


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Applying Wyckoff Plus Elliott A trade in the DJIA Illustrates the Power of Wyckoff Plus Elliott •

Please see Figure 7 for a Wyckoff Analysis and Figure 8 for an Elliott Wave Analysis of the 12th June 2008 DJIA. The analyses of these charts presume that the reader has a reasonable familiarity with the rudiments of both the Wyckoff Method and the Elliott Wave Principle to follow the interpretations presented below.

In Figure 7, the one-minute bar chart of the DJIA shows a classic Wyckoff sign of weakness breakdown and a pullback rally to a last-point of supply set-up around 12:45-1:00pm at DJIA 12,225 on 12th June 2008. A put or a short ETF position could have been entered. The DJIA then systematically and steadily worked its way downward until about 3:10pm. That steady decline ended with a vertical plunge to the level of prior support at 12,074. That plunge appeared climactic and also created an oversold condition by overshooting the supporting parallel line of the down channel. The DJIA entered a Wyckoff oversold condition that made it vulnerable to a rally. A bear-trader would have been alerted to exit for the day. But, the real clincher for exiting was given by Elliott on the next and final rally of the day. FIGURE 7: WYCKOFF ANALYSIS

Legend for interpreting the Wyckoff principle appearing in Figure 7 • • •

SOW: Sign of Weakness, which will usually occur on increased spread and volume, as compared to the preceding rally. Supply is showing dominance. Fall through the Ice or breaking of support. LPSY: Last Point of Supply: After a SOW, a feeble rally attempt on narrow spread shows us the difficulty the market is having in making a further rise. Volume may be light or heavy, showing weak demand or substantial supply. At LPSYs the last waves of distribution are being unloaded before markdown is to begin. LPSYs are good places to initiate a short position or to add to already profitable ones. Climax = Selling Climax: The approaching exhaustion of supply or selling is evidenced in preliminary support (PS) and the selling climax (SC) where a widening spread often climaxes and where heavy volume or panicky selling by the public is being absorbed by larger professional interests. Once these intense selling pressures have been expressed, an automatic rally (AR) follows the selling climax. A successful secondary test on the downside shows less selling than on the SC and with a narrowing of spread and decreased volume. A successful secondary test (ST) should stop around the same price level as the selling climax. The lows of the SC and the ST and the high of the AR set the boundaries of the TR.


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RESEARCH FIGURE 8: ELLIOTT ANALYSIS

In Figure 8, the Elliott Wave Principle revealed a clear five-stage C-wave down to the low at 12,074. Furthermore, the fifth wave itself revealed a five-wave pattern with a classic tiny triangle in the fourth wave. Elliott was flashing warning signs to get out. Finally, the Elliott pattern was reinforcing the forgoing Wyckoff interpretation. Together Wyckoff and Elliott were saying “get out” to the trader near the bottom of the day. The final rally of the day was a five-wave upward impulse wave that broke the downtrend line in Figure 7 while recovering 100% of the preceding down wave. This powerful bullish indication warned the trader that more strength would follow; this bullish impulse wave was warning the trader not to carry her short sale position overnight. In conclusion, Wyckoff and Elliott conducted a command performance for the astute trader on 12th June 2008. WE are partners in command! Conclusion This article presents the technical analyst and technical trader with the metaphor of the double-helix framework for grasping a more profound look into a basic DNA structure of the stock market. The double helix structure can be used to combine the independent powers of the Wyckoff Method and Elliott Wave Principle. Together Wyckoff and Elliott forge a partnership that combine their strengths and offset each other’s weaknesses. That powerful synergy of Wyckoff and Elliott was illustrated with the case-study of intraday market action. That action was first explained with the Wyckoff Method, and then the Elliott Wave Principle. Together, Wyckoff and Elliott made a compelling case.


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RESEARCH

31

The Manifestation of Universal Law: Complexity, Chaos and the Elliott Wave Principle: Part 1 of 2

Peter Goodburn Peter Goodburn is a member of the Society of Chaos Theory in Psychology and Life Sciences, is leading Elliott Wave analyst at WaveTrack International and author of the Institutional Elliott Wave Navigator reports. For more information/subscription services, please contact Peter using services@wavetrack.com or see www.wavetrack.com ‘help-desk’.

Introduction When R.N. Elliott published his monograph ‘Nature’s Law - The Secret of the Universe published in June, 1946, he began with this opening remark: ‘No truth meets more general acceptance than the universe is ruled by law. Without law it is self-evident there would be chaos, and where chaos is, nothing is. Navigation, chemistry, aeronautics, architecture, radio transmission, surgery, music - the gamut, indeed of art and science - all work, in dealing with things animate and things inanimate, under law because nature herself works in this way. Since the very character of law is order, or constancy, it follows that all that happens will repeat and can be predicted if we know the law. The key phrase ‘no truth meets more general acceptance’ seems wildly misplaced in today’s world of the early 21st century - in fact, things are quite the opposite. The majority mind-set reveals a completely different ‘belief’ system that has gradually moved away from the concept of the ancient ideological awareness of natural laws governing our existence. Instead, the advent of global materialism has been exacerbated by a new era of data-access made available through the internet and created a new generation of thinkers who rely on peripheral information flows. That has resulted in something that goes mostly unquestioned, the unconscious adoption of the concept of linearity, something alien to the process of Natural or more profoundly, Universal Law which otherwise reveals the opposite as truth. In this article, we explore how a break-away from linear thinking can raise the awareness of how financial market trends are developing far into the future. The Elliott Wave Principle (EWP) is a perfect medium for examining this process and the modern sciences of Complexity and Chaos Theory provide a starting point for this understanding.

All reality is one, all being is harmoniously united. No thing is by itself, nor can the true nature of anything be known except as it be related to the Cosmic.’ (Edited and additions from original article published 18th October 2000; Copyright 2017 © Peter Goodburn, CFTe, MSTA 9th January 2017.)


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RESEARCH The Beginning Ever since man became a creature separate in thought from the universe around him, able to question his environment and to seek reasons for why he exists, or the way things work, he has striven to find some order in a seemingly chaotic world. That order was represented symbolically to what is thought to be the essential structure of the universe such as the four spatial directions, the four elements, the four seasons, sometimes the twelve signs of the zodiac, even man himself. But what is most consistently striking about these symbols is that they express the notion of cosmos - that is of reality conceived as an organised, unified whole. The Law of Vibration Existence in the material form conforms to certain universal laws. These cannot be broken, but if they were, existence would then cease. The first that is applicable is the Law of Vibration, which states that creation is continually in motion. It is striving to return to its original state of equilibrium or motionless, a state of perfect order, but in doing so, it evolves within incessant unrest. We can observe this when studying the tiniest molecular structures to those in the opposite scale such as large galaxy formations. These laws also manifest in financial markets depicted by the constant movement of price. All energy, all the forces of the universe are movements which emanate from one point - their own centre - and radiate in circular waves in all directions, manifesting themselves as vibrations or oscillations. The spiral represents the development of creation and the separation from its origin results in the necessity for dynamic growth to occur. These manifestations of force cease only when the forces that have got out of balance regain their primordial state of equilibrium by returning to the origin of creation which philosophy describes as ‘Unity’ and scientists as ‘Big Bang’. The Law of Polarity The second Universal Law is that of Polarity - this implies the universe consists of positive and negative forces that emanate from a singular origin. We often associate the terms positive and negative with the idea of good and bad, opposites in every way, but in reality they are identical in many ways and their purpose is to balance creation in a harmonic way. We can gain some understanding of the general principles of polarity by studying the physics of electromagnetism. The attraction or repulsion between nuclear particles, atomic particles, molecules, cells and ultimately all living things operate within this law. In electromagnetism we find force fields, vibrations, waves, resistance, attraction and repulsion. These factors are constantly searching for balance or a state of equilibrium, and this is a fundamental characteristic of any electromagnetic system.

All things, including human beings are caught up in nature’s constant search for equilibrium, but the nature of this law becomes a paradox that man finds very difficult to exist with. Man is attracted to the idea of ‘constancy’ in existence, he yearns for a state of balance, yet the universe is continuously changing in form, and change is the polar opposite to equilibrium. But in his endeavours man follows a basic principle of the properties of electromagnetism - the ‘path of least resistance’. Nature’s pulse or heartbeat is considered to vibrate at harmonic mathematical ratio relationships including that of the ‘golden ratio’ 0.618/1.618, which is its way of balancing the effects of this constant change. Thus we have two opposing forces of nature: one that is searching for balance, harmonium and stability, the other constantly altering that balance, causing instability and unrest. We can observe polarity and the effects it creates in the markets, where there is constant fluctuations in price, sentiment, and of course the extremes of greed and fear that create price peaks and troughs. The Law of Compensation The third essential law that manifests in the universe is that of Compensation. Sir Isaac Newton’s third law of motion describes this phenomenon as ‘for every action, there is an equal and opposite reaction’. This is an extremely famous and well-known principle of physics, and nothing can escape from its effects. The consequences are like ripples: they endure sometimes only briefly, sometimes for much longer. This ‘action/ reaction’ process is again nature’s way of balancing creation as it seeks equilibrium and harmony. The ‘action/reaction’ process of Compensation is probably the most important universal law that is recognised when applying the concepts of Elliott Wave Theory to market behaviour. It is the starting point of understanding why price action unfolds into a dynamic non-linear sequence of advances and declines. Pattern and Form - The Language of Mathematics Over two thousand years ago, man pursued his understanding of the universe by studying the night sky and by relating its rhythms geometrically. In these times, there was no distinction between philosophy and science - they were considered part of each other. But this changed radically in the sixteenth century when science became based on a new method of enquiry, which involved a mathematical description of nature and an analytic method of reasoning. This scientific revolution began with Nicolas Copernicus and later Johannes Kepler, but it was Galileo who first combined scientific experimentation with the use of mathematical language to formulate the laws of nature he discovered. When Kepler and Galileo instituted their ‘New Philosophy’,


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their aim was not the conquest of nature, but to be able to understand it. Galileo said ‘Philosophy is written in that great book which ever lies before our eyes: but we cannot understand it if we do not first learn the language and characters in which it is written. This language is mathematics and its symbols are triangles, circles and other geometrical figures’. Form was held to be so fundamental that it was proper to speak of ‘formal causes’, meaning that pattern itself has causal properties to the extent that matter is constantly striving to follow, or being driven to follow, some intangible, immaterial form or proportion. Pythagoras developed a true philosophy of number. He considered numbers as the constituent elements of the universe. Numbers were thought of as integers whose main role was to represent the measure of geometric magnitudes. Thus the universe was viewed in terms of mathematical relationships. If pattern was ‘causal’, then how does it translate into the formations found in the financial markets - can it explain the mathematical relationships that exist in market data, and

does this philosophy contradict the dynamic, non-linear predisposition for disorder recognised in ‘complexity’ and ‘chaos’ theories? Cause-Effect, Quantum Mechanics, Complexity and Chaos The Elliott Wave Principle (EWP) is built around the understanding that financial markets unfold into a seamless-sequential, non-linear pattern development that exhibits fractal attributes whilst conforming to geometric measurement governed by the Fibonacci-Summation-Series. If this is true, then the past, present and future are intimately linked together in a cause-effect, recurring cycle. As many scholars have quoted since time immemorial, know thy past and the future will be revealed. The past (cause) creates the impulse for the future (effect) as the effect also becomes the cause for the next effect and so on. This can be easily demonstrated in the following chart/forecast: The 1980-90’s secular bull market uptrend for the Dow Jones 30 Industrial Average (DJIA) came to a conclusion in January 2000 at 11750.30 - see Figure 1.

FIGURE 1: ‘PROOFING’ DETERMINISTIC QUALITY OF EW – DOW JONES, JAN. 2004


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RESEARCH This represents ‘cause’ - the balancing attribute, ‘effect’ then manifests according to the law of compensation with a countertrend decline in the form of an Elliott Wave expanding flat pattern. Labelled into three distinct waves or price-sequences, ‘a-b-c’, the initial price decline from the 11750.30 peak establishes the price-extremity of wave ‘a’ into the October 2002 low at 7197.50. This is far too short a time interval to complete the entirety of this counter-trend ‘effect’ so in January 2004, this forecast published a more complex development as the expanding flat pattern. That resulted in an upside projection for wave ‘b’ towards 14169.80 and afterwards, a downside projection for wave ‘c’ towards 6411.30. The timing for completion was also measured into the October 2008 time-zone. The reality of this forecast is shown in Figure 2 the index ended wave ‘b’ at 14198.10 and later, the financial-crisis collapse occurred as wave ‘c’ which ended at 6470.00 but later, in March 2009. FIGURE 2: FORECAST RESULT – DOW JONES, MARCH 2009

From a mathematical basis, such a forecast ‘proves’ the existence of an underlying law that governs price-development. This is because the mathematical probability of forecasting exact price-peaks and troughs, also the exact pattern development in a random system so many years in advance would be so large it would be deemed nigh-impossible. The adherence of a seamless-sequential pattern that conforms to the guidance of R.N. Elliott’s discoveries but also the dimensions that we, ourselves have documented using Fibonacci-Price-Ratios combine in revealing the validity of ‘cause’ and ‘effect’. Quantum Mechanics (QM) Science has yet to embrace the Elliott Wave Principle as a defining model for other experiments in the ‘natural sciences’ where some transfer of flexibility is needed in its thought-process. The concept of ‘chance’ entered into the equation during the twentieth century in the form of quantum mechanics. This directly challenged the concept of ‘cause and effect’. The forerunner of particle behaviour at the quantum level began with the study of cathode rays by Michael Faraday (1838), radiation by Gustav Kirchhoff (1859) and the photoelectric effects by Heinrich Hertz (1887) was followed by the quantum hypothesis of Max Planck (1900). Planck discovered that light is made of individual quantum particles.


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The phrase ‘quantum mechanics’ (QM) was termed by a group of physicists including Werner Heisenberg (Zur Quantenmechanik). His ‘uncertainty’ principle published in 1927 postulated that the more precisely the position of some particle is determined, the less precisely its momentum can be known. In other words, there was an element where cause/effect began to disintegrate especially at the quantum level – the smaller you observe a particle, the more unpredictable it becomes – ‘quantum uncertainty’. The two same particle experiments often caused different results. Later experiments revealed the ‘observer effect’ where measurements of a certain system cannot be made without changing the system. It was later acknowledged that the uncertainty principle is inherent in the properties of all wave-like systems. Despite some ‘uncertainty’ outcomes, the results of QM experiments were all defined within larger principles, they were confined within higher laws, i.e. particles didn’t jump out of the laboratory and dance in the street! These observations of Heisenberg are not dissimilar to what we find developing in our financial laboratory. For example, when applying the Elliott Wave Principle overlay to historical data, we find that the larger/aggregate pattern in current development will unfold without complication, to its destination. But as this is a fractal system, there are several pattern permutations that could develop in reaching that final destination. Furthermore, the smaller data is examined, from weekly bars to daily then intra-hourly at various degrees of trend, the more pattern permutations are available within ongoing price-development. For example, did you know that there are exactly 800 pattern permutations to a single ZIG ZAG pattern? And that’s only at 1-degree status. The zig zag is labelled A-B-C - wave A can unfold into 5 pattern permutations, wave B into 32 and wave C into 5. Interchanging patterns means 5 x 32 x 5 = 800. If this is traded -1 degree, it exponentially opens up another layer of probabilities. It seems that the smaller the wave examined, the more sensitive, or perhaps the more flexible or responsive it is to external or exogenous vibrations. This could mean that as we look at Elliott Waves at quantum or minute intra-day degrees of trend, the more capable it is of changing the course of larger/aggregate wave development. Or are these intra-day ‘quantum’ data points/patterns subsumed into the larger/aggregate pattern development? Complexity and Chaos Complexity Theory is an interdisciplinary theory that grew out of the ‘systems theory’ of the 1960s. It emphasises the interactions and accompanying feedback loops that constantly change systems. This is interesting from the financial market place. For example, a larger/aggregate Elliott Wave pattern is in progress and whilst its final destination doesn’t change, how it arrives there, in varying pattern

permutations, is influenced by the entrance of short-term fundamental data, the equivalent of ‘feedback loops’. The misunderstanding of feedback loops is where the 20th century mind-set of external influence has driven market participants into thinking, into believing fundamental data information and/or events dictate direction of a trend. It seems that way, but it’s not entirely true. But what’s so important to understand is that random interactions between a multitude of local variables generate deterministic qualities that are predictable – they create non-random structures or patterns of larger scale. Think of this – we have all experienced, at least from time-to-time, pattern recurrence in financial markets like head-and-shoulders, flags, pennants etc. We have even measured retracements using Fibonacci retracement ratios, 38.2%, 50%, 61.8% per cent. But we seldom reason why such patterns are recurring and repeating, or why price activity should respond so well to Fibonacci ratios. Millions of people, you and I included, are placing orders into the market every moment, every day, quite in isolation from one other. We are not communicating in such a way as to ensure markets ‘build’ into certain patterns, or to respond at predetermined levels – it just happens. This is how the complexity at a localscale somehow creates predictable form at the output stage. From this we can say that the whole is greater than the collective amount of its components. If Complexity Theory is an interdisciplinary theory of systems theory, then Chaos Theory is akin to complexity. The two main components of chaos theory are that systems, no matter how complex they may be, rely upon an underlying order. Simple or small systems and events can cause very complex behaviours or events. This concept is known as ‘sensitive dependence on initial conditions’, a quality discovered by Edward Lorenz, one of the early experimenters in the area of chaos in the early 1960s. The perceived random behaviours of a system is attributable to its non-linearity at differing scales of observance – the disproportionate relationship between cause and effect manifests from small beginnings to outlandish results but isn’t this a good example how financial markets operate? They too begin with smaller pattern-build, the fractal nature of trading-day activity that gradually increases momentum. But in this seemingly random phase are the DNA blocks of something evolving, something greater than itself. We can hypothesise that ‘price-expansion’, so evident in (EW) 3rd wave progress embodies the concept of Universal Law, one that expresses the expansion-phase which only later, recedes. Out of chaos comes order. Attractors in Dynamic Systems When we observe how Elliott Wave patterns develop and how they build through market data, there seem to be certain ‘crossroads’ or ‘inflexion-points’ that are reached which determine directional change. What could cause such changes?


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RESEARCH Dynamic systems are entities in motion, primarily mechanical or physical in nature and ‘complex’ as defined by chaos theory - financial markets are an excellent example. In the study of dynamic systems, the condition known as an ‘attractor’ defines the equilibrium level of that system. It is a region of phase space that ‘attracts’ all nearby points as time passes. If you watch a typical dynamical system and wait for a while, it ends up as an attractor. Once the system reaches the attractor, it is then ‘repelled’ or dispersed. A ‘strange’ attractor is simply one that has a fractal structure and we know this fits the profile of financial market data. Let’s hypothesise: market data is energised and in motion, evolving from a singular origin of the past. But it is operating within the confines of certain laws that guide its onward progress. The energy levels that propel it forward are finite but are moving towards a point of equilibrium - that point of equilibrium is one of the crossroads or inflexion-points mentioned earlier. In Elliott Wave terms, these represent price-peaks and price-troughs, reversal levels, support levels, projection levels at varying degrees of scale, of trend.

Taking five forward steps, then three backwards, before repetition, there is progress but there is one essential element that is missing - that of expansive-dimension. The universal law of compensation is manifested in Elliott Wave terms as action/reaction processes, or archetypally, five wave/three wave development. The metaphysical idea behind ‘fives’ versus ‘threes’ is to comply with the expanding universe. Taking five forward steps, then three backwards, before repetition, there is progress but there is one essential element that is missing - that of expansive-dimension. Without expansive-dimension, even a five-versus-three setup could simply oscillate inside a fixed or limited dimension, or in market terms, a continued sideways trading pattern. This would look like a concentric spiral with no growth or expansion. But a logarithmic spiral would conceptualise expansion/contraction, the two opposing forces found in financial market activity. The expansive-dimension attribute can be found in any Elliott Wave impulse wave that undergoes expansion whether this is a 1st, 3rd or 5th wave sequence. When one of these impulse waves develops larger than its other two counterparts, we term this as ‘priceexpansion’. When prices are ‘energised’, whether this is unfolding into a five wave trend or a three wave counter-trend is irrelevant, the development of the pattern or the ‘system’ is being ‘attracted’ to a certain, defined terminal location. This is where the next ‘inflexion point’ is expected to occur. Can we predict such inflexion points? End of Part 1 of 2

Did you know? You may only use the designation MSTA after your name if you are a paid up member of the STA. This is because MSTA stands for “Member of the Society of Technical Analysts”. Anyone (prospective or current employer etc.) can look up your name and membership number on the front page of the website.


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The STA has been instrumental to my success Introduction Some people see technical analysis as a timing tool, which helps you know when to trade. But in my opinion, that only scratches the surface of what’s possible. Technical analysis is the study of price and there is so much more that it can do.

Charles Morris Charlie Morris is Head of Multi Asset at Newscape where he manages the Newscape Diversified Growth Fund. He is also the editor of the Fleet Street Letter, Britain’s oldest financial newsletter that discusses financial markets from a British perspective.

There are medium-term trends, tendencies that are even more reliable than shortterm trends. In aggregate, they help to identify the key tactical investment themes within markets and are particularly useful for trading high-growth stocks. Yet long-term trends are the most reliable of all, although it takes time and experience to truly appreciate this. They help you with the dividend-paying stocks that tend to move more slowly. With these, it pays to be brave. The world’s greatest companies are best bought when they are over-sold rather than on a breakout. The STA helped me to understand that different strategies should be applied to different situations. A one-size-fits-all approach to investment will only fail.

Until 2015, he spent 17 years at HSBC Global Asset Management as the Head of Absolute Return. There he managed a $3 billion multi-asset fund range which was active in the gold market. He publishes Atlas Pulse (www.atlaspulse.com free sign up) on a monthly basis where he analyses gold. Prior to fund management, Charlie was an officer in the Grenadier Guards, British Army.

Then there are volatility, cycles and price comparisons. Within long-term trends, you can seek out situations where the volatility is unusually low. When it starts to rise, then pounce on the breakout, whether it be long or short. Some of the greatest market moves in history have been identified this way. The Nasdaq breakout in 1994 was powerful, as was the collapse of oil in 2014. Technical analysis isn’t just for frequent traders; it’s also there for the patient ones. The considered use of technical analysis has helped me to better understand the market and, above all, to respect it. I sat my STA exams back in 1999 and was delighted to pass with distinction. The lessons I have learned have been instrumental to my success in fund management.


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ANALYST FOCUS

Head and Shoulders above It’s Humans that are the Problem: Reminiscences of a Veteran Investor It is remarkable how technical analysts can adopt vastly different views and interpretations of the same charts. I suspect this is due in part to a peculiar psychological quirk called ‘Pareidolia’ whereby humans see patterns in random data and the mind perceives a familiar pattern of something, where none actually exists. There are many famous examples of this, including a satellite photo of Mars, revealing a face which was cited as evidence of extra-terrestrial inhabitation. Philip Gray Philip Gray is a Fellow and first Chairman of the STA, and the leading figure in the change from ACTA to STA in 1986. In addition he has been Chairman of the Hong Kong Society of Investment Analysts. Philip is also a Fellow of the Institute of Directors.

This perceptual issue is particularly relevant to some of the more esoteric technical tools such as Elliott Wave Theory, which is highly dependent on individual interpretations. Therefore, in my early days I veered away from some of the esoteric technical concepts and concentrated on those founded on a sounder intellectual and/or statistical basis. In this regard, I fell in love with trend identification systems, the simplest being of course moving averages. I developed some fairly sophisticated variants, including the use of filters, tolerance bands, differential weightings and so on. In this regard, I developed a very simple model on the Dollar/Mark, which, judging by my bank balance, seemed to work. However, to make sure that I did not interfere with the model or get tempted to override it, I gave it to my broker to manage on my behalf and execute all decisions. Well the basic premise was correct - humans are the problem, but I didn’t know how much! One Friday, as I was sitting in Amsterdam during a G8 conference being held there, the Dollar suddenly lurched late afternoon which I knew would trigger a reversal in my model and probably make me a lot of money over the weekend. On Monday morning when I got back I calculated that I had indeed made a small fortune and phoned up my broker in a state of euphoria. However, his response was so muted that I asked him what was wrong. He then confessed that he had left work after lunch on Friday to go to the South of France for a dirty weekend and that he had not executed the reversal order. As I said, humans are the problem. Of course in the last 10 to 20 years these models have been automated, presenting a new set of problems, including the risk of a Black Swan or Fat Tail event, events that seem to occur more frequently than your average investor would guess. The Directors of LTCM, for example, are no doubt acutely conscious of this issue. Many years later as I was busily learning the intricacies of the Indian stock markets, I came across an amazing bond trader who was also the winner of the highly prestigious Indian Maths Prize. We both shared a passion for the more advanced components of technical analysis and over a few drinks, we discussed an obscure academic paper which proved that there were periods in market cycles where the risk/reward trade off would alter dramatically in favour of reward. Based on this theoretical work, we developed a relatively simple but extremely


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Even in recent years the problem of human interference in sound models continues to haunt me.

sophisticated model and we both stuck in a small fortune to test it. I was absolutely convinced of the soundness of the intellectual model and therefore was very disappointed that after our formal review six months later, the fund had not lived up to my reasonable and valid expectations. After some forensic work, it transpired that my Indian partner, who was in charge of running the model, was subtly interfering in many decisions by slipping in some complex option strategies as in his (admittedly brilliant) mind, he knew better! On a slightly different tack, upon browsing through an obscure bookshop in Amsterdam, I came across a thesis written by a PhD candidate on the simple use of relative strengths for portfolio construction. On my return to Hong Kong, I tested this model on the Hong Kong stock market and frankly was not surprised to see how it outperformed all the unit trusts in this sector. One of the model’s strong points was that it only required a few hours each quarter to re-balance the portfolio and therein lay the problem. I

explained the model to a number of unit trust managers, suggesting how they could significantly improve their performance. However, they all pointed out that they could not possibly adopt this model as their superiors would think that they weren’t earning their pay if they only worked a few hours a quarter - so they were condemned to continue their mediocre performance. Even in recent years the problem of human interference in sound models continues to haunt me, much to my professional annoyance. With the advances in artificial intelligence and computerised trading, it should in theory go away - but of course it never will. In the meantime, the market will always remain the market, ever-changing, ever-shifting and presenting new challenges on a regular basis.


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BOOK REVIEW

#TradingThought Hoad, S. (2016) Mind Medicine for Traders & Investors. Book Review by Simon Gray Stephen Hoad is an economics graduate and member of the STA with 20 years’ experience in trading and risk management in the City of London. On leaving the City in 2014, he founded his own company to provide training for private investors and traders based on technical analysis, risk management and behavioural psychology. While communicating with his clients through THE STOP HUNTER, he realised that his daily motivational quotes and proverbs were circulated more widely (‘re-tweeted’) than the market news and technical charts they accompanied. These quotes form the basis of this book. Arguing that prowess in technical and fundamental analysis is not sufficient for determining success or failure in financial markets, Hoad suggests that the right psychological mindset is also required. He claims that his clients’ use of quotes enhances their trading by “inspiring them to think and act differently to achieve better results”. So, the central tenet of this book is that the contemplation of motivational quotes will assist traders to improve their mind-set, and that this will, in turn, enhance their trading ability. Along with quotes, Hoad also includes proverbs, sayings, mottos and idioms. These are drawn from all available sources: ancient and modern, eastern and western. So it should come as no surprise that Herodotus is quoted on the same page as Bruce Springsteen and Donald Trump, or that quotes from Winston Churchill and George Orwell are found sandwiched between the sayings of Confucius and Nicole Elliott. The book is organised into six sections starting with #TradingJourney which emphasises the role of education, knowledge and experience in creating a trader’s own individual character and personality. A trader’s success will largely depend on how well he understands himself and his own motivation as this will affect his reaction to market

moves and to risk. Goldstein (2016) makes a similar point when emphasising the importance of understanding one’s ‘risk personality’ (e.g. wary, excitable, carefree etc.) and the benefits of aligning this with ‘risk attitude’ or the way in which one approaches trading. A failure either to understand oneself or to match one’s personality to one’s trading approach will result in a loss of trading edge or advantage. Even worse than a lack of self-understanding is the impact of fear and greed which lead to self-inflicted account wipe-outs or the #TradingDisaster. To avoid this, one needs to develop the right mind-set for trading and to consider core attitudes such as commitment, focus and discipline in conjunction with personality traits like positivity, optimism, perseverance and many others. This section, #TradingMindSet, represents about one third of the book and, for me, contained the most satisfying and productive quotes and ideas. As I am not a ‘natural’ trader, anything that helps me become more patient, positive and focused has to be beneficial. One niggle is that the numerical superscript series used to identify entries in the Reference and Bibliography sections are identical, so one doesn’t know which section is being cited, but this is a minor issue. I found reading #TradingThought to be quite rewarding. As it contains over a thousand quotes, it is probably a book best dipped into rather than read cover-to-cover but one that I recommend for regular use.

Goldstein, S. (2016) How Risk Personality can influence the performance of trading and investment professionals. Market Technician (STA Journal) Issue 81. September 2016.Stephen Hoad can be contacted at THE STOP HUNTER either through his website: www.thestophunter.co.uk, email: info@thestophunter.co.uk or telephone 01227 811731.


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Benefits of STA membership

The STA holds 11 monthly meetings in the City of London, including a summer and Christmas party where canapés and refreshments are served.

As a service to our members, many of whom are unable to attend all our monthly meetings, we have been making videos of meeting presentations for several years.

Key benefits • Chance to hear talks by leading practitioners • Networking • CPD (Continuous Professional Development)

Key benefits • Never miss the latest meeting. • Browse our extensive video archive of previous meetings.

The STA has been running educational courses on technical analysis for 25 years.

Student members have access to a question and answer forum which is available in the member’s area of the website.

Key benefits • Courses are taught by leading authorities in their field such as authors, highly regarded professionals and Fellows. • The STA also offers a Home Study Course for self-study.

The STA ”Market Technician” journal is published online twice a year. Key benefits Members receive the latest issue of the “Market Technician” via e-mail. They are also able to access an archive of past editions in the member’s area of the website. Technical analysts from all over the world contribute to the STA journal.

Key benefits Members can ask questions on technical analysis in the Technical Analysis Forum which a course lecturer, author or Fellow will answer.

The STA has an extensive library of classic technical analysis texts. There are over 1000 books in the collection. It is held at the Barbican Library with a smaller selection available at the City Library, a reference library in London. As a member you can now browse which titles are available on-line. Key benefits Members are encouraged to suggest new titles for the STA book collection and, where possible, these are acquired for the library. The complete listing of books held can be downloaded in Excel format from within the member’s area.

The Society of Technical Analysts and the Chartered Institute for Securities & Investment (CISI) have formed a partnership to work together on areas of mutual interest for our respective memberships. Key benefits CISI examination exemptions for STA Diploma Part 1 and 2 holders. MSTAs with three+ years’ experience can become full members (MCSI).

Endorsed by the Chartered Institute for Securities & Investment (CISI), members of the STA are entitled to receive continuing professional development points (CPD) for their attendance at monthly meetings and taught course lectures. Key benefits • Remain compliant. • Be informed of all new industry developments.

STA members benefit from significant discounts on technical analysis books, magazines and software. Key benefits STA members currently enjoy discounts from: • Your Trading Edge • The Technical Analyst Magazine • MT Predictor • CQG • Tradermade and the Global Investor bookshop.


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STA Calendar 2017

TUES 11 APRIL 6.00pm British Bankers Association Paul McLaren

MON 3 JULY 10.00am StayAhead Training Centre STA Diploma Part 1 Exam

WED 20 SEPTEMBER 7.00pm National Liberal Club STA Annual Dinner

THURS 19 OCTOBER 1.00pm Student Central STA Diploma Part 2 Exam

More information about the STA events can be found here.

THURS 20 APRIL 1.00pm London School of Economics STA Diploma Part 2 Exam

TUES 11 JULY 6.00pm British Bankers Association Summer Party & Awards

TUES 10 OCTOBER 6.00pm British Bankers Association

TUES 14 NOVEMBER 6.00pm British Bankers Association Lee Sandford

TUES 9 MAY 6.00pm British Bankers Association Rajan Dhall, MSTA

MON 4 SEPTEMBER 10.00am StayAhead Training Centre STA Diploma Part 1 Exam

SAT 13 - MON 15 OCT. Excelsior Hotel Gallia, Milan IFTA’s 30th Annual Conference

MON 4 DECEMBER 10.00am StayAhead Training Centre STA Diploma Part 1 Exam

TUES 13 JUNE 6.00pm British Bankers Association Malcolm Pryor MSTA

TUES 12 SEPTEMBER 6.00pm British Bankers Association Zaheer Anwari

WED 11 OCTOBER 6.00pm LSE, STA Diploma Part 1 Course commences (TBC)

TUES 12 DECEMBER 6.00pm British Bankers Association Christmas Party


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STA education: the LSE courses, and the Diploma in Technical Analysis The Education Channel - Monthly meetings videos are available to members here.

January 2017

Stephanie Ames, Chris Clark, Zaheer Awari

Panel discussion: Outlook for 2017.

December 2016

Russell Napier

Technical Analysis in an Age of Financial Repression

November 2016

Nicole Elliott

FX charting with candles and clouds

October 2016

Stephen M Barrett

Gann’s Master Time Cycle

September 2016

Lee Sandford

High probability day trading strategies

June 2016

David Sneddon

Multi-Asset & Macro Technical Analysis

May 2016

Thomas Anthony

Systematic Trading based on Elliott-Fibonacci applications

April 2016

Steven Goldstein

‘Risk Type’ - How your core risk personality impacts your trading decisions and behaviours

March 2016

Tom De Mark

DeMark Indicators

February 2016

Riccardo Ronco

Trend Following

January 2016

Panel

Panel discussion: Outlook for 2016

STA Library The public library of the City of London at the Barbican Centre holds around 1500 books on Economics, Finance and Investing; this includes the STA collection. UK STA members can obtain free membership of the library and are sent the relevant form in their membership pack. A UK-wide postal service is also available to members. If you do not have an application form to hand and would like to join, please contact STA Administrative Services (info@sta-uk.org) and they will send you one. More information about the STA library services can be found here.


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THE EDUCATION CHANNEL

STA education: the LSE courses, and the Diploma in Technical Analysis STA education: the LSE courses, and the Diploma in Technical Analysis Now more than a quarter of a century old, this formal part of the STA education programme continues to flourish. Our well known courses at the LSE (London School of Economics) are attended by fund managers, traders, research analysts and private investors. They are taught by the top market technicians in their field, offer a two-stage programme leading to the prestigious STA Diploma. Luise Kliem Luise Kliem is a Fellow of the STA and current STA chief examiner and LSE Course Director. During a 20-year City career she worked first as a commodity broker, then as a stockbroker, before becoming a fulltime technical analyst. She was Senior Technical Analyst (Director of Global Securities Research & Economics) at Merrill Lynch from 1995 to 2000, then joined Commerzbank Securities as Head of Technical Analysis. Luise specialised in equity research, and was consistently highly rated in surveys such as Thomson Reuters Extel, until leaving the City in 2001.

The Part 1 autumn course teaches ‘the basics’, rapidly enabling students to incorporate a number of technical tools into their daily work. The Part 2 spring course exposes students to a wider and much more complex syllabus, with the emphasis on how experienced market professionals themselves employ the more advanced techniques. This higher level course also offers sessions on risk management and behavioural finance. In essence, the autumn course prepares students for the Part 1 examination and the spring course prepares for the advanced Part 2 - however, there is flexibility. Market analysts who already have a good grounding in the technical analysis basics may elect to go straight onto the Part 2 course, although they will of course still need to sit the Part 1 examination. It is also worth noting that discounts are available if the two courses are booked as a package. Our timing of examinations seeks to fit in with busy lifestyles: Part 1 online examination sittings are available at least four times a year, with some overseas centres also an option. The narrative Part 2 examination sittings are held twice a year. Once a pass in both Part 1 and Part 2 has been gained, the student will be awarded the prestigious STA Diploma in Technical Analysis, and benefit from the MSTA designation. This is internationally recognised and accredited by IFTA (International Federation of Technical Analysts). Holders of the STA Diploma are also entitled to certain exemptions from CISI (Chartered Institute for Securities and Investment) examinations. Details of these benefits, and any updates, can be found here.


The Society of Technical Analysts: www.sta-org.uk

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Videos of lectures can be made available. Also, copies of all lecturers’ presentations are emailed to students on the day following each session.

STA courses and exams: FAQs 1. How many course lecturers are there, and who are they? The STA draws on the expertise of more than 15 experienced and highly respected market professionals who work for investment banks or run their own companies, authors, consultants and Fellows of the Society. Their detailed biographies can be found here. 2. I worry that I may sometimes have to miss a course lecture. How can I catch up? Videos of lectures can be made available. Also, copies of all lecturers’ presentations are emailed to students on the day following each session. 3. If I do not wish to sit the exams can I still attend the courses? Yes, certainly, although given the advantages the MSTA designation brings, the vast majority of students attend courses with the Diploma examinations in mind. 4. I want to study technical analysis and eventually sit the STA examinations, but cannot attend the LSE courses. Is there a distance learning course? Yes. The STA’s Home Study Course has proven to be a very successful teaching tool over a number of years. Details can be found here. There is, incidentally, nothing to prevent you from simply doing your own reading and then registering for the exams, although that is, of course, quite a tough option. 5. What is the difference between the Part 1 and Part 2 examinations? Very broadly, Part 1 is about knowledge, while Part 2 is about the professional application of knowledge - the need to show the ability of someone who can give appropriate advice based on their analysis. The capacity to discuss various topics relating to technical analysis is also looked for. In more detail: Part 1 is a 120-question online multiple choice exam, requiring students to demonstrate thorough knowledge of the core technical analysis subjects. The exam is of two hours duration. The pass mark is 67%. Part 2 is a higher level (written) exam, requiring candidates to apply their knowledge and skills in a professional manner to scenarios that are relevant to financial markets. This is particularly the case in the first section of the paper, where candidates analyse a set of charts and then write a report, as

if for a client, based on their technical analysis. The second section of the paper usually involves an essay-style question, while the third section consists of questions demanding shorter factual answers, but with a demonstration of interpretation/application also expected. The pass mark is 60%. (A distinction is awarded for 85% and above). In addition to the overall 60% pass mark, candidates must also gain a minimum of 35 out of the 60 available points for the section 1 client report. Copies of past Part 2 question papers are available from the STA shop. 6. Do I need to pass Part 1 before attempting Part? No. If you do not pass Part 1 first time and a re-sit has to be scheduled after Part 2, or if you are simply not able to sit the exams for another reason, it is possible to sit Part 2 first. 7. Do I need to pass the examinations to be a member of the STA, and to benefit from other areas of STA education? If you opt for associate STA membership you do not have to take the exams. You will still receive the STA newsletters, and you can attend the highly respected monthly presentations at the BBA (British Bankers Association). Attendance at these also qualifies for CPD points. For more information on STA education, please take a look at our website.


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THE EDUCATION CHANNEL

Congratulations to the latest STA Diploma MSTAs Distinction Jean-Regis Allard Zoe Bancroft Mohd Adzrul Afni Kadri Marco Meola Edward Rushton

Pass Laszlo Bajtai Theocharis Georgiou Priyesh Halai Halima Nuriah binti Ameer Hamza Syed Hidayat bin Syed Hassan Marion Houlet Jazli Izzuddin Jamaludin Cristie Parker Mohd Shahril Nizam Ramli Charalampos Shanios Soon Hee Song Fazida Suliman Paul Tellwright Kai Sheng Wong Kyriaki Zeniou-Themistokleous


The Society of Technical Analysts: www.sta-org.uk

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The Bronwen Wood Memorial Prize At the end of each year, examiners consider the high distinction papers from all Part 2 examinations and may award the Bronwen Wood Memorial Prize to the outstanding paper for the year. We were delighted to have several excellent papers to choose from in the 2016 cohort, and after much deliberation the examiners made their choice. We are pleased to announce that this year’s award goes to Marco Meola. Congratulations Marco - you will join our hall of fame! The STA joint-sponsored 2016 UK University Trading Challenge (UTC) was a resounding success. This event marked the STA’s first foray into sponsoring and giving UK business schools’ undergraduates and postgraduates a chance to test themselves in a situation that is as close to real-world trading and investing conditions as possible. It has been a huge success with the number of participants being increased for 2017, and discussions already taking place on expanding the competition into Europe in the next two years.

The STA’s Chairman, Axel Rudolph, opened the proceedings together with Bryant Nielson, Chairman of CapitalWave (the other main sponsor). Neilson explained that challenging the students to analyse, strategise, make decisions, and give presentations in this way gave them an invaluable glimpse into the real world of the capital markets as well as a true insight into themselves and their suitability to a finance career. At the end of the day another STA director, Guido Riolo of Bloomberg London, gave the excellent keynote speech. The whole day was so well received by both the students and their lecturers that in the two months since the competition the STA has already been invited to speak at five of the universities which took part.

The competition ran from early November and culminated with an intensive day of trading, portfolio challenges and business case presentations at Cass Business School on 9th December 2016. The students had to compete both individually and within teams of three in the following four components: A Trading Challenge, competing over a 21-day period. The teams started with a base portfolio containing equities, fixed income contracts, foreign exchange and commodity positions, and index contract (values are based on opening prices recorded by global exchanges), and were allowed to modify their positions daily; A Portfolio Challenge. This intense half-day day simulation provided students with an opportunity to act as a Portfolio Management team for a Corporate Treasury Office; A Treasury Trading Challenge, another intense half-day simulation. Students were given the opportunity to act as a Trader, simulating the management of the foreign exchange hedging desk of a large corporate treasury department; and An Investment Banking Challenge. Each team was given a $325m fund-raising case-study and data set 30-days prior to the competition, with the task of formulating a financial strategy as a solution. As in the actual business world, knowing the strengths and weaknesses of your team was important as two members of the team had to give a 10-minute presentation outlining the solution, while the final team member had to field questions from the judges.

The STA would like to congratulate the winning teams of the 2016 University Trading Challenge: 1st: Kingston University, London’s Business School 2nd: University of West London’s Claude Littner Business School 3rd: University of East London’s School of Business and Law We are also proud to have been invited to present the winning prizes and Certificates of Achievement to the individuals at award ceremonies laid on by their respective universities. To quote one winner “the prizes are great, but above everything else this whole experience has taught me that to be successful in the future I have to know how to use all the trading and investment techniques available...” Congratulations to all the participants, and thank you again for all your hard work which helped make the 2016 UK University Trading Challenge such a success.


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THE SOCIETY OF TECHNICAL ANALYSTS

The STA Executive Committee

Axel Rudolph BSc (Hons) MSc FSTA MCSI Chairman of the STA

Karen Jones BSc (Hons) FSTA Head of Marketing

Mark Tennyson d’Eyncourt FSTA Programmes

Charles Newsome MSTA FCSI Vice Chairman

Guido Riolo BSc MBA MSTA Marketing / Journal

David Watts BSc (Hons) CEng MICE MIWEM MSTA Systems and Website Specialist

Anne Whitby BA (Hons) FSTA Company Secretary

Clive Lambert MSTA Marketing

Please keep the articles coming in The success of the Journal depends on its authors, and we would like to thank all those who have supported us with their high standard of work. The aim is to make the Journal a valuable showcase for members’ research - as well as to inform and entertain readers.

Keep up to date with the conversation by joining us on: Simon Warren FSTA Treasurer

Tom Hicks MEng MSTA MSCI Head of Programmes


STA Advertising Rates 2017 The Society of Technical Analysts Journal “The Market Technician” is a bi-annual publication, published in pdf format only. The STA will accept advertisements in this publication if the advertising does not interfere with its objectives. The appearance of advertising in the Market Technician is neither a guarantee nor an endorsement by the STA.

Position

Price

Specification

Inside Cover

£500.00

A4 Portrait, 210mm (w) x297mm (h), plus 3mm bleed.

Full Page

£500.00

A4 Portrait, 210mm (w) x297mm (h), plus 3mm bleed.

Half Page

£300.00

Landscape, 198mm (w) x 139.5mm (h).

Quarter Page

£200.00

96mm (w) x 139.5mm (h).

Circulation The Market Technician has a circulation of approximately 1300. Readership includes technical analysts, traders, brokers, dealers, fund managers, portfolio managers, market analysts, other investment professionals, and private investors.

Contact Contact Katie Abberton, Society of Technical Analysts on info@sta-uk.org or +44 (0) 207 125 0038 for more information.

Advertising policy Advertising is subject to approval by the STA Journal Committee. All advertisements must be non-discriminatory and comply with all applicable laws and regulations. The STA reserves the right to decline, withdraw and/or edit at their discretion.

The Society is not responsible for any material published in The Market Technician and publication of any material or expression of opinions does not necessarily imply that the Society agrees with them. The Society is not authorised to conduct investment business and does not provide investment advice or recommendations. Articles are published without responsibility on the part of the Society, the editor or authors for loss occasioned by any person acting or refraining from action as a result of any view expressed therein.


Society of Technical Analysts Dean House Vernham Dean Andover Hampshire SP11 0JZ tel: +44 (0) 20 7125 0038 info@sta-uk.org www.@sta-uk.org

The Society of Technical Analysts (STA) is recognised worldwide as one of the largest and most widely respected not-for-profit organisations which trains and accredits members of the investment community, from industry professionals to private individuals, interested in the study of technical analysis. We have been setting the standards in technical analysis for nearly 50 years and have been teaching at several UK universities such as LSE, King’s College, Queen Mary etc. for nearly 25 years.

www.sta-uk.org www.@sta-uk.org

Profile for Society of Technical Analysts

Market Technician Issue 82 - March 2017  

The ‘Market Technician’ is a respected journal which offers timely articles by expert members and guest writers on technical analysis, chart...

Market Technician Issue 82 - March 2017  

The ‘Market Technician’ is a respected journal which offers timely articles by expert members and guest writers on technical analysis, chart...

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