This week was the Market Technicians Association’s annual symposium. It’s easily my favorite event of the entire year. I’ve been going to this thing annually since probably 2006. And just when you think that it can’t get any better, the crew pulls it off again and makes it the best one yet. If this is something that you haven’t attended in the past, I strongly suggest coming next year. Some of the top technicians on the planet all together in one place at the same time. You can’t beat it.
It’s impossible for me to be able to share everything from the week, but I figured I would try and put up some of the things that stood out to me, and hopefully it will give you some idea of just how awesome the event was.
This year happened to be a special one as it marked the 40th anniversary of the Market Technicians Association. So the event kicked off Wednesday night down in the Financial District with a black tie dinner. Imagine a bunch of technicians in tuxedos? Too funny. A lot of the former presidents and founders of the MTA got up on stage to tell old stories. If it wasn’t for the hard work they put in back in the 60s and 70s, our generation of technicians wouldn’t have the opportunities that we have today. So for that we’re thankful.
Art Cashin, a legend on the floor of the NYSE, received an award of recognition and had this to say to the room of technicians Wednesday night:
The two day symposium started off Thursday morning with a panel discussion that included MaryAnn Bartels from Bank of America/Merril Lynch, Rick Bessinger at Wells Fargo, and George Davis at RBC. It was great to hear their thoughts on the market and some of the value that technical analysis brings to investing and risk management. MaryAnn Bartels said that she believes we’re in a new secular bull market in Consumer Discretionaries, Consumer Staples, Tech, Healthcare and possibly Transports, now that they’re hitting all-time highs. I thought that was interesting. But in my opinion, the best part of the panel was them sharing their biggest investing mistakes that they’ve made recently.
Bartels was visiting clients in Mexico City summer of 2011 during the European crisis. She admitted not recognizing the climactic bottom that was being put in at the time. MaryAnn didn’t turn bullish as fast as she would have wanted and wasn’t able to tell people to buy. Bessinger had a stock back in early November that was really beaten down. He thought a bottom was put in, came into work and said buy it at the open. Right away, the stock opened and gapped up huge. Within 45 minutes, the SEC came in to that particular company and the stock closed down 14% that day. Then it dropped another 20%. Lesson? Risk management. No matter how much you think you’re right, it doesn’t matter. Risk management is the key. And finally George Davis admitted making a huge bearish call on US Treasuries in early 2011. He saw evidence of market healing and yields started taking out big resistance levels. He figured it was time to make a big call and call the bottom in yields. The Fed did another round of QE and yields ended up hitting new cyclical lows. These are three of the best, and even they get it wrong sometimes. Risk management is the lessened learned for sure.
Dr. Jason Williams, son of legendary technician Larry Williams, put together a nice interactive session on the mental edge in trading. He recently published a book on how to adapt your personality traits to control emotions and make smarter investments. His father Larry called up all his successful trader buddies, and allowed for Jason to give them custom personality tests to see if there was a correlation between personality traits and successful trading. As it turns out, the best traders consistently had low levels of anxiety. When they were asked what sort of anxieties they did feel, the two answers were consistently 1) the fear of losing money and 2) the fear of being proven incompetent, or not smart enough to trade. But interesting enough, none of them had a goal of curing those anxieties. In fact, some of them even use their anxieties as a tool.
Jerry Rice, the greatest Wide Receiver of all time, had this to say at his NFL Hall of Fame induction speech:
I’m here to tell you that the fear of failure is the engine that has driven me throughout my entire life. It flies in the faces of all these sports psychologists who say you have to let go of your fears to be successful and that negative thoughts will diminish performance. But not wanting to disappoint my parents, and later my coaches, teammates and fans, is what push me to be successful.
That fear is what drove him.
Another trait that stood out from this successful group of traders was a lack of confidence. No cockiness at all from this group. I think this particular personality trait says a lot. If you think you’re the man and know everything, this market is going to crush you. I firmly believe that. It’s knowing that the market will do whatever it wants and doesn’t care what you think that separates those that make money and those who don’t.
Maria Bartiromo moderated a panel with Ralph Acampora, Alan Shaw, Frank Teixeira, and Craig Johnson on the 40 year evolution of Technical Analysis. I think the consensus seemed to be that the world is smaller, people are smarter, and technical analysis is definitely much more widely accepted today than it’s ever been before. Ralph thinks we’re in a secular bull market that can go for another ten years, but definitely due for a correction. He is seeing some cracks short term in the transports and small caps. What could change his mind? He said a 8-10% correction that doesn’t bounce back right away. If we correct, and then consolidate for 6 months or so down there that would worry him. And then if that breaks, it could be trouble. Teixeira over at Wellington took the crown as the funniest technician of the week. He thinks the trends in US and Japan are up, so you buy them. Emerging markets not so much. Alan Shaw, now retired, admits being happy he doesn’t need to navigate the current market.
Dr. Andrew Lo from MIT is always one of my favorite speakers. The man knows how to put on a presentation. I’m fortunate enough to have heard him speak several times before and he always brings down the house. Author of A Non-Random Walk Down Wall Street, Lo explained that technical analysis, “empirically works”. He essentially invalidates what was once written about technical analysis in the famous book, A Random Walk Down Wall Street. Nice to see technicians get their day (with mathematical facts, non some new jersey guy’s opinion).
Dr. Lo went into what separates humans from machines. He mentioned this one particular computer that can compute x amount of numbers in I don’t know how many nano seconds. Regardless, it’s the fastest and most brilliant computer today. But even with its power, humans are still much better at recognizing and remembering patterns. He put up a picture of a squirrel. Right away we know what it is. The computer does not. He believes that the minute machines know how to do that and think for themselves, it will be the end for us. It’s a bit dramatic, but I get his point. You can teach a machine to do a lot, but you still need a human brain to make subjective decisions. Funny that Larry Williams on Friday showed the market returns for quant funds last year dramatically underperforming everyone else.
And finally Thursday ended the day with a bang. One of my favorite authors Martin Pring faced off with Uber-bear Bob Prechter in an inflation/deflation debate. Pring got going first showing a chart of US Commodity prices going back to the 1840s. The average secular bull run is about 19 years. We’re just 12 years into this one:
US Government Bond Yields (long end) have been declining for 32 years, which historically is longer than usual. But there is a very clean downtrend line that has been touched many times during this decline. This is definitely the line to be watching:
The Commodities vs Government Bond ratio has historically been a good leading indicator for yields. This chart shows that since 1850, when the ratio bottoms out, US Government Bond yields tend to turn higher shortly thereafter. The secular shift in rates has been preceded by a bottom in Commodities/Bonds ratio 6, 2, and 8 years in advance. Currently, we’re 11 years into a new uptrend in Commodities vs Bonds, but still no shift in yields:
Pring had some great historic charts for sure. But Prechter had more charts than I’ve ever seen in my life. No joke. All of them bring him to the conclusion that we should not only sell all of our stocks, but also sell bonds and also sell commodities. Cash, according to Prechter, is the only place to go, “I’m as bearish as I’ve ever been”.
Suggesting more of a deflationary period is ahead for us, here is his chart of Commodities (CRB Index) not responding to all of this quantitative easing. In other words, no inflationary impact, but actually the opposite:
Prechter isn’t a fan of Gold either. I thought this was a fascinating chart of Gold billion compared to the known ETF holdings for Gold. He is suggesting that the public has been buying this pullback in prices which represents “bear market buying”:
Margin debt worries Prechter as well. Here are two charts showing Margin debt up 100 times in 39 years. This is now $75 Billion greater than the sum of cash and available credit in all accounts. The problem here is the timing. He says that hedge funds are leveraged and Stocks are at historic highs, but in theory, they can still get even more leveraged (click to embiggen):
Sentiment is a big problem for Prechter. In addition to the leverage, he’s worried that the NAAIM Survery of Investment Managers shows that the average manager is now leveraged on the long side for the first time ever. This is a new record exposure to stocks. Market Vane’s Bullish Consensus is now at extreme optimism, higher than it was at the Dow’s previous all-time high in 2007. Hubert Financial Digest’s Newsletter sentiment shows the highest readings since March 2000 for bullish advisors, again higher than the 2007 peak. Hedge Fund net long exposure rose to a 10-year high in Q4 2012. There are all-time record low levels of cash right now in mutual funds. Credit Suisse has a proprietary fear barometer showing record complacency. BofA Merril Lynch’s Bull & Bear index is at record highs of extreme optimism. Insiders, on the other hand, are the only ones selling heavily. Vickers’ insider sell/buy ratio is now up at 9.2 to 1.
The Dow Jones Industrial Average is up to record highs. But the Real Dow (inflation adjusted) has been making lower highs since 2000. Here he compares this action to the 1960-70s period:
Prechter’s presentation continued with more and more charts. Student loans are bubbling – now approaching a Trillion Dollars up from just over $200B in 2003. US Real GDP is making lower highs since the 1970s and now near the zero level. New housing starts have only “recovered” back to levels that used to mark a low in the 60s, 70s, 80s and 90s. Same thing with Total New One-family homes sold, “recovering” back to the old lows taken out in the crash. Government plus Personal Savings as a percentage of GDP has not recovered from the ’08 crash, it’s just hanging out near lows below negative 4%. Just a lot of charts that tell the same story – everything is bad and don’t walk away, run away from stocks, bonds & commodities.
Whether you agree with the guy or not, his charts were awesome. Here is a good one showing how much the public loves the Fed near market tops, but hates them near bottoms. The bernank is labeled, “The Hero”, in a recent cover of the Atlantic (click chart to embiggen):
And the last thing he mentioned which I thought was Interesting was the lack of belief that a deflationary period is coming. I talk about extreme sentiment all the time where if everyone believes something (or doesn’t believe it), then the market is vulnerable to act in the complete opposite direction. The Apple and Real Estate bubbles were two good recent examples of this. Prechter showed the google search results for various statements and questions, and I think his point is made rather nicely:
“the world is coming to an end” 4,510,000 results
“dinosaurs love to dance” 1,710 results
“plus equals minus” 48,700 results
“inflation for 2013” 47,700 results
“deflation for 2013” 5 results
“inflation will rise in 2013” 50,200 results
“inflation will fall in 2013” 7 results
After that Prechter presentation, it was time for a cocktail. This event is great: the charts, the presentations, the learning – all good. But the best part of the whole week is 100% the people. Through this blog, through the MTA and Technical Analysis, I’ve been able to meet some of the coolest and most brilliant people in the world. Here’s a picture of the crew at Dinner Thursday night – Greg Harmon, John Kolovos from Strategas, Ryan Detrick at Schaeffers, JC O’Hara from Phoenix Partners Group, new blogger Jon Boorman, and Mr. Next Big Move himself Joe Fahmy:
Friday morning the symposium got started nicely with a bunch of the CNBC Fast Money guys telling war stories. Dan Nathan, Jon Najarian, Mike Murphy, and Anthony Scaramucci were grilled by technicians Katie Stockton and Craig Johnson. I gotta tell you that this was one of my favorite panels. I always appreciate when people admit their mistakes and are willing to share how they learned from it.
Scaramucci started off with a great story. He was 26 years old working at goldman sachs and thought he knew it all, not just in the stock market, but specifically in the biotech sector (as an economics major). He put about $10,000 into call options as a biotech stock was going into phase 2 trials. He admits that the worst thing that could have happened to him did, he was right and turned the ten grand into $70,000. It validated his thesis that he knew something, even as a 26 year old kid. So what did he do? As the stock was going into the phase 3 trials, he not only rolls the 70K into new call options, but also takes his $40,000 savings and goes all in. He flew down to DC to watch the FDA say no to the drug and lost every single penny. To make things worse, he somehow was on margin and actually owed goldman $35,000 more to cover his debit balance.
Mike Murphy has received a lot of praise for his housing bottom call 18 months ago. He nailed the bottom in homebuilders. The problem was his execution. He admits to listening to people too much and hedging his positions so much though that they barely made any money. If he had just stuck with his convictions, he would have and should have made a killing. Great call but poor execution. Lesson learned.
Najarian shared a quick story about selling options towards the end of the day to please a very big customer. He went home with the position on at the end of the day because he felt he had to in order to make the big institutional client happy. He lost 2 million dollars on that trade. Lesson – make a trade and go home with it because you want to, not because you feel you have to. Chances are, the other guy has better info that you do. And in this case, he certainly did. Dan Nathan shared a story about him getting bearish Research in Motion back in 2003. The stock doubled and crushed him. Meanwhile, he also owned apple which doubled that year. But laughed and said he sold that one…
The Mark Dibble, Stewart Taylor and David Lundgren panel was a good one. Hearing from the buy side at an event that historically has been sell side driven is great. Like I’ve said before, I’m noticing this shift more and more every year. The MTA started out as a sell side only organization. Then they opened it up to traders shortly thereafter. And then futures guys were allowed in. Now nobody cares. Everything is related in the intermarkets and we’re all just looking at price behavior. One of the panels was asked about the job opportunities for technical analysts on the sell side. The answer from the sell side analysts was that not only is it tiny, but it’s actually getting smaller. Every year at this event, I’m meeting more and more people on the buy side. It’s an interesting shift to see.
One of the things brought up in the discussion was how some of the top money managers in the world are going public with their use of technical analysis. In 2011 Steve Cohen was quoted, “The slow grind up with stocks exploding higher is very bullish”. UK’s Anthony Bolton said, “To be too early on a stock can be costly. [Using charts] is a health check. It’s a bit like going to the doctor”. The University of Albany did a study titled, “Head and Shoulders above the Rest? The Performance of Institutional Portfolio Managers who use Technical Analysis”. Larry Williams put up a chart showing the cumulative net return of institutional portfolio managers using technical analysis vs funds that do not:
It was an awesome event. It always is. The MTA did a great job of putting it all together. These are a few of the things that stuck out to me during the week. If you’ve never been, you really should considering flying out to next year’s symposium. I know that I look forward to it every year. The MTA doesn’t pay me to endorse anything, I don’t owe them anything. This is really just JC saying that this event is the real deal. And I’ll say it again, the best part of the whole thing – the people. Awesome awesome people come to this thing and really appreciate market behavior. It’s great.