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TECHNICALLY SPEAKING, JUNE 2022

Hello readers, welcome to the June edition of Technically Speaking. 

As children, we start learning about the world by placing things in two buckets:
good and bad. It’s not the best start, to be honest, but a start nonetheless.
Growing up, we realise (hopefully) that it’s not that simple! Everything is not
black or white. The world is actually just a giant palette of grey. That’s
basically life, figuring all of this out.

So why are we talking about white and black and grey? Because experiences and
perceptions make us what we are. We react to events, and circumstances based on
our past experiences. And that’s the biggest point of polarity for traders to
perceive the same market differently. To a large extent, we tend to carry the
burden of the last success or failure into our next analysis/trade. It’s the
journey of detachment from the outcome and heavy introspection of trades, that
make up a majority of the early years in the market. 

The point here is confidence. An analyst who identified the turning points of
the market and prepared accordingly is mentally better prepared to face the next
cycle. How have your past experiences been? Have you detached yourself from the
‘prior trade plague’? Share your experiences with us as at
editor@cmtassociation.org as we all try to find our footing in the market. 

So, Oil and Dollar are partying and the rest have gone to sleep. Is that right?
Bonds, Equities, Commodities and Crypto currencies haven’t been able to catch a
break. There’s been a minor pullback, but aside from that, the list of new lows
keeps expanding and the list of new highs continues to dry up. Emerging markets
struggle under the pressure of Crude oil and the Dollar index rally. These two
variables are currently the driving forces of the market and quite possibly the
most important variables to track. Where they go, would determine where the rest
of the market would go. For now, it doesn’t seem like there’s going to be any
respite with record inflationary numbers flowing in as more and more global
indices breach their levels of support.

But well, we have some blogs for you that should hopefully provide some clarity
with regards to the market and the trends. 

To all those who appeared for the CMT exams this June, All the best! You’ll find
a better version of yourself after every exam and that’s the goal!

Until next time, Think Technical!

Rashmi Bhatnagar, CMT

Editor


WHAT'S INSIDE...


PRESIDENT'S LETTER

by Brett Villaume, CMT, CAIA

As a dues-paying member of the CMT Association, you’ve probably received a lot
of emails over the past few months related to CMT activities including the
Annual Symposium, the winner of this...

Read More


NEGATIVE DIVERGENCES OFTEN WARN OF IMPENDING DECLINES: BITCOIN HIGHLIGHTED…. IS
GOLD NEXT?

by Louise Yamada, CMT

Negative divergences, occurring in a variety of indicators, often warn of
impending price consolidations / declines. There are different implications with
short- term, intermediate- term or...

Read More


4 STEPS TO A BOTTOMING PROCESS

For the last year, we have been warning that macro and fundamental tailwinds
that had supported the bull market from the pandemic lows were shifting to
becoming headwinds. Namely, the record monetary...

Read More


WHAT'S IN A NAME?

by David Settle

“What’s in a name? That which we call a rose By any other name would smell as
sweet” Well, not exactly. Yes, a rose if called by any other name would still be
a great smelling flower. But, what...

Read More


USDJPY: IS IT THE START OF A MULTI YEAR BULL TREND?

by Jigar Mehta, CMT

Investor and trading community is aware that the Japanese Yen is one of the
currencies which has depreciated sharply against the US Dollar since the start
of 2021. Before going deeper, it is...

Read More


SEASONALITY CHARTS INDICATE THAT “IT’S TO TIME TO COVER YOUR SHORTS”

by Vinay Rajani, CMT

You all might have heard of a “Santa Claus rally” or the famous adage, “Sell in
May and go away”. Both of these concepts came from the idea that there are
certain times in the year when...

Read More


BOB FARRELL’S “TEN MARKET RULES TO REMEMBER” & HOW THEY CAN HELP US TODAY

by Stephen Suttmeier, CMT, CFA & Paul Ciana, CMT

How the pioneer of technical analysis can help us today Bob Farrell, one of the
pioneers of technical analysis, worked at Merrill Lynch for over 45 years. We
revisit his Ten Market Rules to Remember...

Read More


IN MEMORIAM

by Brett Villaume, CMT, CAIA & George A. Schade, Jr., CMT & Julie Dahlquist,
Ph.D., CMT

Our colleague and fellow technician, Lawrence “Larry” Laterza, passed away in
early May at the age of 74. Larry served on the Board of the Technical Analysis
Educational Foundation for many...

Read More


PRESIDENT'S LETTER

As a dues-paying member of the CMT Association, you’ve probably received a lot
of emails over the past few months related to CMT activities including the
Annual Symposium, the winner of this year’s Dow Award, the upcoming annual
member meeting, voting for the proposed slate of new Directors, new educational
webinars, the monthly Fill the Gap Podcast, and local chapter meetings. While
that is not necessarily an exhaustive list, it does highlight a lot of the
valuable benefits you get from being a member of the CMT Association. That being
said, do you sometimes consider whether or not to renew your CMT annual
membership? Maybe you ask yourself, “is the $325 per year worth it?” As I’ve
written in previous President’s Letters, maintaining your membership in the CMT
Association is worthwhile if for no other reason than continuing to use the
letters “CMT” as a professional designation after your name. But, there are

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of
written and video technical analysis content, including the Journal of Technical
Analysis and the Video Archives. Learn more about Membership here.

Login Upgrade Your Membership


CONTRIBUTOR(S)


BRETT VILLAUME, CMT, CAIA

Brett Villaume, CMT, CAIA, is President of the CMT Association and has served on
the Board of Directors since 2014. Additionally, Brett is a Wealth Advisor at
Dogpatch Capital, a registered investment advisor in San Francisco, CA. From
2015 to 2021, Brett served as Senior...

Read More
Back to top


NEGATIVE DIVERGENCES OFTEN WARN OF IMPENDING DECLINES: BITCOIN HIGHLIGHTED…. IS
GOLD NEXT?

Negative divergences, occurring in a variety of indicators, often warn of
impending price consolidations / declines. There are different implications with
short- term, intermediate- term or longer-term (more structural) divergences
observed versus price action in an uptrending stock, commodity, index, etc.

A divergence occurs when price moves to a new reaction high but the indicator
does not, rather failing at a lower high, creating a negative divergence to
price, suggesting the momentum is waning.

Referencing here the MACD (moving average convergence divergence) indicator as
an example, short-term (daily) divergences can indicate the potential for either
a period of consolidation, or of a short-term pull back in an ongoing uptrend. A
weekly divergence might suggest a more sustained consolidation / pullback, and
even a reversal of trend, particularly if support is violated, offering an
opportunity to lighten positions.

The monthly (more structural) divergences generally cover an extended period of
time and should be taken more seriously for the potential of a more sustained
decline; even an eventual end to an uptrend. These can offer a warning /
opportunity to continue lightening / selling positions.

The event of a Sell signal in the MACD (the upper line crossing below the lower
line), or a broken critical price support level, offer technical viability of
the divergence. Monthly divergences need not always occur, but a monthly MACD
Sell signal, even without a divergence, offers a more structural warning to
sell.

We were watching the developing negative divergence in BITCOIN into Q1 of 2022,
in all timeframes with a MACD divergence: The daily, the weekly price pattern
(Fig. F-1) and also in the monthly.

FIG. F-1 GRAYSCALE BITCOIN TRUST (GBTC) (TOP) & MACD (BOTTOM) (WEEKLY)



SOURCE: BLOOMBERG AND LY ADVISORS

 The weekly price high in March 2021 was followed by an equal rally price high
in November 2021. But the weekly MACD momentum (lower panel) was at a
significantly lower high (see lower arrow), suggesting upward momentum was
losing strength.

One can also note on the primary rally price high, the weekly MACD offered an
initial Sell signal in April 2021 (as the upper line crossed below the lower
line), worthy of acting defensively (lighten / sell positions) and from which
price carried from 50 to 24, establishing an initial support level.

A weekly MACD Buy (lower line crossing up over the upper line), occurred in
September 2021, carrying price toward the former high near 50, from which price
declined again in February 2022 to the support established in July 2021 at

 24. But the MACD did not rally to its prior high (see declining arrow, lower
     panel), offering the negative momentum divergence, suggesting further risk
     might lie ahead.

The MACD itself also offered an early December 2021 Sell signal, suggesting one
could lighten positions as price again retreated from 50 to the prior 24
support. (These weekly Sell signals offered participants 2 opportunities to
capture rally profits.)

After a multi-week consolidation into March-April 2022, price gave up and broke
the 24 support in mid-May 2022 (see horizontal red line). The MACD is still
declining, suggesting the price depreciation may not be over, notwithstanding
interim rallies. One ought to allow for evidence of stabilization at a low and
the gradual reversal of the daily, weekly and eventually, monthly MACDs.

As a quick short-term 2022 reference, one can note even on the daily profile
(Fig. F-2) that there is a divergence on the second MACD rally peak (see red
arrow), which can offer a first alert to a possible similar development on the
weekly and possibly eventually, the more structural monthly patterns.

FIG. F-2 GRAYSCALE BITCOIN TRUST (GBTC) (TOP) & MACD (BOTTOM) (DAILY)



SOURCE: BLOOMBERG AND LY ADVISORS

 The monthly profile (Fig. F-3) depicts the equal price highs with a less
obvious, but still diverging pattern in the momentum (see vertical and declining
red arrows). Notice that on the second price high, the monthly MACD had not yet
slipped to a Sell, but was beginning to flatten / roll
over.                                                                        The
second price high was met with a slightly lower level in that flattening MACD
period.

One can also see the falling histogram, as the MACD narrows (blue arrow), and
the divergence progresses, until the December 31 2021 MACD Sell signal, at which
point one should consider being fully defensive.

FIG. F-3 GRAYSCALE BITCOIN TRUST (GBTC) (TOP) & MACD (BOTTOM) (MONTHLY)



SOURCE: BLOOMBERG AND LY ADVISORS

Price had yet to fall to the support at 24, and after doing so, lingered above
24 for several months, offering additional time, at a stable price, to lighten /
sell before the May 2022 price breakdown.

The momentum is still declining, suggesting it is too soon to consider re-entry,

notwithstanding interim rallies which can carry into resistance, formerly
support.

FIG. F-4 GRAYSCALE BITCOIN TRUST (GBTC) (TOP) & RELATIVE STRENGTH TO S&P 500
(BOTTOM) (MONTHLY)



SOURCE: BLOOMBERG AND LY ADVISORS

Interestingly, one can also note a similar warning in the weekly Relative
Strength (RS) negative divergence (Fig. F-4), demonstrating evidence that
multiple indicators can offer divergences; in this case the RS for BITCOIN was
also suggesting a change of status, one of underperformance.


CONTRIBUTOR(S)


LOUISE YAMADA, CMT

Louise Yamada is the Managing Director of Louise Yamada Technical Research
Advisors (LYA), which she founded in 2005. Previously, she was Managing Director
and Head of Technical Research for Smith Barney (Citigroup), and while there,
was a perennial leader in the Institutional...

Read More
Back to top


4 STEPS TO A BOTTOMING PROCESS

For the last year, we have been warning that macro and fundamental tailwinds
that had supported the bull market from the pandemic lows were shifting to
becoming headwinds. Namely, the record monetary and fiscal stimuli were flipping
to be record contractions, and the fastest earnings growth since 2010 was
transitioning to the biggest earnings deceleration since 2011. With the S&P 500
down as much as 18.7% on a closing basis, the question from here becomes whether
the bad news is priced in. NDR Chief U.S. Strategist Ed Clissold addressed this
question from a macro/fundamental perspective land in the latest update, he
outlined the four steps to a market bottoming process. Financial markets are
forward looking, so price-based, or technical, indicators are likely to be the
first to signal the downtrend has turned into an uptrend. Typically, the market
follows a four-step bottoming process:1) Hitting oversold levels; 2) Rebounding;
3) Retesting; and 4) Triggering breadth thrusts.  The bottom

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Analysis and the Video Archives. Learn more about Membership here.

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WHAT'S IN A NAME?

“What’s in a name? That which we call a rose By any other name would smell as
sweet” Well, not exactly. Yes, a rose if called by any other name would still be
a great smelling flower. But, what we call a market decline does not have the
same connotations. Pullbacks versus corrections versus bear markets. The
different names appear synonymous. They all imply stocks or indexes declining
from the more recent highs. Most financial media pundits lazily assign different
numerical values for each whereas others will use the terms interchangeably,
like 10% for corrections or 20% for bear markets. But, this fails to account for
the rallies that preceded the declines (see Figure 1). The danger lies in
investor expectations. One of our more recent 20% or more declines occurred in
March 2020. The S&P 500 fell 35.6% with most of those losses happening over the
course of only four weeks

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Not a member? Join the CMT Association and unlock access to hundreds of hours of
written and video technical analysis content, including the Journal of Technical
Analysis and the Video Archives. Learn more about Membership here.

Login Upgrade Your Membership


CONTRIBUTOR(S)


DAVID SETTLE

David started in the investor education world in 2004 with Investools, the
former education affiliate of TD Ameritrade and thinkorswim. During this time,
he has coached hundreds of individuals through 1-on-1 interactions and group
webinars on how to invest and trade in the...

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USDJPY: IS IT THE START OF A MULTI YEAR BULL TREND?

Investor and trading community is aware that the Japanese Yen is one of the
currencies which has depreciated sharply against the US Dollar since the start
of 2021. Before going deeper, it is important to look at the stance of the
Central bank of Japan and the US FED to get more clues. As we know, majority of
Countries like US, Europe, India, etc. are battling with higher inflation. To
keep the inflation under control, the Central banks have started to increase the
interest rates. Thus, there is a reversal in the interest rate cycles. However,
the story of Japan is different because it has gone through severe deflation for
many decades. Since 1989 Japan’s Inflation rate has failed to surpass above
4.5%. Due to this, the Japanese Central banks have continued with an easy
monetary policy although globally the rate cycle had started to reverse. The
Japanese economy is an ‘export

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Not a member? Join the CMT Association and unlock access to hundreds of hours of
written and video technical analysis content, including the Journal of Technical
Analysis and the Video Archives. Learn more about Membership here.

Login Upgrade Your Membership


CONTRIBUTOR(S)


JIGAR MEHTA, CMT

Jigar Mehta, CMT,CFTe is  founder of Sitaram Investments LLC in UAE. Prior to
starting his own company, he has worked with Family offices  where he has
managed funds. He has also worked with many renowned research firms and held the
key designation. He has more than a...

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SEASONALITY CHARTS INDICATE THAT “IT’S TO TIME TO COVER YOUR SHORTS”

You all might have heard of a “Santa Claus rally” or the famous adage, “Sell in
May and go away”. Both of these concepts came from the idea that there are
certain times in the year when the stock market tends to over or underperform.
Another term from this stock market occurrence is “seasonality.” Markets as a
whole can be seasonal, including individual stocks, which can outperform during
winter months, summer months, or other times.  By definition, Seasonality is a
characteristic of a time series in which the data experiences regular and
predictable changes which reappear every calendar year. Any predictable change
or pattern in a time series that recurs or repeats can be said to be seasonal.
Every market undergoes periods of supply and demand throughout a year, and it is
these forces that drive seasonal patterns. Seasonality allows us to establish
these periods to give us an indication ahead of

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written and video technical analysis content, including the Journal of Technical
Analysis and the Video Archives. Learn more about Membership here.

Login Upgrade Your Membership


CONTRIBUTOR(S)


VINAY RAJANI, CMT

Mr. Vinay Rajani is a CMT charter holder and M.B.A. He has more than 16 years of
rich experience in the Financial Markets. He is born and brought up in
Ahmadabad, Gujarat, India. He has been working as a Senior Technical and
Derivative Analyst in Retail Research of HDFC...

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BOB FARRELL’S “TEN MARKET RULES TO REMEMBER” & HOW THEY CAN HELP US TODAY

How the pioneer of technical analysis can help us today
Bob Farrell, one of the pioneers of technical analysis, worked at Merrill Lynch
for over 45 years. We revisit his Ten Market Rules to Remember and find that
they are as relevant today as when he retired from Merrill Lynch 20 years ago.
Farrell’s rules applied to today
An equity bear market, the highest inflation in 40 years, a Fed hiking cycle and
Value vs Growth are all causing deep investor concerns. Farrell’s rules suggest
that equity corrections are normal, the upward reversion for interest rates can
continue and that a bigger rotation to Value from Growth is underway.
Pay attention to the cycle especially when it’s gone too far
As far as cycles go, here’s what Farrell says we need to know: When trends go
too far in one direction, investors can prepare for a reversal toward the mean
(Rule 1). But sometimes reversion to the mean is not enough. A market can swing
like a pendulum with an excessive move in one direction preceding an extreme
move the opposite way (Rule 2). Investors have seen their share of asset bubbles
popping over the past 40 years, and these exponential moves do not end by going
sideways (Rule 4).
“This time is different” – really? Farrell says no new eras
When investors talk about a new era, run the other way. It just means excesses
have been built up, the big move has already happened and sentiment is too
extreme for the trend to continue (Rule 3).
Taking a contrarian view can pay off
Farrell’s rules also cover sentiment. If the public buys the most at the top and
the least at the bottom, don’t follow the crowd: Taking a contrarian view can
pay off (Rule 5). Fear and greed can cloud our emotions, test our resolve and
lead to poor investment decisions (Rule 6). When everyone agrees, something else
can happen. Consensus among the experts is often fully discounted in asset
prices, putting forecasts at risk (Rule 9).
The broader the better: narrowing rallies prone to failure
Broad-based rallies have the potential to continue, while narrowing rallies are
prone to failure. It is important to remember that a market rally driven by a
handful of blue-chip names suggests that the SMID cap troops have abandoned the
largest cap generals, which is a weak setup for market breadth and a risk to an
equity market rally (Rule 7).
Three stages for bear markets: watch SPX 3800 and 3500
Farrell believes that bear markets have three stages: A sharp decline, followed
by a reflex rebound and then a drawn-out fundamental downtrend (Rule 8). We are
likely in the third stage, with risk to 3800 (20% correction) and even 3500
(27%) on the S&P 500.
 
10 market rules to remember
 
Farrell’s rules are still relevant
You can’t change human nature and Mr. Farrell’s rules seem as relevant today as
when he retired from Merrill Lynch 20 years ago.
 * Rule1: Markets tend to return to the mean over time
 * Rule 2: Excesses in one direction will lead to an opposite excess in the
   other direction
 * Rule 3: There are no new eras — excesses are never permanent
 * Rule 4: Exponential rapidly rising or falling markets usually go further than
   you think, but they do not correct by going sideways
 * Rule 5: The public buys the most at the top and the least at the bottom
 * Rule 6: Fear and greed are stronger than long-term resolve
 * Rule 7: Markets are strongest when they are broad and weakest when they
   narrow to a handful of blue chip names
 * Rule 8: Bear markets have three stages — sharp down — reflexive rebound — a
   drawn-out fundamental downtrend
 * Rule 9: When all the experts and forecasts agree – something else is going to
   happen
 * Rule 10: Bull markets are more fun than bear markets


CONTRIBUTOR(S)


STEPHEN SUTTMEIER, CMT, CFA

Stephen Suttmeier is a director and the Chief Equity Technical Strategist at
Merrill Lynch, based in New York. His regular research publications include the
Monthly Chart Portfolio of Global Markets, Market Analysis Comment, Sectors and
Stocks on the Move, Thematic Stock Charts,...

Read More


PAUL CIANA, CMT

Paul Ciana, Bank of America's Chief Global FICC Technical Strategist and
Director of Research. Paul believes the best technical strategy is a diversified
technical strategy, so he aligns proprietary and familiar technical theory to
make the best call. He publishes his views...

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IN MEMORIAM

Our colleague and fellow technician, Lawrence “Larry” Laterza, passed away in
early May at the age of 74. Larry served on the Board of the Technical Analysis
Educational Foundation for many years and was a passionate advocate of Technical
Analysis. He had a successful career on Wall Street as a broker for Merrill
Lynch and Prudential Bache Securities, and was an adjunct professor at Rutgers
University where he taught graduate classes in Technical Analysis and
commodities markets. He also taught at Baruch College in Manhattan, where the
Library of Technical Analysis is housed. I wish my sincere condolences to
Larry’s family, friends and all who knew him. -Brett Villaume    Larry was a
longtime member of the foundation’s Library Committee, tasked with maintaining a
collection of nearly 5,000 publications that constitute a significant portion of
the body of knowledge of technical analysis. Larry always had a suggestion, a
comment, or an observation that

To view this content you must be an active member of the CMT Association.
Not a member? Join the CMT Association and unlock access to hundreds of hours of
written and video technical analysis content, including the Journal of Technical
Analysis and the Video Archives. Learn more about Membership here.

Login Upgrade Your Membership


CONTRIBUTOR(S)


BRETT VILLAUME, CMT, CAIA

Brett Villaume, CMT, CAIA, is President of the CMT Association and has served on
the Board of Directors since 2014. Additionally, Brett is a Wealth Advisor at
Dogpatch Capital, a registered investment advisor in San Francisco, CA. From
2015 to 2021, Brett served as Senior...

Read More


GEORGE A. SCHADE, JR., CMT

George A. Schade, Jr., who holds a Chartered Market Technician (CMT)
designation, has written extensively about the people and innovations that have
advanced the field of technical analysis within financial markets. A member of
the CMT Association since 1987, he has written...

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JULIE DAHLQUIST, PH.D., CMT

Julie Dahlquist, Ph.D., CMT is Professor of Professional Practice in the Finance
Department at Texas Christian University (TCU).  Previously, she served on the
faculty in the business schools at University of Texas at San Antonio and at St.
Mary’s University. Her teaching...

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NEW EDUCATIONAL CONTENT THIS MONTH

 * June 15, 2022
   
   
   
   HOW YOU CAN BENEFIT FROM LITTLE KNOWN SEASONAL AND CYCLICAL PATTERNS
   
   Presenter(s): Dimitri Speck

 * May 11, 2022
   
   
   
   CLEARING AWAY THE CLUTTER
   
   Presenter(s): Greg Schnell, CMT, MFTA

 * May 4, 2022
   
   
   
   VOLUME ANALYSIS SERIES (PART 4): THE VOLUME FACTOR – VOLUME ANALYSIS &
   MOMENTUM INVESTING
   
   Presenter(s): Buff Dormeier, CMT

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