Autumn 2016 SAMT Journal

The swiss

technical

A na lys i s Journal

Autumn 2016

Herbst Autunno Automne Autumn 2016

The Swiss Association of Market Technicians ZÜrich • GenEvA • Lugano • chur

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From the President’s Desk

Lugano

The U.S. election race is over, the new president has finally been elected and reading the VIX indicator shows that fear was far from reaching historical highs.

Therefore, for technicians, it was no surprise that markets tanked initially at the opening but started to recover during the day and even ended in positive territory.

But what will it mean for the markets when Trump steps into the office in January?

Read the article “Gold, the Dollar and the Dawn of a New Presidential Cycle” by Alberto Vivanti on page 15 to gain some insights into what you might expect.

Another topic where the markets are concerned is with a potential rate hike in interest rates in December. Will it finally happen or will it be delayed once again? What will be the impact on our economy and who could profit from it? Read the article “As the U.S. Approaches Another Rate Increase” by Jeanette Schwarz Young on page 21.

Martin Pring analyzes the primary trend rise in yields, arriving at some interesting conclusions on page 10.

On page 7 a global economic view in Dr. Dominick Salvatore’s article in which he examines the world economic situation after nearly seven years from the end of the deepest financial crisis of the postwar period.

And, Professor Hank Pruden shows us in an exhaustive writing the concept of the “Composite Man” and the “Delay Rule” beginning on page 25.

If you would like to experience these authors first hand, I highly suggest you attend the next IFTA conference in Milano, Italy. The last conference in Sydney, Australia has just finished and it was a great success. Learning from the professionals and networking with industry experts was of great value, while the social evenings brought the community of technical analysts closer together.

Sincerely yours,

Patrick Patrick Pfister, CFTe President, Swiss Association of Market Technicians (SAMT)

The Swiss Technical Analysis Journal • Autumn 2016 •

The swiss technical

WHAT’S INSIDE 6

Lantern Fund Forum: Share the Knowledge within the Network

Analysis Journal

Volume Four, Issue 2

AUTUMN 2016

Journal Committee

Mario Valentino Guffanti, CFTe

7

Can Advanced Nations Return to Rapid Growth and the World Avoid a New Global Financial Crisis?

Dominick Salvatore, Ph.D.

Mario V. Guffanti, CFTe + 39 33 691 91 70 mario.guffanti@samt-org.ch

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Ron William, CMT, MSTA +44 7857 245 424 ron.william@samt-org.ch

A Turn in the Tide: The Case for Rising Interest Rates

Design & Production Barbara Gomperts +1 978 745 5944 (USA) barbara.gomperts@samt-org.ch

Martin Pring

15

Gold, the Dollar and the Dawn of a new Presidential Cycle Alberto Vivanti

Follow SAMT on

21

As the U.S. Approaches Another Rate Increase Jeanette Schwarz Young, CFP®, CMT, MS

• Autumn 2016 • The Swiss Technical Analysis Journal

25

Join the Quest for The “Composite Man” Henry O. Pruden, Ph.D.

42

Photos from IFTA Conference 2016 in Sydney Patrick Pfister,CFTe

THE SWISS ASSOCIATION OF MARKET TECHNICIANS Board of Directors

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Membership

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Swiss Journal of Technical Analysis

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IFTA’s CFTe Certification Program

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Partner Societies

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To read articles on issuu.com from the past four years of The Swiss Journal of Technical Analysis, click here.

The Swiss Association of Market Technicians (SAMT) is a not-for-profit organization that does not hold a Swiss Financial Services License. It is the aim of the SAMT to promote the theory and practice of technical analysis, and to assist members in becoming more knowledgeable and competent technical analysts, through meetings and encouraging the interchange of materials, ideas and information. In furthering its aims the SAMT offers general material and information through its publications and other media.

The information provided on this Journal has been compiled for your convenience and made available for general personal use only.

SAMT makes no warranties implied or expressly, as to the accuracy or completeness of any information contained on the Journal. The SAMT directors, affiliates, officers, employees, agents, contractors, successors and assigns, will not accept any liability for any loss, damage or other injury resulting from its use.

The Swiss Association of Market Technicians ZÜrich • Geneva • Lugano • chur

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SAMT does not accept any liability for any investment decisions made on the basis of this information, nor any errors or omissions on the Journal. This Journal does not constitute financial advice and should not be taken as such. SAMT urges you to obtain professional advice before proceeding with any investment.

The material may include views and statements of third parties, which do not necessarily reflect the views of the SAMT. Information on this Journal is maintained by the people and organization to which it relates. The SAMT believes that the material contained on this Journal is based on the information from sources that are considered reliable. Although all care has been taken to ensure the material contained on this Journal is based on sources considered reliable we take no responsibility for the relevance and accuracy of this information.

Before relying or acting on the material, users should independently verify its accuracy, currency, completeness and relevance for their purposes.

The Swiss Technical Analysis Journal • Autumn 2016 •

Lantern Fund Forum: Share the Knowledge within the Network The sixth edition of the LFF – Lantern Fund Forum (formerly Lugano Fund Forum) will take place in Lugano on 21-22 November.

This prestigious event focuses on Asset Management, Investment Tools (covered warrants, certificates, ETFs, structured bonds, unit linked, etc.) and Fundamental Analysis is held at the Palazzo dei Congressi in Lugano (Canton Ticino) and each year it is becoming a more international Forum.

The event hosts a number of specialized conferences, prominent speakers and an exhibition area. https:// finlantern.com/fundforum/2016-special-guest-speakers/

This year’s special guest speaker will be Andrew Michael Spence, an American economist and recipient of the 2001 Nobel Memorial Prize in Economic Sciences, along with George Akerlof and Joseph E. Stiglitz, for their work on the dynamics of information flows and market development. A. Michael Spence joined New York University Leonard N. Stern School of Business as a professor of economics in 2010. He is a senior fellow at the Hoover Institution and the Philip H. Knight Professor Emeritus of Management in the Graduate School of Business at Stanford University.

Download the program:

https://finlantern.com/fundforum/wp-content/ uploads/2016/11/Program-LFF-2016-2.pdf Only participants, who fall under the definition of “Qualified Investor” (according to the Federal Act on Collective Investment Schemes), are admitted to attend the event.

Registration is absolutely FREE. http://community.finlantern.com/account/sign_up

The LFF-Lantern Fund Forum is organized by FinLantern, managed by CEO and founder, Riccardo Esposito. FinLantern is an international network that aims to support its members’ activities, to increase their visibility in the international financial community, but also to share the knowledge within the network.

In continuing our partnership with LFF, SAMT is pleased to publish the exclusive article written by Dr. Salvatore for our readers and members.

Another guest speaker will be Dr. Dominick Salvatore, the Distinguished Professor of Economics and Director of the Global Economic Policy Center at Fordham University, New York; Consultant to the Economic Policy Institute (EPI), World Bank, International Monetary Fund, United Nations, and author of the world’s leading textbook on international economics. His Theory and Problems of Microeconomics has been translated into 18 languages, with more than 800,000 copies sold. In all, he has published 54 volumes.

• Autumn 2016 • The Swiss Technical Analysis Journal

Can Advanced Nations Return to Rapid Growth and the World Avoid a New Global Financial Crisis?

Dominick Salvatore, Ph.D. 1. Introduction After nearly seven years from the end of the deepest global financial crisis of the postwar period, growth continues to be slow in advanced countries and falling in most emerging market economies. There is even the risk that the world may be drifting toward a new global financial crisis and even secular stagnation. These are the issues examined in this paper.

2. Growth Prospects in Advanced Nations The recent global financial crisis started in the U.S. housing sector in 2007 as a result of banks giving huge amounts of (sub-prime) loans or mortgages to individuals and families that could not afford them. When many individuals and families defaulted on their loans, U.S. banks fell into a deep crisis, which then spread to the entire financial sector in 2008 and, from there, to the U.S. real sector and to the rest of the world economy. The result was the “Great Recession” (Salvatore, 2010 and 2014).

Since the end of the 2008-2009 recession, the U.S. real growth rate averaged 2.1 percent per year (as compared with a yearly average of 3.0 percent in the decade before the recent crisis and recession) and is forecasted to be only 1.6 this year and 1.8 percent in 2017. Europe fared worse than the United States. Euro Area growth averaged only 0.8 percent from 2010-2015 (the Euro Area even fell back into recession in 2012-2013) and growth is forecasted to be 1.7 percent in 2016 and 1.5 in 2017. The situation was even worse in Japan (which was in recession in 2011 and 2014) and growth is now forecasted to be less than 1 percent this year and the next.

Britain and Canada fared better than the Eurozone and Japan since the end of the crisis, with a growth rate comparable to that of the United States.

While Europe and Japan would probably have been satisfied with the U.S. recovery and growth rate since the end of the recent recession, the United States is not. The reason is that the recovery was not rapid enough to bring the United States back on its long-run growth trend line, as it happened after all other postwar recessions. In fact, the U.S. recovery and the subsequent growth after the recent global financial crisis and recession was the slowest of the last six recessions that the United States experienced since the end of World War II. Despite the fall in the official unemployment rate from the high of 9.6 percent in 2010 to about 5 percent in 2015, the rate of underemployment (which includes also all marginally attached workers plus workers employed part time for economic reasons) was more than double the official unemployment rate and the ratio of the underemployment to unemployment rate was much higher in 2015 than in 2008.

Only in April 2014 did the number of U.S. jobs return to their 2007 level, even though the total labor force has increased

by over three million over the same period. This means that there were almost 3 million jobs “missing” in the United States at the beginning of 2016. Pressure on the U.S. labor market is also shown by the fact that the median the wage income grew at a much slower rate between 2010 and 2014 than in the previous two decades. Only in 2015 did U.S. wages began to rise faster (Salvatore, 2016).

The United States and other advanced nations responded to the “great recession” by rescuing banks and other financial institutions from bankruptcy, slashing interest rates, introducing huge economic stimulus packages, making very large injections of liquidity, and also undertaking heavy nontraditional expansionary monetary policy (quantitative easing or QE). More recently, the ECB, the Bank of Japan (as well as the central bank of several smaller advanced European countries) even introduced negative nominal interest rates. Such powerful expansionary monetary policy had been not even envisioned before the recent crisis. These efforts, however, only succeeded in preventing the recession from being deeper than otherwise and from making the subsequent recovery even slower than it actually was. Be that as it may, growth remained the most serious economic problem facing most advanced nations in 2016. Indeed, there is even the fear that the United States and other advanced countries may be facing secular stagnation (Gordon and Summers, 2015).

There are several reasons for the recovery from the recent deep recession being so much slower than after previous recessions in most advanced nations. The most important was the sharp decline in labor productivity. In the United States, the average yearly productivity growth was only 1.1 percent between 2007 and 2015 as compared with 2.4 percent between 1999 and 2006. Comparable figures in percentages were 0.7 and 1.8 in Japan, 0.1 and 2.4 in the United Kingdom, 0.5 and 1.5 in the Euro Area, and 0.6 and 1.9 in the European Union of the 28 member countries (EU-28). Another important reason for slower growth after the last recession as compared to before the recession was outsourcing. Most multinationals from advanced nations, in their effort to minimize production costs, transferred a great deal of production and jobs to emerging markets, especially China, during the past decade. Growth was also discouraged in advanced nations by high taxes and policy uncertainty.

Overregulation and an excessive welfare state was another reason, especially in Europe. Japan has had an even worse growth record than Europe and much worse than the United States. Indeed, Japan suffered 6 recessions during the past 25 years and its growth is forecasted to be only 0.5 percent this year and in 2017.

The Swiss Technical Analysis Journal • Autumn 2016 •

Tired of excessive EU regulations and immigration, the United Kingdom voted for Brexit on June 23, 2016. This was unexpected by most economists in the United Kingdom and abroad because calculations just before the vote showed that Brexit would impose high economic burdens on the United Kingdom. Immediately after the vote U.K. economic growth forecasted was sharply revised downward, financial markets exhibited strong volatility, and the stock market and the pound sterling fell sharply. These negative effects, however, soon subsided (except for the depreciation of the pound) but the Bank of England (BoE) lowered its benchmark rate to the lowest level in the BoE’s 322-year history) and also resumed QE to avoid a possible recession. Nevertheless, significant negative effects on the United Kingdom are forecasted in the years to come primarily as a result of the reduction in the inflow of foreign direct investments, immigration and skills, and in the importance of London as Europe’s premier financial center. Factored in these negative estimates are the positive effect of increased exports as a result of the depreciation of the pound sterling as well as the stimulus to growth resulting from the additional deregulation that the United Kingdom would be able to undertake with Brexit (however, since the United Kingdom is already much less regulated than the other EU members, the benefit of further deregulation with Brexit may not be very large).

The actual size of the negative effects on the United Kingdom and (by repercussion) on the rest of Europe and the world will depend, however, on how the United Kingdom manages Brexit and how the rest of the world (primarily the European Union) responds to it. Perhaps, the best deal that the United Kingdom can negotiate with the European Union is to remain part of the European Economic Area (EEA) upon exiting the European Union. This is often referred to as the Norway Case or “Brexit soft”, whereby the United Kingdom would retain full access to the European Union, while continuing its financial contribution to the European Union (but with no say in how EU rules are set) and continuing to uphold the EU’s four freedoms (the free flow of trade, services, capital, and labor). The European Union will accept no less as a condition for the United Kingdom to be a member of the EEA. Since one of the primary reasons for Brexit was to limit immigration, the United Kingdom may have second thoughts about leaving the European Union (despite Prime Minister Theresa May’s statement that “Brexit means Brexit”) after carefully re-evaluating the benefits and costs of Brexit.

3. Growth Prospects in Emerging Market Economies The recent economic crisis in emerging market economies started as a result of contagion as the recession-afflicted advanced nations sharply cut imports from and the flow of investments to emerging market economies. This was one reason for the decline in China’s previous spectacular growth. While India’s growth held up, most other large emerging market economies (Russia, Turkey, Mexico, and Brazil) faced deep recession after the global financial crisis.

The slowdown in China’s growth rate, however, was even more the result of its effort to restructure the economy toward more internal demand and a service economy rather than relying as in the past on continued export growth and on heavy domestic investments (the former because it was no longer sustainable and the latter because of the setting in of the dreaded diminishing returns). In the process, China’s demand for primary commodity imports from

other emerging market economies (especially Brazil and many African countries) declined sharply. This caused an even greater growth slowdown in other emerging market economies than the decline resulting from the recession in advanced countries.

As the demand for their primary exports declined, the currencies of emerging market economies sharply depreciated or were devalued, thus making the servicing of their previously large accumulated financial debt and dollar borrowings unsustainable. Brazil is facing deep recession, with a decline of its real GDP expected to be as much as 3.8% in 2016. Russia, of course, faced even more economic difficulties in 2015 as a result also of wars and the economic sanctions that it faced.

The economic crisis in most emerging market economies would have even been deeper, however, had these nations not been operating under some form of exchange rate flexibility or had not devalued their currencies (which cushioned to some extent their reduction in exports) and had they not entered the crisis with more foreign exchange reserves accumulated during the commodity boom of the previous decade. Nevertheless, most emerging markets are also facing lower growth rates that during the past decade.

4. Is the World Facing a New Global Financial Crisis?

A global financial crisis occurred in 1987, 1992, 1997, 2001, and 2008. With five crises in nearly 30 years (one crisis on a average every six years), the world seems to be due for another crisis soon. With nominal interest rates near zero in the United States, Britain and Canada and negative in Japan, the Euro Area (and Denmark, Sweden and Switzerland), investors, in a desperate search for returns, are undertaking “excessively” risky investments. How else can be explained the 40 percent rise of the Brazilian stock market (SP Bovespa) from January to October 2016? Thus, Brazil -- a country in deep recession, with an unsustainable budget deficit and national debt, and a dangerous political problem -- has had the best performing stock market in the world!

All it could take is even a small increase in the Fed policy rate to trigger a huge capital outflow and plunge Brazil in an even deeper economic crisis. The same could happen to other emerging market economies that are heavily indebted in dollars, and this could then trigger for a new world-wide financial and economic crisis. A new global crisis could also arise from a hard landing in China as a result of the bursting of its huge housing bubble and unsustainable corporate nonfinancial debt (that has now reached over 150 percent of its GDP). While we know that a new financial bubble is arising, no one can predict when a new crisis (like an earthquake) will actually occur. The trigger could be an event that under normal circumstances would not be very serious.

5. Is Slower World Growth or Even Secular Stagnation Inevitable?

Even without a new global financial crisis, is the world now facing generally slower growth than during the past decade? As we have seen above, the main reasons for the slow growth in advanced nations after the global financial crisis was the slowdown in the growth of labor productivity.

Governments are attempting to reverse this situation by improving social and physical infrastructures (education, technical training, telecommunications, transportation, etc.).

• Autumn 2016 • The Swiss Technical Analysis Journal

To the extend that the slowdown in economic growth is also due to overregulation, the cure, of course, would also be to deregulate. But this has been difficult to do, especially in Europe and Japan, and increasingly so in the United States.

After their spectacular growth during the past decade (Klein and Salvatore, 2013), emerging markets are also facing slower growth because of (1) the rapid slowdown in population growth and in the growth of their labor force, (2) the convergence hypothesis (which postulates that is it easier to grow starting from a very low base when there are many technologies still available to be copied or adapted than later on), (3) the related “middle-income trap” (i.e., the difficulty often experienced by emerging market economies taking off to reach advanced-economy status), and (4) in today’s highly interdependent world, because a slowdown of growth in advanced countries would inevitably lead to a slowdown in the growth of emerging economies also (and vice-versa).

Most emerging economies need to restructure their economies away from excessive reliance on exports of primary commodities and toward their service and manufacturing sectors, so that more of their future growth can be generated endogenously rather than them relying so much on commodity exports. Many emerging markets, however, have not taken advantage of the commodity boom of the previous decade to restructure their economies, and now that they are in a crisis they do not have the resources to do so. Furthermore, and as China is finding out, economic restructuring is not easy to carry out because it can lead to a further slowdown in growth during the restructuring process, as the restructuring costs are incurred up-front while the benefits come only gradually over time.

A minority of economists believe that the most serious problem facing the world economy today is not just the risk of another global financial crisis or even slower growth but, more ominously, it is the danger of downright secular stagnation in advanced nations and growth recession in emerging (Gordon and Summers, 2015). These economists believe that the only way to avert secular stagnation would be by a coordinated, massive injection of public expenditures (fiscal stimulus) on a global scale directed at building and repairing infrastructures. These are supposed to increase productivity and growth, and to pay for themselves. Japan,

however, has actually tried this during the past two decades to no avail -- its debt is now almost 250 percent of GDP and its average growth rate has been below 1 percent per year.

And, wound markets continue to finance larger and larger national debts at reasonable rates indefinitely? It has been estimated that for each one percent increase in the interest rate, the United States would require an additional $100 billion dollars to service its debt!

6. Conclusion After six years from the end of the deepest global financial crisis of the postwar period, growth continues to be slow in most advanced and falling in most emerging market economies. There is even the risk that the world may be drifting toward a new global financial crisis in the short run and slower growth or even secular stagnation in the long run. There are conflicting opinions as to the validity of these projections and expectations, as well as on to how best to respond to reverse slowing world growth or secular stagnation, if indeed those expectations will come to pass.

References Gordon, R. J. (2015). “Secular Stagnation: A Supply-Side View”. American Economic Review Papers and Proceedings, 105 (5), pp. 54-59. n IMF (2016), World Economic Outlook (Washington, D.C.: IMF, October). n Klein, L. and Salvatore, D. (2013). “From G-7 to G-20”.

Journal of Policy Modeling, 35 (3), pp. 416-424. n OECD (2016), Economic Outlook (Paris: OECD, November. n Salvatore, D. (2010). “Causes and Effects of the Global Financial Crisis”. Journal of Politics and Society, 21 (Spring), pp. 7-16. n Salvatore, D. (2014). Editor, Rapid Growth or Stagnation for the U.S. and the World Economy? Special Issue of the Journal of Policy Modeling, 36 (4). n Salvatore, D. (2016). “Slow Recovery and Growth Prospects for the United States.” Special Issue of the Journal of Policy Modeling, 38 (4), pp. 624-631. n Summers, L. H. (2015). Demand side secular stagnation.

American Economic Review Papers and Proceedings,105 (5), pp. 60-65. n

Dominick Salvatore is Distinguished Professor of Economics, Director of the Ph.D. Program in Economics at Fordham University in New York City and Director of the Global Economic Policy Center. He is Honorary Professor at the Shanghai Finance University, Nanjing Finance and Economics University, Hunan University, and University of Pretoria; Visiting Professor at various universities, including University of Rome, American University in Cairo, University of Pretoria, Peking University, University of Trieste, and University of Vienna. Dr. Salvatore is a Fellow of the New York Academy of Sciences and past Chairman of its Economics Section. He is also the past president of the North American Economic and Finance Association (NAEFA) and the International Trade and Finance Association (ITFA). He is a Consultant to the United Nations, the World Bank, the International Monetary Fund, the Economic Policy Institute, and several multinational corporations and global banks. He is the co-editor of the Journal of Policy Modeling and past co-editor of Open Economies Review and The American Economist, as well as past Editor of the Handbook Series in Economics, Greenwood Press. He has given more than 600 lectures around the world, was awarded the Achievement Award by the City of University of New York in 1997, the Order of the Knights of Malta, and was nominated for the 2010 National Medal of Science awarded by the President of the United States. Dr. Salvatore is the author of leading textbooks on International Economics, Managerial Economics, and Microeconomics. In all, he has published 58 volumes. Web: www.fordham.edu/economics/salvatore.

The Swiss Technical Analysis Journal • Autumn 2016 •

A Turn in the Tide: The Case for Rising Interest Rates Martin Pring The purpose of this article is to make the case for a primary trend rise in yields. If this assumption turns out to be correct, it is within the realm of possibilities that this same rally may also be a turn in the tide for the initial advance in a new, very long-term or secular uptrend. Our quest as investment advisors is to detect significant changes in financial asset trends as early as possible. Early detection of cyclical and secular turning points and aligning portfolios with those new trends makes our mission to protect and grow clients’ valuable assets easier and with less risk. If the primary trend in interest rates has reversed its multi-year decline then bond holders will be subject to massive portfolio losses.

Secular turning points usually develop as markets overshoot and crowd psychology moves to an irrational extreme. At such times, accepted standards no longer apply as markets temporarily move to nonsensical extremes. For example, at the 1990 peak of the Japanese real estate boom, the Emperors’ palace was said to be worth more than the real estate value in California. At the height of the tech boom in 2000, the travel website Priceline.com had a capitalization greater than the combined value of all the major US airlines. It is not inconceivable that global bond markets have reached a similar type of illogical turning point. For example, a recent

Wall St Journal article featured a Danish home owner who took out a mortgage. He did not pay any interest, but instead was obligated to receive payments in return for taking out the loan. Five thousand years of interest rate history says it should be the other way around. Welcome to the world of negative interest rates! It is possible that such irrationality can continue, but it is more likely that it will not. Just bear in mind the actuarial challenges for life insurance companies, pension funds and other entities as they struggle to provide for future obligations with returns on fixed income vehicles well below that of their fiduciary requirements.

During the last few decades holding bonds has paid off as substantial capital gains have compensated for declining current return. Now that rates are close to zero, capital gains cannot continue. The only way they could, is for the markets to push yields deep into negative interest rate territory. That would mean pension funds, for instance, would be paying to invest instead of receiving income as a return on capital.

While we think there is a very good possibility rates are in the process of reversing their secular downtrend, more evidence in that direction is needed before coming to a firm conclusion. What can be said, though, is that economic and technical forces justifying a primary trend reversal are rapidly

Chart 1 - The Commercial Paper Yield versus the Economy A rising economy generally pushes shot-rates higher Commerical Paper Yield (3-month)

Green and red highlights indicate when the Growth Indicator is above or below zero Growth Indicator

10 • Autumn 2016 • The Swiss Technical Analysis Journal

falling into place. Whether that cyclical advance would be sufficient to reverse the post 1981, 35-year downtrend, is a question that will have to be addressed later.

The Economy

The growth path of the economy represents a broad proxy for the demand for credit and can therefore be useful in identifying basic reversals in the trend of interest rates.

Some indicators that measure tightness in the system, such as capacity utilization, work well some of the time but have been inconsistent at calling interest rate rallies during the secular bear.

We never expect anything to be perfect, but a composite indicator calculated from a rate-of-change of several economic components has been better than most. We call it the “Growth Indicator” and it is plotted in Chart 1.

Green highlights indicate when it is above zero; i.e., reflecting an expanding economy, and red when below. Federal Reserve policy has been particularly accommodative in the last few years, which could explain why our model gave a false signal of strength in the 2009-2011 period. Whenever a fundamental indicator is used, it makes sense to combine it with a trend following technique. In that way we can see whether the price series being monitored is responding to any fundamental changes. Our weapon of choice in this regard is the 12-month MA. On that basis the recent positive zero crossover by the Growth Indicator has certainly been confirmed by the yield action, whereas, say the false positives in the 2002-03 and 2009-2011 were not. So this economic ‘Growth Indicator” is showing investors should expect rising interest rates and therefore lower bond prices to go along with a rising economy.

The Yield Curve and Commodity Prices

Another indicator that has proved useful in gauging the ups and downs of money market rates has been our Commodity/Yield Curve Momentum, featured in the bottom window of Chart 2. Yield curves compare the performance of a short-term maturity to a longer-term one. Our favorite is the relationship between the yield on 3-month commercial paper and Moody’s corporate AAA yield; the so-called corporate yield curve. The direction of the curve tells us whether financial conditions are tightening or easing. A rising one, where short-rates are gaining on long rates, generally reflects a tightening in conditions and an improving economy. When short-rates exceed longer-term ones it tells us that environment is sufficiently stringent that a slowdown or actual contraction in the level of business activity should be expected.

Interest rates are also significantly impacted by rising or falling commodity prices. The bottom window of Chart 2 features an indicator that is constructed from a rate-ofchange of both elements. The green highlights show when this composite momentum series crosses above zero a bullish environment for short-term interest rates exists, and vice versa. Currently, the indicator is at a record high reading.

That tells us two things. First, it is likely to be some time before a signal of lower rates is triggered by a negative zero crossover. Second, experience tells us that whenever any momentum indicator moves to a record high, it is usually a sign of a multi-decade reversal. Put more bluntly, this is one of the characteristics we would expect to see at a secular turning point for rates.

If this is indeed a secular turning point for rates bond investors will have to reverse their thinking by unwinding strategies that have done well during the post 1981 secular downtrend in yields. This will come as a shock, since most all investors today have only known a secular bear market in yields (bull market in bonds).

Chart 2 - Commercial Paper Yield and a Momentum Indicator When yield curve and commodity momentum rises, so do yields

The Swiss Technical Analysis Journal • Autumn 2016 • 11

Credit Spreads and Their Effect on Bond Yields

Changes in confidence among bond market participants reflect their expectations for the economy. This sentiment is best expressed through credit spreads, where a high quality credit market instrument is compared to a more questionable one. An example is featured in the center panel of Chart 3.

This series represents a long-term smoothed momentum of the actual ratio between the 20-year government and Moody’s Baa corporate bond yield. When the indicator is rising, it indicates that lower quality bonds are out-performing their higher quality counterparts in terms of price. In other words, bond market investors as a group are down playing the risk of credit defaults, because of their upbeat view of the economy. Increased credit demands place upward pressure on rates when business activity picks up. Not surprisingly, when this momentum series bottoms from at or below, the overstretched green horizontal line in the lower window of the chart, the 20-year yield has a strong tendency to rise.

Examples of such reversals since the 1950’s are shown by the vertical lines.

The Technical Picture

The monthly average of the 20-year bond yield may have touched a new secular low in July, but the indicators are hinting at a reversal. The long-term smoothed momentum for the yield itself, featured in the center panel, is still declining. However, a similar measure calculated from the ratio between our Inflation and Deflation sensitive equity indexes, in the bottom window, has already begun to turn up. Inflation sensitive S&P industry groups would include such areas as mining and energy, whereas deflation sensitive groups would embrace defensive and interest sensitive areas such as insurance companies, utilities, etc. The ups and downs of this relationship therefore represent the stock market’s way of voting for inflation (rising rates) or deflation (falling rates). In this respect, the green arrows demonstrate that reversals in this indicator have consistently represented

an advance warning of a bottoming of both the 20-year yield itself and its momentum.

More evidence of a potential near-term reversal comes from the 12-month ROC for the 20-year yield. The arrows flag the 17 instances since 1955 when the ROC has reversed from a position close to or in excess of the -25% or +25% overstretched lines. The indicator, using an incomplete October average, has just crossed above its oversold zone again. Certainly we cannot call it a decisive reversal at this point. However, this rate of change is very over extended on the downside, which means that it will need increasingly higher doses of lower rates in order to maintain that downward trajectory.

CONCLUSION

Based on several cyclical indicators that have been pretty consistent in the last 50-years or so, it is difficult not to conclude that rates are headed higher. Whether that reversal will be of sufficient magnitude to also reverse the 1981-20?? secular bear market in yields and bull market in bonds is open to question.

We recommend bond investors remain on high alert. Higher primary trend interest rates mean lower bond prices and losses for unsuspecting investors. We have begun taking steps to manage the increasing risk of owning bonds in portfolios. The first step required a lowering the overall allocation, starting with reduced exposure to the longest dated maturities, as these are subject to the largest risk.

Step number two involved the building of a “ladder” of short to intermediate term bonds. A ladder arranges bond investments with successive maturity dates to allow the flexibility to reinvest into higher paying bonds as each rung of the ladder comes due. Even during a secular up move in yields, there will still be cyclical opportunities to temporarily invest in longer dated bonds. Our view going forward, is that it will more profitable to “rent” longer term bonds than to “own” them to maturity. In a world with conventional

Chart 3-Government Bond Yields versus a Credit Spread Momentum Upside reversals in credit spread momentum are usually followed by higher rates

12 • Autumn 2016 • The Swiss Technical Analysis Journal

Chart 4- Government Bond Yields versus Two Momentum Indicators Momentum for sector relationships in the equity market usually lead the bond market Secular down trendline

Chart 5 - Government Bond Yields and a 12-month Rate-of-Change Reversals through the + and- 25% zone consistently signal primary trend changes in interest rates

wisdom turned upside down with both negative yields and 95% of global bonds yielding less than 2%, active strategies to protect and grow wealth will be required. After 35 years of near continuous declining yields and a desperate reach for income today, bond investors are unprepared and vulnerable to any rise in interest rates. Paying attention and acting on trend changes will help you profitably navigate the cyclical and secular shifts in yields and bond prices. Stay tuned.

In the meantime, if you live in Europe, you really ought to take advantage of those mortgages paying the borrower, as 5000 years of history tells us that deal won’t be around much longer!

DISCLOSURES

Pring Turner Capital Group (“Investment Advisor”) is an investment advisor based in Walnut Creek, CA. The Investment Advisor invests on behalf of individuals, organizations, and other financial advisors that appreciate a conservative and active investment style that aims to deliver consistent results without taking undue risk. The key objective of the Advisor’s investment philosophy is to not lose big during major market declines, making it easier to compound wealth over the long run.

The Swiss Technical Analysis Journal • Autumn 2016 • 13

The Investment Advisor is registered with the U.S. Securities and Exchange Commission. The views expressed herein represent the opinions of Investment Advisor, are provided for informational purposes only and are not intended as investment advice or to predict or depict the performance of any investment. These views are presented as of the date hereof and are subject to change based on subsequent developments.

In addition, this document contains certain forward-looking statements which involve risks and uncertainties. Actual results and conditions may differ from the opinions expressed herein. All external data, including the information used to develop the opinions herein, was gathered from sources we

consider reliable and believe to be accurate; however, no independent verification has been made and accuracy is not guaranteed. Neither Investment Advisor, nor any person connected with it, accepts any liability arising from the use of this information. Recipients of the information contained herein should exercise due care and caution prior to making any decision or acting or omitting to act on the basis of the information contained herein. ©2016 Pring Turner Capital Group Walnut Creek, CA. All rights reserved.

Chart Source

Martin Pring’s InterMarket Review

Martin Pring is an honorary member of SAMT and Chairman of Pring Turner Capital Group. He is also President of Pring.com, publisher of Martin Pring’s Intermarket Review, which offers a monthly technical synopsis of the world’s principal finanacial markets.

14 • Autumn 2016 • The Swiss Technical Analysis Journal

Gold, the Dollar and the Dawn of a New Presidential Cycle Alberto Vivanti The relationship between the 4-year presidential cycle in the U.S. and the stock market has been a very hot topic of discussion for years and not only among technical analysts. According to this theory, the market tends to follow a certain pattern in each single year of the presidential term; though this is not always true, studies have found a good degree of seasonality in market’s recurrence. Can such theory also apply to other asset classes like the Dollar and Gold? Unlike the case of the stock market it is somewhat harder to find a rationale in the relationship between Gold and the Presidential Cycle.

Figure 1 The historical course of Gold in the last 50 years is marked by different and prolonged trending cycles, including a wearing 80% depreciation that lasted twenty years between 1980 and 2001.

As shown by the chart in Figure 1 the historical course of Gold in the last 50 years is marked by different and prolonged trends. Even if $100 invested in Gold in 1968 had turned into about $3,000 today, a 7% yearly compounded return, not far from that of the equity market, only three big up-trends contributed to it, interrupted by an exhausting 20-year bear market between 1980 and 2001 during which Gold depreciated about 80% from high to low, in spite of those who consider Gold a safe haven.

The Swiss Technical Analysis Journal • Autumn 2016 • 15

Figure 2 Trade-weighted Dollar Index (in green) and the price of Gold (in red) 1996-2016

Figure 3 Correlation coefficient at 6 months calculated on 26-weeks returns between the price of Gold and that of the tradeweighted Dollar Index (DXY)

At a first glance, the Presidential Cycles, that are evidenced by the histograms in the chart, have little to do with the underlying trend, unless we take into account another important factor that influences Gold, that is the Dollar.

There is generally an inverse relationship between the course of the U.S. Dollar and the price of Gold. When the value of the Dollar decreases, Gold tends often to appreciate. The common wisdom suggests that a falling Dollar increases the value of foreign currencies, and so the demand for commodities including Gold.

A weaker Dollar is also potentially inflationary, so when the U.S. currency lose its value, investors look for alternatives to store value and Gold is one them, maybe the most significant.

The chart in Figure 2 compares the price of Gold to that of the Dollar tradeweighted index (DXY) in the 20 years between 1996 and 2016. An inverse relationship mostly recurs and it shows at first glance.

16 • Autumn 2016 • The Swiss Technical Analysis Journal

But let’s analyze the numbers, and to do that we’ll calculate the values for the correlation coefficient between Gold and the Dollar in the past. The correlation coefficient determines the degree to which two variables’ movements are associated. It can range from -1.0 to 1.0 where -1.0 indicates a perfect negative correlation, and +1.0 indicates a perfect positive correlation.

The chart in Figure 3 shows the value of the correlation coefficient calculated between the weekly returns of Gold and Dollar index at six months since 1971.

During these 45 years, the coefficient stood in negative territory most of the time with some exceptions, most notably between 1990 and 1993 and 2009. So, if the strength in the U.S. Dollar is likely to translate into weakness for Gold, then it is reasonable to consider the Dollar cyclicality during the presidential term as a good indication for Gold.

Figure 4 The sharpest trends in the Dollar during a presidential term, since 1973

Figure 5 The best presidential terms for Gold since 1973

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Figure 6 The worst presidential terms for Gold since 1973

Figure 7 Performance of Dollar Index and Gold for each presidential mandate since 1973

A look at Figures 4, 5 and 6 reveals the absence of a recurring pattern for both U.S. Dollar and Gold, during a presidential cycle. The Dollar Index followed a rising path in 1981/84, 1997/2000, 2013/2016. The trend was downwards in 1977/80, 1985/88, 2001/04.

Whether the president is a Democrat or a Republican doesn’t matter so much, and so for Gold, as can be seen in the charts in Figures 5 and 6. Noteworthy, by the way, is the persistence of the trend during a presidential mandate, for both, U.S. Dollar and Gold. It is quite rare that the trend set by one of these two assets during the first year of the presidential mandate reverses its course in the three

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years that follow. It is curious to note that between 1973 and 1976, Gold rose in the first two years and reversed afterwards – just as when Richard Nixon was replaced by his vice president Gerald Ford, the presidential change reversed the trend. It is also interesting to observe the sharp reversal in the downtrend of Gold during the Reagan term in 1982, but this was an intermediate correction after the reversal in trend that followed the bubble explosion of 1980. The initial downtrend then resumed in 1983.

The single returns in each presidential mandate of Dollar and Gold since 1973 are shown in the table in Figure 7. The background is red for the Republican administrations, blue for the Democrats. A look at the table confirms the opposite sign of the returns between the two, as a result of the mostly negative correlation described above and shown in the chart in Figure 3.

Figure 8 the price of Gold in US dollars per ounce 2002-2016. Logarithmic scale

Figure 9 U.S.Dollar Index 2002-2016.

Logarithmic scale

The Swiss Technical Analysis Journal • Autumn 2016 • 19

At the end of 2016 Gold was still subdued by bearish mood that had started from the trend reversal of 2011 when it reached $1,900 per ounce. The sharp rebound of the second half of 2016 has not yet been enough to decree a trend reversal while the low at $1,045 still represented a critical point.

The Dollar Index, by its side, was still trading in the horizontal range, measuring about 8%, that had started in 2015 after the sharp recovery of about 25% from the early 2014 low. A clear direction was not visible but, as stated in this analysis, the trend that could develop for both assets, in the early months of 2017, first of the new four-year presidential term, could be significant for the direction of next cycle.

Alberto Vivanti, Independent analyst, founder of Vivanti Analysis in 2003.Alberto is a technical and quantitative analyst since the early 1980’s, with a sound experience as an asset manager with Swiss Institutions. Author of a technical newsletter, lecturer for institutions and instructor in Technical Analysis courses in Switzerland for the IFTA Certification, author of articles and books has been co-author of a book with Perry Kaufman.

Alberto chaired the IFTA conference held in Lugano in 2006. He has been an official speak at the IFTA Conferences 1998 in Rome and 2006 in Lugano.Alberto is Vice President of the Swiss Association of Market Technicians, representing the Chur and Liechtenstein Chapter.

20 • Autumn 2016 • The Swiss Technical Analysis Journal

As the U.S. Approaches Another Rate Increase Jeanette Schwarz Young, CFP®, CMT, MS

This is a follow up to Jeanette’s first article in our Spring 2015 Journal. You can read this article beginning on page 14 by clicking here.

US Dollar Index - Daily June - November 12, 2106

Here is a good question for the FOMC (Federal Open Market Committee); how has the employment landscape changed in the last decade? To address this question one must review technology and how it has helped efficiency and reduced the need for human employment. Today, we have technology that will invest for you, type a letter using voice commands, build you a car and hey, even drive it for you. Where the humans are needed is on the programing and design side.

Yes, auto financial planners will come up with a financial plan following a few brief questions on time horizon, risk tolerance etc; however, humans are needed to perpetually update and adjust the models powering them. What about all of those traditional financial planners who you might have hired…….gone, zapped out by technology.

Well, perhaps all of these jobs are not all together extinct; rather, the jobs have become fewer in number as they become more centralized.

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US Dollar Index - Weekly July 2016 - 12 November 2016

For many years I spent my days in the pits of the New York Board of Trade, making markets in futures and options. As I assessed liquidity and mood, I bought, sold and kept track of my inventory. Today, that job has evolved. Yes, an algorithm executes the trades and automates many of these functions; however, technology has also made the landscape more complex. With multiple exchanges, dark pools and brokers, a market maker/analyst often assesses the many changing rules and functions across all of these platforms, providing instructions to a developer who then codes them into rules based strategies. The job is still there; it has just become more complex. As we move into the future we must understand that jobs are morphing and changing. Unfortunately, we humans are not learning some of these new skills that will be needed to keep employed.

About a year ago we wrote that a strong US dollar would have a negative impact on US multinationals. Today we clearly see that we were correct. Remember, a strong US Dollar is deflationary. Commodities priced in dollars are declining, with the exception of crude oil, which is a story in and of itself. Imports are becoming cheaper for the US consumer which in turn is putting pressure on multinationals who have had to increase wages (minimum wage), but have been unable to pass through that cost to the consumer on their products. In other words, their margins are getting pressured. Together with technological innovations we see a perfect storm.

Today, we live in hope that crude oil will pull us out of this economic funk as it did following the financial implosion seen in 2008. Following the 2008 financial mess, increased drilling rigs, production of oil, transportation of petroleum products and all of the ancillary jobs that came along to support the industry

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played an important part in putting Americans back to work. Towns had a rebirth and expansion was seen. Will this happen again? True, our oil reliance isn’t going anywhere anytime soon; however, incredible innovations in hybrid and electric technology have forever changed the landscape of this industry placing permanent downward pressure.

Crude Oil Daily September - 03 November 2016

In the last week of October 2016, we saw an increase in GDP, so we seem to have a sort of inflationary deflation. Medical costs, insurance, and housing are for sure going higher with the caveat that housing prices will probably level off and stagnate when the FOMC raises rates. The minimal expansion in the housing market will at first increase to lock in rates before they go higher but in the end, the increase in rates decreases the affordability rate of the houses purchases. We actually saw a decrease in consumer spending which was reported as 0.6% Xautos. The much anticipated tick up in rates, expected from the FOMC at their December meeting will undoubtedly increase rates. It all comes down to how much money is in the till and how much can be allocated to housing. If the mortgage interest rates are higher, then the price of the homes bought will have to be cheaper. After all, this is a matter of dollars and cents.

All of the above does not bode well for an expansion explosion here in the USA. It does look like a continuation of the same slow expansion of the economy. What the USA needs is some stimulus spending like road repair, airport updating, bridge repairs etch which would help to put some much needed income in the hands of the average wage earner.

What will a rate increase from the FOMC do to stimulate this dragging economy?

Nothing!

The Swiss Technical Analysis Journal • Autumn 2016 • 23

Crude Oil Weekly January 2015 - 01 November 2016

As the USA approaches another rate increase, the European markets continue to hold their simulative stance. Europe is getting cheap especially when compared to the US and even cheaper is the UK. Many UK companies are on fire sale because of the fall in the pound and the exit from the European Union; however, this seems to be akin to a game of hot potato with no one wanting to be stuck holding a burning wreck. Perhaps the strong US Dollar should be used purchase quality UK and European companies. While shopping, do not stop at England, the weak Euro has also put all of the Euro Zone on sale. As Americans we can stock up on those imports from England which, a couple of months ago were too expensive to go out and buy yourself a new Burberry coat. Everything is on sale in England … enjoy and shop on!

Jeanette’s career includes portfolio management, syndication, option strategist, hedger, operations principle, bond principal, pit trader and general market trader. Jeanette worked for the NYBOT (New York Board of Trade) and later ICE where she wrote, produced, and aired two market reports daily covering the financials, currencies, and the softs. Jeanette is the past President of American Association of Professional Technical Analysts (AAPTA). She is the author of the Option Queen Letter, a weekly newsletter. In 2007 her book The Options Doctor was published by John Wiley & Son. She placed third in the globe in the National Investment Challenge Pro Option’s Division in the mid-nineties. Ms. Young is a member of the IFTA Board of Directors.

24 • Autumn 2016 • The Swiss Technical Analysis Journal

Join the Quest for The “Composite Man” Henry O. Pruden, Ph.D.

“Anyone who buys or sells a stock, a bond, or a commodity for profit is speculating if he employs intelligent foresight. If he does not, he is gambling.”

- Richard D. Wyckoff

The most profound lesson I learned abroad while working with individuals and with groups during my year as IFTA’s Roving Ambassador (2004-2005) was the essentialness of the Concept of the Composite Man for students of the Wyckoff Method of technical analysis.

As Richard D. Wyckoff and his disciples have said: In studying, understanding, and interpreting market action, we consider all market actionas a manufactured operation in which the buying and/or selling is sufficiently centered and coming from interests better informed than the generally untrained individual investor/speculator. The many large interests which do have an effect on the market place (trust companies, banks, mutual funds, investment trusts, investment companies, hedge funds, specialists, position brokers, etc.) are best thought of as the Composite Man. This Composite Man causes the market to act and react. Or, what actually happens is the market responds to the ageless, natural law of supply and demand. The Composite Man and the effects of the law of supply and demand are really synonymous. It is the result of the motives, objectives, hopes, and fears of all the buyers and sellers whose actions produce the net effect upon the market.

Other terms which may be thought to be synonymous with the Composite Man would be “the market,” “the sponsor,” “the operator,” or “they.” These terms are used interchangeably…. The selection of the terms is determined by what is most meaninful to the student [emphasis added].

It should be your objective to think of the Composite Man as the primary force in the market place. Thinking of him in this light should enhance your analysis of the action resulting from the dominant groups operating within the individual stocks and their total effect within the general market place.

During my IFTA Ambassadorship I came to better appreciate how difficult it is for traders and analysts to really grasp and apply with ease the concept of the Composite Man. The upshot of that lesson learned abroad was that serious students need to track down the Composite Man. Each of us needs to understand him and use him more thoroughly, more intimately, and more profoundly.

To commence this quest for the Composite Man, you can rely upon the fine starts made by Richard D. Wyckoff and his associates. You can also turn to the captivating anecdotes found in the Reminiscences of a Stock Operator.

To dig more deeply, select any of the following available routes. There is the historical route of studying the character, life and times of the legendary operators of Wall Street in the early 1900s or of other operators on earlier streets, for example, James R. Keene. Another route would be to conduct the quest using the most modern analytical tools available from the theories of behavioral finance. An interesting and creative approach would be to capture the Composite Man with allegories and metaphors. A challenging, and perhaps the most prodound route, would be to collect an understanding of the Composite Man and increase your capacity to make profitable use of that Composite Man Concept through writing, especially fictional writing.

During the year that I travelled about Europe and the Middle East, my awareness of the power of writing, particularly the power of writing fictional stories, became considerably enhanced. In Spain I found fruit in Washington Irving’s Tales of the Alhambra. In Paris, I located a good guide in William H. Gass, Fiction and Figures of Life. Then there was the inspiring visit to Winston Churchill’s home The Swiss Technical Analysis Journal • Autumn 2016 • 25

in Chartwell, England. In Cairo, I was introduced to the fascinating short stories recorded in the Time and the Place, by Egyptian Nobel Prize Winner Naguib Mahfouz. Finally, in Prague, the Czech Republic, I visited an intriguing exposition of Franz Kafka, and then purchased and studied a book covering that exposition entitled The City of K.: Franz Kafka and Prague.

All of the foregoing routes and books instruct us to believe that we have powerful ways within our grasp that enable us to command a greater mastery of the concept of the Composite Man. For example, Kafka, who was the master at getting behind the scenes and exploring the essence of things, had the following to say about his craft of writing: The strange, mysterious, perhaps dangerous, perhaps saving comfort that there is in writing: it is a leap out of murderers’ row; it is seeing of what is really taking place. This occurs by a higher type of observation, a higher, not a keener type, and the higher it is and the less within reach of the “row,” the more independent it becomes, the more obedient to its own laws of motion, the more incalculable, the more joyful, the more ascendant its course.”

Literature is a fiction that achieves its greatest power when it reveals, denounces, or dismantles the powerful fiction that governs the lives of men...

Within my “Three-in-One Trader Model” there is an additional or fourth dimension, the person of the trader or technical-trader himself or herself. An image of this idealized trader is visible in my book, The Three Skills of Top Trading.

The image of the Three-in-One Trader appears in the center of that model, where it suggests the combination and unification of the three other dimensions or the three elements of behavioral finance, pattern recognition and mental discipline personified in one individual.

A fruitful future direction for case study research would be the pursuit of the “person” contained within the Three-in-One Trader Model. For a sense of proportion and direction in conducting such a pursuit, one can turn to the historical examples provided by Edwin Lefevre in The Reminiscences of a Stock Operator. Some observers have asserted that the book was based upon the persona and the exploits of Jesse Livermore, the famous trader of the 1920s era. Other observers believe that the numerous anecdoes were really fictional, that they were inspired by the lives and accomplishments of the many real traders encountered

by Lefevre during that epoch of the early 1900s on Wall Street.

The principal character found in the Lefevre book, Mr. Larry Livingstone, could well be a composite of many other men. In any respect, traders and analysts have discovered and re-discovered this book as a treasure chest. The Reminiscences can serve as a valuable means of rounding out the Composite Man. The Concept of the Composite Man can be fashioned into an Archetype, a fictional character, who works behind the scenes. A useful guide is for one to follow in his footsteps by reading the charts per the Wyckoff Method to interpret his/her intentions and then to act accordingly.

Although the Concept of the Composite Man is a valuable heuristic for grasping the essence of the Three-in-One Trader, it is an elusive concept. It has been my experience that the Concept of the Composite Man is difficult for professional people who are active in the market to grasp and thus to employ with ease. Therefore, a quest for the Concept of the Composite Man is an ongoing task of high priority for all IFTA members.

References

Hank Pruden, The Three Skills of Top Trading (John Wiley & Sons, 2007). ™ n Edwin Lefevre, Reminiscences of a Stock Operator , reprint (John Wiley & Sons, 2006). n

26 • Autumn 2016 • The Swiss Technical Analysis Journal

How Wyckoff ’s Composite Man Implements the “Delay Rule” The Decision Rule implemented by Wyckoff’s Composite Man is the Delay Rule

Study charts with the purpose of judging the behavior of the stock and the motives of those who dominate it.

To study charts, look for the motives behind the action which the chart portrays.

The market is made by the mind of men, and all of the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and plays a stock to his advantage. It is to your disadvantage if you do not understand the game as he plays it; and to your advantage if you do understand it. — Richard D. Wyckoff

Following the Delay Rule means that the Composite Man will delay making a radical change in trend direction until after all of the remaining pockets of demand (buyers) or supply (sellers) have been exhausted.

The Realm of CATASTROPHE THEORY

This article contains models from the social sciences.

In the social science portion of Catastrophe Theory, the “Administrator” is the principal balancing agent in the struggle between the bulls and the bears.

In making decisions to support either the bulls or the bears, Wyckoff’s Composite Man, like the Administrator, judges their relative strength of bulls vs bears continual successive comparisons between by making waves of buying and waves of selling.

The aim of the archetypical Administrator, just like that of the Composite Man, is maximum profits.

The archetype-Administrator can choose from two decision rules: the conservative Delay Rule or the radical Maxwell’s Rule. The Composite Man will first follow the Delay Rule in an effort to exhaust all remnants of demand before switching his support via the Maxwell Rule to the latently more powerful bear force in the opposite direction as a bull trend approaches culmination.

In Catastrophe Theory, as in technical analysis, a Trend in Force will remain in force until that trend comes to an end by exhausting the supply or the demand.

After exhaustion, then a radical change in trend direction can ensue. (Consult Appendix I, The Concept of the Composite Operator.)

Figure 1 Cusp Catastrophe Model of a Stock Market

Part I: Theory

This article is a continuation and culmination of two earlier interpretations of the data from the Cal Tech Experiment on Irrational Exuberance using the Cusp Model from Catastrophe Theory and applying tools from technical analysis. Figure 1 shows the Cusp Catastrophe model adapted to the stock market that was used to interpret the data from the Cal Tech Experiment.

At the heart of the experiment and at the center of attention for technical analysis in our first study was the continuation of price along a horizontal channel of speculative excess (See Figure 2). Seemingly, there was something or someone supporting price along the lower level of the horizontal price channel. The scene depicted in Figure 2 could have emerged naturally from the interactions of buyers and sellers. That sort of an interpretation of the players’ behavior reflects synchronicity. That “phenomenon of synchronicity” was explained by Professor Walter Baets in Part B of our series of articles devoted to appears in Appendix II. The Swiss Technical Analysis Journal • Autumn 2016 • 27

Figure 2

A recapitulation of the “synchronicity” interpretation of the Cal Tech data by Professor Baets appears in Appendix II of this article, even though the data generated during the experiment seemed to emerge spontaneously through the simple interaction of supply and demand. Some key authors of Catastrophe Theory, name Isnard and Zeeman, nonetheless hypothesized that an intelligent party or agent was actually or figuratively at work to lend support to price and thus help to create the horizontal price channel. That agents’ support helps to create a delay in the arrival of the inevitable crash. In Catastrophe Theory literature, that active, intervening agent who supports price action is assigned the role and the title of “the Administration” or “the Administrator.” In Wyckoff’s market theory, that type of intervening role is assigned to the “Composite Man.” In the Catastrophe Theory literature the “Administrator” is a sociological (behavioral finance) construct according to Isnard and Zeeman. In E. C. Zeeman’s Catastrophe Theory: Selected Papers (1977, pp. 305315), Isnard and Zeeman proposed that the function of the “Administrator” was to act as a balancing agent between opposing forces such as hawks vs doves in the political arena.

For our purposes, the “Administrator” or Composite Man is the balancing agent in the struggle between the bulls and the bears in the financial markets. In essence, the “Administrator” is a causal model. That causal model differs radically from the synchronistic explanation proffered by Professor Baets (see Appendix II).

I propose that a special case of the archetypical “Administrator” found in Catastrophe Theory is the Composite Man of R. D. Wyckoff found in the securities markets. The Composite Man was an analytical tool used for the interpretation of market action by Richard D. Wyckoff and his associates as far back as the early decades of the twentieth century. The Composite Man played a pivotal role in balancing the relative forces of supply and demand in Wyckoff’s theory of the stock market. (Wyckoff’s concept of the Composite Man is explained more thoroughly in chapters 4 and 9 of Pruden’s Three Skills of Top Trading, Wiley, 2007).

Isnard and Zeeman saw the function of the Administrator in the political arena as intervening through policy and action to help channel the direction of public behavior. From the view point of the Administrator in the Cusp Catastrophe Theory Model, and the Composite Man in Wyckoff’s Theory, the outside public is divided between a bull camp motivated by greed and a bear camp animated by fear. The price waves observable within the market reflect the alternating expressions of power by the bulls and then by the bears. If greed were in control, the demand by the bulls would be dominant, and the trader-analyst should expect to detect from the charts of market behavior that the Administrator cum Composite Man would be implementing a policy that supports price. Hence, he would buy on balance to lend his support to the bull trend. If, on the other hand, the bear camp (fear) was in control, then the Administrator would intervene to “support” the dominant bear contingent by resisting price advances and adding his selling pressure to help foster price declines. Isnard and Zeeman stated: “We suppose that the aim of the Administrator is to maximize support. This is, of course, an ideal assumption, made to isolate the particular cause-effect relationship that we want to study.”

Isnard and Zeeman reported on a specific study of the opposing camps of “hawks” vs “doves” in the political arena. The relative power of the hawks vs doves motivated the Administrator to act in support of one party or the other and would also set the boundaries of an administration’s policy toward either supporting an escalation of a conflict or in the opposite direction by supporting the public contingent vouching for withdrawal from a conflict.

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A stock market can be analyzed in parallel terms to the political arena. For purposes of the study of the securities markets, I wish to liken the “bulls” in a market to the “hawks” entering a conflict and the selling by the “bears” or exiting a market, to the “doves” withdrawing from a conflict. By substituting bull for hawk and bear for dove, we can easily modify the original graphic techniques used by Isnard and Zeeman to spotlight the role of the Administrator cum Composite Man. From the graphical models of Isnard and Zeeman, we shall borrow from their case study of de-escalation from the Hawks in control to the Doves in control to demonstrate, after modifications, the Composite Man’s influence in a stock market during the transition from a bull trend to a bear trend.

Idealized pictures are useful in telling this story by going step-by-step from bull market to bear market. Let us presume that variable “x” in Figure 3 represents alternative states of bullish vs bearish actions. The lower the value of x the weaker the bullish action and the stronger the bearish (a bear market) while the higher values of x representing stronger and stronger bullish action. At a given moment, let P(x) be the number of investors in the population of the market participants who approve of the Administrator’s support of level (x) of bullish action. This number P(x) can be weighted to take into account the relative influence that different segments of the investor population may have on the market and thus upon the Composite Man (e.g., institutions vs individuals).

P can also be measured as the area under the graph, thus P represents the relative power of bulls vs bears.

In the first instance, depicted in Figure 3, the investing public is decidedly bullish and hardly any investors favor selling out and withdrawing from the market.

Assume that without the passage of additional time and with further advancement of the price level, investor opinion becomes divided, so that there emerges two opposing bull vs bear poles, X2 and X3, competing for the allegiance of other investors and the support of the Composite Man. Up until this juncture the Composite Man had been pursuing a bullish oriented policy at point X1 (See Figure 4).

Since X2 the bullish potential represented both the larger nearby investor support and the largest overall support, it was simple and easy for the Composite Man to escalate his commitment to the bull side by side by attracting a public following to the X2 level. Since the preceding trend was bullish the Composite Man would continue to support prices until the reservoir of potential buyers was exhausted.

Figure 3

Figure 4

The Delay Rule and Maxwell’s Rule

Suppose however that sometime later the distribution of investor opinion evolved into a large reservoir of bearish intentions to sell and with a heavy overhanging supply of stock to sell (See Figure 5).

In the case described by Figure 5, the Composite Man (“Administrator”) faced a dilemma. On the one hand, he could abandon his bullish orientation and immediately jump across the divide to lead the new, latent majority of bearishoriented investors out of the market. If he did jump to the bear side he would be invoking “Maxwell’s Rule.” If, on the other hand, he continued to support a The Swiss Technical Analysis Journal • Autumn 2016 • 29

bullish policy and chased after the remaining prospective bullish buyers (X4), then the Composite Man would be implementing a policy that followed the “Delay Rule.”

The two rules are: 1. Maxwell’s Rule. Change policy to where global support is maximum.

2. Delay Rule. Change policy in the direction that locally increases support.

Figure 5

Figure 6

Let us return to Figure 4 and verify what happens under the two different rules as Figure 4 evolves into Figure 5. Maxwell’s Rule would imply a catastrophic jump from the old bull policy X2 to the new bear policy X5, as soon as the bear maximum overtook the bull maximum. That would reflect an abrupt about face, a radical discontinuity, the appearance of a V-shaped top in price. On the other hand, the Delay Rule would imply a smooth policy change, a sideways price movement, from the old bull maximum X2 to the new bull maximum X4. In this case, the emerging majority of bears would have been temporarily ignored because to change policy in the bear direction would initially have incurred a decrease of support, until the minimum X6 has been passed! In other words, a change in market direction would be delayed until the shrinking reservoir of remaining bulls who would still purchase at these elevated price levels had been attracted by the “Composite Man” into exchanging their remaining dollars for stock certificates. The “Composite Man” would continue to support the bull side of the market up to X6 on Figure 5, after which point that professional support would disappear and the bears would take over. This exhaustion of the bulls and the takeover by the bears reflects a discontinuity that can be described as a Catastrophic Jump.

Part II: Application

Behind the Scenes of the Cal Tech Experiment on Irrational Exuberance: Interpreting the Data with the Aid of a Model of Wyckoff’s Composite Man The overall scene of the Cal Tech experiment is shown in Figure 2. To illustrate step-by-step the plausible direction and degree of the support from the Composite Man that could plausibly explain the data, we partitioned the overall scene in Figure 2 into four different sub-scenes composed of Scene I through Scene IV. Those four scenes and the role played by the Composite Man in each are described as follows:

SCENE I

At first the Composite Man might encounter a distribution of investor opinion (latent demand) very much in support of the bull case. In Scene I the public (i.e., the student traders in the Cal Tech experiment) are decidedly in a bullish mood.

They are moderately to strongly favoring investing dollars into the market. On the other hand, support for the bear case is practically nil. We suppose that the Composite Man is riding with this bullish tide. We should expect, therefore, that the Composite Man will be lending his support by offering bids to support prices.

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We imagine therefore that the Composite Man’s support helped to create the linear line of prices along the bottom of the trading range in Figures 2 and 7.

SCENE II

But as the bull market progresses there arises a not unexpected segment of the public who are veering toward the bearish side of the market, e.g., profit taking because of overbought conditions or because of overvalued securities.

The bearish-oriented traders would be anticipating that the trend of the market would soon head downward.

The trader/investor opinion has now become divided; there are two opposing magnets for allegiance. The bull side still remains in control and so prices should continue to move horizontally. But underneath this bullish surface there is a growing reservoir of potential sellers. At this stage the Composite Man is free to choose which camp he wishes to support (See Figure 8).

The Composite Man discerns that on balance the majority of the public has swung to the right in Scene II, meaning they have become in effect “small bullish.”

A Composite Man who was trying to maximize profit would immediately work to advance prices in an attempt to exhaust this bullish reservoir.

When a bull market advances to the stage of affairs reflected in Scene II the Composite Man is faced with a dilemma. A bearish move by the Composite Man could trigger the sell off. On the other hand, some buying power remains in the hands of committed bulls who are following the trend and perhaps playing a “greater fool” game. To reach the nearby alternative, the Composite Man would champion the bullish case (price supports) thus fostering a move to the right along the trend channel.

(In essence, the Composite Man would be employing the Delay Rule).

Figure 7 - Support by the Composite Man

SCENE III Policy movements under the Delay Rules

Suppose that sometime later the distribution of opinion changes even more as the market moves from Scene II to Scene III in the Cal Tech Experiment, as portrayed in Figure 9.

The majority opinion has now swung to the bears. In the ideal, theoretical model shown earlier (Figure 5) the Composite Man, who had been engaged in policy X2, now has a problem: should he adapt incrementally and thus smoothly move price to the nearby or local maximum X4 of the bulls, or should he support a ‘catastrophic’ change of policy to the distant bear maximum X5, where it should unlock maximum support? One thing is certain: the Composite Man is least likely to try and average everyone’s opinion and choose policy X6, because this policy would receive minimum support, and would incur the resistance of both bears and bulls. Therefore the problem is to choose between the two maxima. We have

Figure 8

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Figure 9

formalized the procedure used by the Composite Man as a choice between the Delay Rule and Maxwell’s Rule.

Ultimately, as we showed in our article Part (A), the price movement will exhaust the bulls and give a tip-off along a dissipative gradient to the ultimate catastrophic price collapse. That downside catastrophic jump reflected both the exhaustion of public buyers and a switch by the Composite Man in support of a bear campaign (Figure 10). As described earlier, the two rules are: 1. Maxwell’s Rule: Change policy to where support is globally greatest.

2. Delay Rule: Change policy in the direction that locally increases support.

Now let us return to Figure 5 and verify what happens under the two different rules as Figure 2 evolves slowly into Figure 3.

Maxwell’s Rule would imply a catastrophic jump from the old bull policy X2, to the new bear policy X5, as soon as the bear maximum overtook the bull maximum.

Meanwhile, the Delay Rule would imply a smooth policy change from the old bull maximum X2 to the new bull maximum X4.

In this latter case, the emerging majority of bears would have been ignored (at least temporarily) because to change policy in that direction would initially have incurred a decrease of support and therefore less profit for the Composite Man.

Figure 10

The Composite Man/Administrator abides by the Delay Rule and hence trades in sympathy with the trends in force. Those trends in price tend to persist in time and price beyond a point that underlying conditions might tell a trader should be reasonable.

Traders can be too smart, too early, for their own good (See Appendix IV: Reminiscences of a Delay Rule: The Premature Bear Campaign of Larry Livingston).

In essence, the Delay Rule causes the Composite Man to postpone or delay his response to a swing in the underlying conditions. The text below gives several behavioral reasons for suggesting why the Composite Man will obey the Delay Rule. These reasons help to explain the Composite Man’s modus operandi of making continual successive comparisons of the adopted policy (e.g., bullish) with all nearby alternatives (bearish and bullish).

At each stage of pair-wise wave comparison the Composite Man continues to make successive adjustments in his buying and selling comparing the prevailing bull policy with nearby waves (See Figure 11).

At each stage, the Composite Man can switch his allegiance and change his policy from supporting the bulls to supporting the bears and he will do so if it brings a larger immediate support or following a technical analysis. Schematic that shows the essence of successive incremental comparisons of bullish versus bearish forces is displayed in Figure 11. This method of successive limited comparisons, used

by Wyckoff’s Composite Man and by the Administrator in Catastrophe Theory, has a pedigree in the decision-making world called “disjointed instrumentalism,” otherwise known as the “The Science of Muddling Through.” Proponents of this

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decision philosophy argue that although it is not elegant, it is a more realistic model of what happens in the real world than the more formalized top-down, quantitative models that are often used to describe decision-making under risk and uncertainty (Lindbolm, 1972, pp. 79-88).

Behavioral Reasons Favoring The Delay Rule

According to Isnard and Zeeman, there are five sociological (i.e., behavioral finance) reasons for expecting the Administrator/Composite Man to adhere to the Delay Rule and thus postpone the implementation of Maxwell’s Rule: 1. Lack of information 2. Intuition

3. Social pressures 4. Inertia

5. Past history

Those readers who are familiar with the securities markets will readily sense the realism of these assumptions. n First, there is a lack of compelling information. The future is uncertain and decisions in the securities field are filled with risk. Therefore, despite a plethora of up-to-the-minute reports about market action and the performance of companies and industries, the Administrator/ Composite Man will still remain in doubt as to the weight of investor opinion.

The Composite Man may not be able to gauge in advance with accuracy the degree to which either the bear or the bull maximum is higher. Furthermore, it is even more difficult to predict the long-term magnitude of demand or supply.

It is much easier for the Administrator to discover the extent of investor support (bullish or bearish) from nearby adjustments in bullish or bearish policy than for the Administrator to make an abrupt and major shift from a bull trend to a bear trend or vice versa.

Figure 11

For the Composite Man in particular, who is a special case of the “Administrator” found in Catastrophe Theory, it is generally simpler and safer to adjust his bearish or bullish policy smoothly so as to pursue nearby pools of investor (stay at the local/nearby maxima) rather than take the risk to shift policy more dramatically toward the opposing bearish camp maximum which may or may not be higher.

Second, the Administrative/Composite Man can more easily rely upon his intuition or feel for the market. The local ascertainment of bullish vs bearish forces can often be judged by intuition. The local analysis only requires a comparison of the relative ordering by size of the public support for nearby alternatives, rather than for an elaborate quantification. The element of intuition or feel for the market plays a greater role for the Administrator/Composite Man who must make decisions when conditions are volatile and the future is uncertain.

n

Third, social pressures favor the Delay Rule. There is the group-think conformity about which David Dreman has written that makes support of a current bull or bear policy difficult to abandon. The views of the extremist bulls or outlying bears who are outside the inner circle or pool of operators are viewed as hostile and threatening. In Figure 2, the shaded area on either side of X2, represents the opinions of the inside clique and therefore contain the nearby alternatives perceived as viable.

n

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Fourth, inertia plays a role in upholding the Delay Rule. Besides, the natural face-saving reluctance to undertake reversals of policy, it may take a great deal of time, money, communication and human persuasion to carry redeployment of assets from the bull camp to the bear camp. Meanwhile, public opinion may be volatile and an unknown but nevertheless large proportion of the investment public is undecided, then the two maxima of bears and bulls may oscillate up and down like a seesaw. Such seesaw behavior makes it foolish and erratic, if not downright impossible, to reverse policy at every oscillation of the seesaw.

n

Fifth, the magnet of past history favors the Delay Rule. Under the Delay Rule recent past behavior plays a crucial role in helping the Administrator/ Composite Man determine current behavior/current policy.

n

In summary, all five reasons above argue for the Composite Man (Administrator) favoring the Delay rule over Maxwell’s rule. All arguments point toward the Administrator/Composite Man pursuing a policy that causes market behavior to change smoothly, (e.g., keep an orderly market). The Composite Man (e.g., the Wyckoff Method) and the Administrator (Catastrophe Theory) adapt to the market by making decisions/shifting policy and support incrementally “…through the continual successive comparison of the adopted policy with all nearby alternatives, and, at each stage the adoption of a new policy if it brings larger support — in other words, the Delay Rule…” “In its behavior the administration will cling to the protection of its local (bullish or bearish) territory and will delay making any catastrophic changes in policy until forced to do so…” (Isnard and Zeeman in E. C. Zeeman, Catastrophe Theory, pp. 311312).

The astute analyst-trader can discern from the foregoing line of reasoning why markets are more likely to transition from bull to bear markets via trading ranges rather than via spike reversals. The trading range reversal formation is a reflection of the smooth transition brought about by successive comparisons of waves and incremental adjustments under the Delay Rule.

The Delay Rule echoes the observation of many market analysts who assert that bull markets only end with the complete and thorough exhaustion of the remaining demand (Murphy, Pring). Bull markets culminate when the last of the laggard buyers can be coaxed into buying during a rising or level price movement following a bull trend.

Hence, the Composite Man (Administrator) will protect his local bullish maxima until it disappears. Then and only then will he make a radical change in policy. During the final stages of a bull market the Composite Man will lend his support to price and push for bullish rallies and he will continue to do so even as those rallies become feebler and feebler, until all remaining demand at that price level is exhausted (no more buyers are left to be attracted) at which point he withdraws his support and switches to a bear market campaign. In essence, foregoing reasoning can be used as a plausible interpretation of what happened in the Cal Tech Experiment on Irrational Exuberance. Only during the penultimate scene where declining price peaks revealed the approaching exhaustion of demand while bearish sentiment became increasingly strident, was the stage set for the last scene where the switch to Maxwell’s Rule by the Composite Man resulted in the Catastrophic plunge in price (Figure 10).

References

Pruden, Henry O., Bernard Paranque, and Walter Baets (Winter-Spring 2004) “Interpreting Data from an experiment on Irrational Exuberance Part A: Applying a Cusp Catastrophe Model and technical analysis Rules, Journal of technical analysis, pp. 5-11. n Baets, Walter, Bernard Paranque and Henry Pruden (Summer-Fall 2004), “Interpreting Data from an Experiment on Irrational Exuberance, Part B: Reflections from Three Different Angles,” Journal of technical analysis, pp. 511. n Pruden, Hank (2007), The Three Skills of Top Trading, John Wiley and Sons. n Pruden, Henry “Hank” (September 2008) “The 21st Century Technician,” n

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n

n

n

n

technical analysis of Stocks and Commodities Magazine.

Isnard, C. A. and E. C. Zeeman, “Some Models from Catastrophe Theory in the Social Sciences,” in E. C. Zeeman (1977), Catastrophe Theory: Selected Papers 1972-1977, Addison-Wesley Publishing Company (1977), pp. 302-406.

Lefèvre, Edwin (1994), Reminiscences of a Stock Operator, John Wiley and Sons, (originally published in 1923 by George H. Doran and Company, pp. 9297).

Lindblom, Charles E. (1972), “The Science of ‘Muddling Through,’” Public Administration Review, pp. 79-88.

Dreman, David N., Psychology and the Stock Market, New York, American Management Association, 1977.

APPENDIX I The Concept of the Composite Operator Cosmic Man — the gigantic, all-embracing figure that personifies and contains the entire universe — is a common representation of the self in myths and dreams. In the title page of Leviathan, by the seventeenth century English philosopher Thomas Hobbes, the gigantic figure of Leviathan (central authority, “sovereign”) is made up of all the people of the “Commonwealth.”

— Carl G. Jung, Editor, Man and His Symbols, p. 243

Diagnostic Questions

Here is how you can profitably employ the Concept of the Composite Operator.

Immediately after you have studied the price and volume clues on a stock chart, step back for a moment and ask yourself the following two questions: 1. What is the motive of the Composite Operator? Is he/she giving evidence of accumulating, distributing, testing the market, initiating an uptrend, or instigating a downtrend?

2. Given the supply and demand relationships I observe in this chart, if I were the Composite Operator, what would I be doing?

To gain great skill in answering these questions, a student of market behavior needs to study and to fully absorb the principles and techniques of the Wyckoff Method. However, a handy introductory description of the goals and procedures of a consummate stock market operator is available in Edwin Lefèvre’s famous Reminiscences of a Stock Operator, chapters 19-22.

In the remainder of this article, we shall expand upon our diagnostic questions. We shall first turn to quotations from Richard D. Wyckoff and his associates for formal definitions and guidelines concerning the nature and the use of the Concept of the Composite Operator. Later we shall explore the Composite Operator as “fact or fiction,” what that implies, and return to the notion of “contrary opinion.”

“In studying, understanding, and interpreting market action, we consider all market action as a manufactured operation in which the buying and/or selling is sufficiently centered and coming from interests better informed than the generally untrained individual investor/speculator. The many large interests which do have an effect on the market place (trust companies, banks, mutual funds, investment trusts, investment companies, hedge funds, specialties, position brokers, etc.) are best thought of as the “Composite Man.” “This Composite Man causes the market to act and react. Or, what actually happens is the market responds to the ageless, natural Law of Supply and Demand. The Composite Man and the effects of the Law of Supply and Demand are really synonymous. It is the result of buyers and sellers whose actions produce the net effect upon the market.”

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“Other terms which may be thought to be synonymous with the Composite Man would be the ‘Market,’ the ‘Sponsor,’ the ‘Operator,’ or ‘They.’ These terms are used interchangeably throughout the text. The selection of the ____ is determined by what is most meaningful to the student. It should be your objective to think of the Composite Man as the primary force in the market place. Thinking of him in this light should enhance your analysis of the action resulting from the dominant groups operating within individual stocks and their total effect within the general market place.”

— Richard D. Wyckoff and Associates

Wyckoff/SMI implore us to follow in the footsteps of the Composite Operator — to think like him and to act like him: a) “Like individuals, stocks have certain characteristics with which one becomes more and more familiar as he studies intensively their past and present movements. The market is made by the minds of men, and all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and plays the stock to his advantage. It’s to your disadvantage if you do not understand the game as he plays it; and to your advantage if you do understand it.”

b) “The Composite Man carefully plans, executes, and concludes his campaigns.” c) “A ‘broad market’ is created by the Composite Man advertising his stock on the ticker tape.” d) “Study charts with the purpose of judging the behavior of the stock and the motives of those who dominate it.” e) “To study charts, look for the motives behind the action which the chart portrays.”

f) “But, the market behaves naturally in this very manner, and, if you learn to make judgments, then conclusions which should have a positive effect in your stock market operations will result.”

Composite Operator: Fact and Fiction

“Beyond Contrary Opinion” appeared in the TSAA Newsletter, April-June 1994.

In that article the author argued that the technical analyst should adopt the Composite Operator as a substitute for contrary opinion: Being positive by seeing/hearing/feeling sensory data in a positive way is the recommended approach to reaching a desired outcome. The Concept of The Composite Operator empowers the analyst, trader, or investor with a positive orientation toward market behavior; the Concept of The Composite Operator offers a way toward gaining mental discipline regarding positive outcomes.

Follow the Composite Operator. He/she is a positive substitute for Contrary Opinion!

The original conception of the Composite Operator was not only based upon fact, but it also predated the theory of the contrary opinion. Richard D. Wyckoff based the Composite Man, and based his own trading philosophy, upon his observations and intimate understanding of such famous old-time professionals as James R. Keene, Russell Sage, Edward H. Harriman, and Jesse Livermore. Indeed, Edwin Lefèvre’s Reminiscences of a Stock Operator, which presumably was based upon Jesse Livermore, is an excellent model of the Composite Operator in action.

But even if circumstances today are far different from those of the early 1900s and even if the market isn’t fully under the thrall of a single “sovereign,” Wyckoff and his associates still believe it is an empowering concept for the technical analysts and the trader/investor to use. The concept of the Composite Operator can be viewed as a useful “fiction,” a helpful heuristic.

A “fiction” provides a decision-maker with a method for dealing with the unknown. Robert Dubin examined how fiction enabled decision-makers to more adequately cope with the unknown. Creating fictions facilitated the taking of action. With reference to fictions within formal organizations, Dubin wrote, 36 • Autumn 2016 • The Swiss Technical Analysis Journal

“A fiction is defined as the act of feigning or imagining that which does not exist or is not true. Organization fictions are those fictions that are necessary in order that action within the formal organization may proceed.

“Furthermore, these systems are dynamic. They undergo change and modification by virtue of changes in the organization of which they are an integral part. In their very nature, these systems of behavior standards can never be wholly prescribed.

Yet each individual member of the organization has to be able to operate as if his behavior were truly oriented to a body of fixed standards.” Where voids exist in the standards, as they inevitably must in a dynamic formal organization, there is a strain toward creating guides for behavior that will fill the voids. These creations are the organization fictions.”

The concept of the Composite Operator serves the technicians in a capacity similar to the role of fictions within formal organizations. Technicians shall discover that the Composite Operator is a very useful heuristic.

Conclusion

To attain the perspective of the Composite Operator we should ask ourselves such basic questions as: “What is the motive of the Composite Operator?” and “What would I do if I were the Composite Operator?”

In addition to the basic two queries about the Composite Operator, we can add such complementary questions as: “What is it that the Composite Operatoris attempting to prepare or carry out or conclude?”; “What is the Composite Operator attempting to do to the public and for what purpose?” As you gain understanding through practice with the role of the Composite Operator, you’ll want to add your own questions to the list.

REFERENCES

Robert Dubin, Human Relations in Administration, Fourth Edition, Prentice Hall, 1974.

n

Edwin Lefèvre, Reminiscences of a Stock Operator, George H. Doran, 1923. n Carl G. Jung, Editor, Man and His Symbols, Doubleday and Company, 1964. n Technical Securities Analysts Association of San Francisco Newsletter, AprilJune, 1994. n Richard D. Wyckoff, Wall Street Ventures and Adventures Through Forty Years, Harper, 1931. n Wyckoff/SMI, The Richard D. Wyckoff Course in Stock Market Science and Technique (Stock Market Institute). n

APPENDIX II Concerning Some Models from Catastrophe Theory in the Social Sciences C. A. Isnard and E. C. Zeeman wrote: “Phenomena involving sudden large variations traditionally have been assumed to be outside the reach of mathematical treatment, because they lacked what was considered to be an essential precondition, the continuity of the dependence relations between the variables. Recently, a branch of mathematics called catastrophe theory, one of the creations of the French mathematician René Thom (1972), has been applied to such discontinuous phenomena in biology (Thom 1969, 1971a, 1973a; Zeeman 1972a, 1974a) and physics (Fowler 1972; Shulman and Rezvon 1972; Thom 1971b, 1973a; Zeeman 1972b, 1973, 1974c). The authors of the present article hope that their modest examples may suggest to specialists in the social sciences the possibility of applying catastrophe theory to similar discontinuous phenomena in their fields. (See also Harrison and Zeeman; Thom 1970, 1973b; Zeeman 1971, 1973, 1974c, 1974d, 1975.) The objective in each of our examples is the qualitative characterization of those points where small variations in some variable may cause large variations in a dependent variable, in other words those points where ‘catastrophic change’ may occur. This is the reason for the name catastrophe theory.

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“There is also a related phenomenon of ‘divergence,’ where the discontinuity may occur with respect to a variable other than time. For example sharp divisions of opinion can emerge in a population, even though the opinion of each individual may have evolved gradually and smoothly. By contrast the exact sciences are convergent in the sense that small changes in initial data usually cause only small changes in the ensuing motion, and so those sciences displaying divergence have been labelled “inexact,” because again they were thought to be impossible to model.

“However, the creation of catastrophe theory has now revealed that sudden change and divergence are not only natural, and interrelated, but also amenable to rigorous mathematical treatment. Our objective is to use the theory to give qualitative understanding and global insight. The next objective, which we do not attempt here, is to provide quantitative models for experimental testing. In this sense catastrophe theory, as Thom himself has pointed out, is not a theory but a method. It is a mathematical tool, like the theory of differential equations that can be applied to scientific theories, in order to explain and confirm them, or disprove them. The paper is intended to be an introduction to this method.”

The Influence of Public Opinion on Policy

“In our first example, we consider the influence of public opinion upon an administration, or, more precisely, the effect that changes in the distribution of public opinion have upon the ensuing policy adopted by the administration. We are supposing that this policy is influenced by the opinions of a large group of people that we call the population — it may be the total population of a nation, or part of it, for instance the membership of a large party, class, or military group, etc.

“In order to illustrate the model more precisely, we shall work with a specific example, although the whole theory that we develop can be applied to almost any situation where there is a continuous spectrum of policies (or several spectra). The specific example we choose to work with is the case of a nation deciding upon its level of action in some war, either a hot or a cold war. Let the variable x represent the possible alternatives, so that the higher values of x represent stronger military action, and the lower values weaker action, with the lowest values representing withdrawal or surrender. At a given moment, let P(x) be the number of people in the population who would approve of policy x, in other words would approve of the adoption by the administration of the level x of military action. The number P(x) can be weighted, if one wishes, to take into account the relative influence that different segments of the population may have on administration. Also, the function P can be normalized, if one wishes, in other words scaled down so that there is a unit under the graph. Hence P can be regarded as the probability distribution of public opinion.

“We suppose that the aim of the administration is to maximize support. This is, of course, an ideal assumption, made to isolate the particular cause-effect relationship that we want to study below. Also, it is not clear what the word ‘maximize’ should mean when we come to more complicated distributions, and so we shall need to introduce explicit rules in the next section.”

APPENDIX III Synchronicity: An Alternative Explanation of the Cal Tech Experimental Data A Composite Man causes the market to act and react. Or, what actually happens is the market responds to the ageless, natural law of supply and demand. The Composite Man and the effects of the law of supply and demand are really synonymous. It is the result of the motives, objectives, hopes, and fears of all the buyers and sellers whose actions produce the net effect upon the market. — Richard D. Wyckoff

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The essence of the assertion by Richard D. Wyckoff that the Market “…is the result of the motives, objectives, hopes, and fear of all the buyers and sellers whose actions produce the net effect upon the market” was captured and explained in terms of “Agent Behavior and SWARM-Like Theory” by Dr. Walter Baets in our 2004 article (Part B). The following excerpt by Baets from the earlier article crystallizes the essence of his “auto poetic intuition” ontology… the reader is encouraged to return to the original article in its entirety: In order to observe differently, we have to investigate first the ontology behind our thinking. An alternative ontology that increasingly gains attention is the one based on what neurobiologists (Maturana and Varela) call an enacted and embodied view of cognition. This ontology is one that is based on the acceptance that the observer creates himself the reality which he observes. There is no reality, but it is created as you observe. This concept would indeed allow us to explain what we might call non-rational behavior of traders, for instance. Traders are not irrational, but they can only observe the reality which their experience (and their learning) allows them to observe. This ontology gives power to the individual agents interacting in a network that all together co-create (in a dynamic process) reality. In fact this ontology is an emergent one in which knowledge and behavior are continuously created via interaction and hence cannot be anticipated using top-down causal models. Indeed, this ontology is not based on causal relationship, but rather on synchronicity (being-together-in-time). We will get back to that later. For the time being, and in order to understand the essence of agent’s behavior, we make the choice that reality is created via the interaction of individual agents that create emergent behavior. Using the words of the famous Spanish poet Machado: “there is no path; you lay down the path in walking” (Baets, Paranque and Pruden, 2004, pp. 5-6).

APPENDIX IV Reminiscences of a Delay Rule: The Premature Bear Campaign of Larry Livingston The following is a story told in The Reminiscences of a Stock Operator (Wiley, pp.

94-96) of a trader who was out of gear with the market. This case study illustrates the “Delay Rule” campaign of the Composite Man versus the “Maxwell Rule” followed by a member of the “outside public,” namely Mr. Larry Livingston. A fictitious stock chart attached to visually illustrate the mis-cues of the trader who has failed to understand the rules of the game played by the Composite Man. That trader, Mr. Larry Livingston, the protagonist in the Reminiscences of a Stock Operator book, told this story on himself as follows: (For visual enlightenment a fictional chart of Livingston’s behavior was added, see Figure 12).

Livingstone told his story as follows: “cash that went up in cannon smoke in the Boer War, and the millions spent for feeding nonproducing soldiers in South Africa meant no help from British investors as in the past. Also, the earthquake and the fire in San Francisco and other disasters touched everybody — manufacturers, farmers, merchants, laborers and millionaires. The railroads must suffer greatly. I figured that nothing could stave off one peach of a smash. Such being the case there was but one thing to do — sell stocks!”

Stage 1: The Composite Man/ Administrator’s Delay Rule, Top 1

“I told you I had already observed that my initial transaction, after I made up my mind which way I was going to trade, was apt to show me a profit. And now when I decided to sell I plunged. Since we undoubtedly were entering upon a genuine bear market I was sure I should make the biggest killing of my career.

Figure 12

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“The market went off. Then it came back. It shaded off and then it began to advance steadily. My paper profits vanished and my paper losses grew. One day it looked as if not a bear would be left to tell the tale of the strictly genuine bear market. I couldn’t stand the gaff. I covered. It was just as well. If I hadn’t I wouldn’t have had enough left to buy a postal card. I lost most of my fur, but it was better to live to fight another day.”

Stage 2: The Composite Man/Administrator’s Delay Rule, Top 2

“I had made a mistake. But where? I was bearish in a bear market. That was wise. I had sold stocks short. That was proper. I had sold them too soon. That was costly. My position was right but my play was wrong. However, every day brought the market nearer to the inevitable smash. So I waited and when the rally began to falter and pause I let them have as much stock as my sadly diminished margins permitted. I was right this time — for exactly one whole day, for on the next there was another rally. Another big bite out of yours truly! So I read the tape and covered and waited. In due course I sold again — and again they went down promisingly and then they rudely rallied.

“It looked as if the market was doing its best to make me go back to my old and simple ways of bucket-shop trading.”

Stage 3: The Composite Man/Administrator’s Delay Rule, Top 3 “We had many warnings and sensational ascensions in call-money rates.

Still some of the great financiers talked hopefully — at least to newspaper reporters — and the ensuing rallies in the stock market gave the lie to the calamity howlers. Was I fundamentally wrong in being bearish or merely temporarily wrong in having begun to sell short too soon?

“I decided that I began to soon, but that I really couldn’t help it. Then the market began to sell off. That was my opportunity. I sold all I could, and then stocks rallied again, to quite a high level.

“It cleaned me out.

“There I was — right and busted.”

The Premature Campaign of Larry Livingston: Post Mortem

“I tell you it was remarkable. What happened was this: I looked ahead and saw a big pile of dollars. Out of it stuck a sign. It had “Help yourself,” on it, in huge letters. Beside it stood a cart with “Lawrence Livingston Trucking Corporation” painted on its side. I had a brand-new shovel in my hand.

There was not another soul in sight, so I had no competition in the goldshoveling, which is one beauty of seeing the dollar-heap ahead of others.

The people who might have seen it if they had stopped to look were just then looking at baseball games instead, or motoring or buying houses to be paid for with the very dollars that I saw. That was the first time that I had seen big money ahead, and I naturally started toward it on the run.

Before I could reach the collar-pile my wind went back on me and I fell to the ground. The pile of dollars was still there, but I had lost the shovel, and the wagon was gone. So much for sprinting too soon! I was too eager to prove to myself that I had seen real dollars and not a mirage. I saw, and knew that I saw. Thinking about the reward for my excellent sight kept me from considering the distance to the dollar-heap. I should have walked and not sprinted.

“That is what happened. I didn’t wait to determine whether or not the time was right for plunging on the bear side. On the one occasion when I should have invoked the aid of my tape-reading I didn’t do it. That is how I came to learn that even when one is properly bearish at the very beginning of a bear market it is well not to begin selling in bulk until there is no danger of the engine back-firing” (From Lefèvre, pp. 92-97).

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Conclusion

The Composite Man/Administrator abides by the Delay Rule and hence trades in sympathy with the trends in force. Those trends in price tend to persist in time and price beyond a point that underlying conditions might tell a trader should be reasonable. Traders can be too smart, too early, for their own good.

The Composite Man/Administrator represents a deterministic and hence causal model for explaining market behavior.

The Composite Man According To R. D. Wyckoff

The market is made by the mind of man, and all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who in theory sits behind the scenes and plays a stock to his advantage. It is to your disadvantage if you do not understand the game as he plays it; and to your advantage if you do understand it. — Richard D. Wyckoff

REFERENCES

Hank Pruden, The Three Skills of Top Trading (John Wiley & Sons, 2007) n Edwin Lefevre, Reminiscences of a Stock Operator, reprint (John Wiley & Sons, 2006) n

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 also a Chairman of the Technical Securities Analysts Association of San Francisco (TSAASF). Hank is an honorary member of SAMT. www.hankpruden.com

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Optuma.com/Blog

The Swiss Technical Analysis Journal • Autumn 2016 • 43

SAMT BOARD OF DIRECTORS & OFFICERS

Patrick Pfister, CFTe President & IT Webmaster patrick.pfister@samt-org.ch

Elsbeth Hauser Treasurer elsbeth.hauser@samt-org.ch

The Swiss Association of Market Technicians Founded 1987

The Swiss Association of Market Technicians (SAMT) is a non-profit organisation (Civil Code Art 60ff) of market analysis professionals in Switzerland, founded in 1987.

SAMT is a member of the International Federation of Technical Analysts (IFTA).

Technical analysis is the study of prices and markets. It examines price behavior on an empirical and statistical basis. It extends to the study of all published information on price trends, volatility, momentum, cycles and the inter-relationship of prices, volume, breadth, sentiment and liquidity. A comprehensive understanding of technical analysis requires a knowledge of statistics and pattern recognition, a familiarity with financial history and cycles.

SAMT encourages the development of technical analysis and the education of the financial community in the uses and applications of technical research and its value in the formulation of investment and trading decisions. SAMT has a wide range of activities including: n

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Henrik Mikkelsen, CFTe Vice President Zürich Chapter henrik.mikkelsen@samt-org.ch

Ron William, CMT, MSTA Vice President Geneva Chapter and IFTA Liaison ron.william@samt-org.ch

Mario Valentino Guffanti, CFTe Vice President Swiss Italian Chapter mario.guffanti@samt-org.ch

Alberto Vivanti Vice President Graubünden and Liechtenstein Chapter alberto.vivanti@samt-org.ch

Barbara Gomperts Social Media Manager barbara.gomperts@samt-org.ch

Marco Zahner Auditor ma_zahner@bluewin.ch

Organising meetings on a broad range of technical subjects encouraging the exchange of information and knowledge of technical analysis for the purpose of adding to the knowledge of its members.

Technician (CFTe) exams and the Masters level degree Master of Financial Technical Analysis (MFTA) in Switzerland. These exams are controlled by IFTA.

Developing CFTe preparatory courses which are given twice yearly in advance of the IFTA exams.

44 • Autumn 2016 • The Swiss Technical Analysis Journal

SAMT The Swiss Association of Market Technicians

Membership

Founded 1987

SAMT Disclaimer The Swiss Association of Market Technicians (SAMT) is a not-for-profit organization that does not hold a Swiss Financial Services License. It is the aim of the SAMT to promote the theory and practice of technical analysis, and to assist members in becoming more knowledgeable and competent technical analysts, through meetings and encouraging the interchange of materials, ideas and information. In furthering its aims the SAMT offers general material and information through its website and publications therein.

The information provided on the SAMT website has been compiled for your convenience and made available for general personal use only.

SAMT makes no warranties implied or expressly, as to the accuracy or completeness of any information contained on the SAMT web site. The SAMT directors, affiliates, officers, employees, agents, contractors, successors and assigns, will not accept any liability for any loss, damage or other injury resulting from its use.

SAMT does not accept any liability for any investment decisions made on the basis of this information, nor any errors or omissions on the SAMT website. This web site does not constitute financial advice and should not be taken as such. SAMT urges you to obtain professional advice before proceeding with any investment.

The material may include views and statements of third parties, which do not necessarily reflect the views of the SAMT. Information on this website is maintained by the people and organization to which it relates. The SAMT believes that the material contained on this website is based on the information from sources that are considered reliable. Although all care has been taken to ensure the material contained on this website is based on sources considered reliable we take no responsibility for the relevance and accuracy of this information.

Before relying or acting on the material, users should independently verify its accuracy, currency, completeness and relevance for their purposes. Before making any financial decision it is recommended that you seek appropriate professional advice. The SAMT website may contain links to other websites, these are inserted merely as a convenience and the presence of these links does not constitute an endorsement of the material at those sites, or any associated organizations, products or services.

Samt encourages the development of technical analysis and the education of the financial community in the uses and applications of the technical research and its value in the formulation of investment and trading decisions.

Benefits of Membership

• The organisation of meetings on a broad range of technical subjects encouraging the exchange of information and knowledge of technical analysis for the purpose of adding to the knowledge of the members.

• These meetings provide an excellent opportunity to meet and socialise with other traders in your local area and thus develop friendly and professional relations among financial market specialists.

• The organisation of presentations from guest speakers from around the world.

• SAMT is affiliated with the International Federation of Technical Analysts (IFTA). All SAMT members are, therefore, colleagues of IFTA and are entitled to attend the annual IFTA conference at reduced rates.

• The “IFTA Update” - the quarterly newsletter from the International Federation of Technical Analysts.

• The possibility to sit for the Certified Financial Technicians (CFTe) at a discounted rate. These exams are controlled by IFTA.

• Members receive discounts on a range of products and services related to technical analysis, including software, tuition, seminars and reference books.

• Only fully paid-up members have access to the member area and SAMT events.

Cost of Membership

• Initial one time registration fee of CHF 50.

• The membership cost for each subsequent year is CHF 150. (The total cost for the first year is CHF 200).

Membership Payments to Join or Renew

To renew your membership or to join online, log onto our website.

The Swiss Technical Analysis Journal • Autumn 2016 • 45

We would especially like to see contributions that draw from areas not previously examined, and/or topics tangential to technical analysis.

The above list is just a guide and should in no way be considered restrictive. We wish to make the Journal open to new and innovative ideas from all areas of technical analysis and those that connect with it.

THE Swiss technical analysis journal

Submitting Contributions Submission of contributions to mario. guffanti@samt-org.ch

The Swiss Technical Analysis Journal is a twice yearly publication established

by The Swiss Association of Market Technicians (SAMT). It is compiled by a committee of SAMT colleagues.

The Swiss Technical Analysis Journal is essential reading for academics, students and practitioners of technical analysis in all arenas. It is an excellent reference source for anyone interested in technical analysis, containing a wealth of resource material.

Credibility And Recognition The Swiss Technical Analysis Journal has original contributions from its members covering developments in technical analysis in global markets.

The Journal’s aim is to reach leading practitioners and students of technical analysis throughout the world.

The Swiss Technical Analysis Journal is a professional resource. Its online publication on the SAMT website will make its work available as a future resource to the community of technical analysts.

Topics SAMT is seeking papers that cover developments impacting, either directly or indirectly, on the field of technical analysis; they may be drawn from such areas as: • Basic market analysis techniques • Indicators—sentiment, volume analysis, momentum, etc.

• Global and intra-global technical analysis • Styles of technical analysis • Data

• The changing role of technical analysis in the investment community.

Language Contributions must be submitted in English with British grammar required.

Material deadline for the Spring 2017 issue

15 March 2017

Writing Style Papers should be written in a thesis style.

References All texts referred to in the paper must be appropriately referenced with a bibliography and endnotes (footnotes will not be accepted.)

Responsibility for the accuracy of references and quotations is the author’s. We expect the authors to check thoroughly before submission.

All references are to be included as endnotes. No separate list of references or bibliography should be provided.

Figures, Charts and Tables Illustrations and charts must be referred to by Figure Number and source (when applicable). Tables must be referred to

by Table Number and source.

Length of Contribution Papers should be approximately 1,200 to 3,000 words, with supporting graphs and charts.

Advertising

The Swiss Technical Analysis Journal is a quarterly publication which is published in A4 size, in pdf format only. SAMT will accept advertisements in this publication if the advertising does not interfere with its objectives.

The appearance of advertising in SAMT publications is neither a guarantee nor an endorsement by SAMT. Advertising Policy Advertising is subject to approval by SAMT. All advertisements must be non-discriminatory and comply with all applicable laws and regulations.

SAMT reserves the right to decline, withdraw and/or copy edit at their discretion. Every care is taken to avoid mistakes, but responsibility cannot be accepted for clerical error.

Format We ask for submission in MS Word Advertising Rates or other text format. PDF format will not be accepted. Charts and graphs Rate Size may be in gif or jpeg, but we ask that Inside covers CHF 750 21.0 x 29.7 cm authors also keep a tif format in case it Full page CHF 500 19.3 x 26.9 cm is required.

1/2 page CHF 350

19.3 x 13.4 cm

Payment Pre-payment by wire transfer is required for all ads. Bank details will be provided upon request.

46 • Autumn 2016 • The Swiss Technical Analysis Journal

candidates requesting the exam in a non-English language or non-IFTA proctored exam location. IFTA will attempt to accommodate any exam location request.

In preparation for the exam, candidates should use this Syllabus and Study Guide (CFTe II). Register here for the next CFTe II on 20 April 2017. The deadline to register for this exam is 10 March 2017. No registrations will be accepted after this date. No registrations will be accepted after this date. Download practice (mock) CFTe II examination.

IFTA CERTIFIED FINANCIAL TECHNiCIAN (CFTe) PROGRAM

Curriculum

The program is designed for self-study.

Local societies may offer preparation courses to assist potential candidates.

Examinations

Passing the CFTe I and CFTe II culminates in the award of an international professional qualifi-cation in technical analysis. The exams are intended to test not only your technical skills knowledge, but your understanding of ethics and the market.

Level I: This multiple-choice exam consists of 120 questions covering a wide range of technical knowledge, but usually not involving actual experience.

In preparation for the exam, candidates should use this Syllabus and Study Guide (CFTe I). This exam is currently offered in English, German, Spanish and Arabic. It will be offered in Chinese at a later date. Download the CFTe I practice (mock) examination (English) or CFTe I practice (mock) examination (Arabic).

Level II: This exam incorporates a number of questions requiring an essay based analysis and answers. For this, the candidate should demonstrate a depth of knowledge and experience in applying various methods of technical analysis. The exam provides a number of current charts covering one specific market (often an equity) to be analysed, as though for a Fund Manager.

The CFTe II is a paper and pencil exam that is offered in English, French, Italian, German, Spanish, and Arabic, bi-annually, typically in April and October. It will be offered in Chinese at a later date. This exam regularly takes place in major cities throughout the world. Additional fees apply to

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Exemptions

Individuals who have successfully completed IFTA accredited certification programs through: Australian Technical Analysts Association (ATAA), Egyptian Society of Technical Analysts (ESTA), Nippon Technical Analysts Association (NTAA), and Society of Technical Analysts (STA) are exempt and may proceed directly to the MFTA program. See below for more details: Individuals who have successfully been awarded the Diploma in Technical Analysis (DipTA) by the Australian Technical Analysts Association (ATAA) are considered to have the equivalent of the certificate and may apply for the MFTA Program.

Individuals who have successfully completed Levels I, II, & III of the Certified ESTA Technical Analyst Program (CETA) through the Egyptian Society of Technical Analysts (ESTA), and have been awarded the CETA diploma, are exempt from both levels and may proceed to the MFTA Program.

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Beginning January 2013, individuals who have passed the STA Foundation and Diploma Courses offered by the Society of Technical Analysts (STA) and have been awarded the designation of Member of the Society of Technical Analysts (MSTA) are eligible to receive the CFTe certification (please contact STA’sAdministration for procedures) and may proceed with IFTA’s MFTA Program. Prior to January 2013, holders of the Society of Technical Analysts (STA) Diploma are exempt from Level II, but must pass Level I (a multiple-choice test) before qualifying for the CFTe certification.

Additionally, n Individuals who passed the Market Technicians Association (MTA) Chartered Market Technician (CMT) levels I and II on, or before, 28 June 2013, are eligible to receive the CFTe certification. Please submit an application and provide a pass confirmation from the MTA, including dates attained. There is a one-time application fee of $550 US. No future fees or membership requirements apply.

Cost IFTA Member Colleagues CFTe I $500 US CFTe II $800* US CFTe I CFTe II

Non-Members $700 US $1,000* US

*Additional Fees (CFTe II only): n $250US translation fee applies to non-English exams n

$100US applies for non-IFTA proctored exam locations

For more information on the program please email admin@ifta.org

Individuals who have passed Level I and Level II of the certification program offered by the Nippon Technical Analysts Association (NTAA) and have been awarded the designation of Chartered Member of the Nippon Technical Analysts Association (CMTA) are also exempt from both levels and may proceed to the MFTA Program.

The Swiss Technical Analysis Journal • Autumn 2016 • 47

SAMT Partner Societies

Groupement Suisse des Conseils en Gestion Independats (GSCGI) CSCGI is a group of economic interests formed by specialized independent financial intermediaries who are confirmed professionals in the financial services industry. The group is open to contacts with any person interested in the business of wealth management seeking to promote dialogue with the banking partners and authorities at all levels. Their goals are to: • Promote contacts between professionals motivated by the same desire for independence, wishing to maintain and develop relationships with counterparts.

• Find common ground for exchanging experiences and ideas, a field where diversity and novelty are prevailing.

• The enrichment of the links that can be forged on a friendly and professional level within a well defined and recognized framework to favour professional consultation and close dialogues. www.gscgi.ch

Swiss CFA Society The Swiss CFA Society boasts over 2,400 members in Switzerland, against barely 100 in 1996 at inception. It is the largest CFA Institute society in continental Europe. With more than 2,000 candidates taking the rigorous Chartered Financial Analyst® (CFA®) exam in Switzerland each year, the society’s impact on the Swiss investment community is self-evident.

It was the first society of CFA charterholders in the EMEA region to be directly affiliated with the prestigious CFA Institute, which includes more than 110,000 members in 139 countries.

The vision of the Swiss CFA Society is to be a leader in fostering the highest level of knowledge, professionalism, and integrity in the investment business. www.cfasociety.org/switzerland

Swiss Futures and Options Association The Swiss Futures and Options Association (SFOA), previously the Swiss Commodities, Futures and Options Association, was founded in 1979 as a non-profit professional association for the purpose of promoting derivative financial instruments, particularly standard futures and options contracts on financial instruments and commodities, to the widest possible audience, and to serve the interests of its members. SFOA serves users of commodity and financial derivatives, as well as professionals, their institutions and the exchanges. www.sfoa.org

International Federation of Technical Analysts (IFTA)

IFTA is a non-profit federation of 26 individual country societies who individually and jointly dedicate themselves to

Research, education, camaraderie and dissemination of technical analysis of world markets. The IFTA societies support sharing technical analytical methodology that at its highest level is a valid, and often-indispensable element in the formulation of a reasonable basis for investment decisions. n Promotion of the highest standards of professional conduct, international cooperation and scholarship between all its Member and Developing Societies within all arenas of technical analysis. n

Providing centralized international exchange for information and data of various financial centers while respecting individual country and Society business practices, legal structures and customs. n Encouraging the standardization of education and testing of its constituent members in technical analysis, making sure that each individual country’s security analyst licensing, legal and language/communication priorities continue to be individually accepted. n Fostering the establishment of individual societies of technical analysts without bias in regard to race, creed or religion.

It supports the need for maintaining a free and open worldwide markets under normal, and in particular crisis periods.

As a growing bridge of communication worldwide, IFTA remains open to methods of technical analysis, while encouraging the consideration and support of membership for both developing and established societies. n

www.ifta.org

Journal Media Sponsor

Training: www.technicalanalyst.co.uk/courses/calendar/ Awards: www.technicalanalyst.co.uk/awards/the-technical-analyst-awards-2016/ Research: www.technicalanalyst.co.uk/research/ 48 • Autumn 2016 • The Swiss Technical Analysis Journal

Autumn at Lower Engadin, Switzerland Source: goodfreephotos.com

Lake Silvaplana – Upper Engadin – Switzerland Photo: Alberto Vivanti

Lake Silvaplana – Upper Engadin – Switzerland Photo: Alberto Vivanti

The Swiss Technical Analysis Journal • Autumn 2016 • 49

The Swiss Association of Market Technicians ZÜrich • GenEvA • Lugano • chur 50 • Autumn 2016 • The Swiss Technical Analysis Journal