One-on-One With Ralph Acampora – Part 3

Today we finish up with the last of our 3-part interview with legendary technician Ralph Acampora. It has truly been an honor for me, not just to go back and forth with Ralph, but to be able to share it with technicians and soon-to-be technicians all over the world. I really enjoyed the entire process and have already received some incredible feedback. Thank you guys so much for reading. And thank you Ralph for sharing your wisdom and experiences with us.

We'll continue from where we left off earlier this week. Ralph had just walked us though some of his thoughts on the current market environment and a little bit of the history behind the Market Technicians Association. I hope you enjoy the rest of it:

***

Part 3

JC - Ralph, thank you so much for sharing your thoughts on the market with us. I know our readers are going to love this. Next, if you don't mind, I have a few questions that were sent to us from the Stocktwits community:

Alex Tarhini @tarhinitrade asks, "Regarding Dow Theory in today's economy, do you think that the Transports (originally the Railroad Average) should be replaced somehow? Maybe confirmation from the Nasdaq or something like that?"

Ralph – First of all, you bring up the Transportation Index. And that of coarse is Dow Theory, which is what I think you’re alluding to. I think I said to you in the beginning, the first thing I look at is Macro; the Dow Theory. I think most Dow theoreticians would say this rally that we had coming off of June lows is really, by Dow’s theory of interpretation, a secondary rally within an already existing bear market. I don’t think too many Dow theoreticians would disagree with that. I know Richard Russell, who is the living guru of Charlie Dow from La Jolla, CA, I read his letter periodically, is saying the same thing. He’s saying that the Transportation Average has not confirmed the new highs in the Industrials. My answer to that is; you can have a period of time where they don’t confirm. This has been going on for months now, they just haven’t confirmed. That doesn’t mean you go out and shoot yourself.

My interpretation is; okay so it’s a rally in a bear market. Is that rally playable? If you’ve read my tweets, I have been a big proponent for this summer rally. I’m now calling it an Indian Summer Rally, because it’s lasting so long. This summer rally hasn’t ended yet and to me it looks like it has life left. I just caution the Dow theoretician that, historically, when you finally get a confirmation of both averages and you get the primary bull signal (which by the way, as far as Richard Russell is concerned, the Dow Transports have to close above its recent May closing high. And I agree with him) - I just want to remind everyone that historically when you get that signal, the Dow Industrials are already up at least 10%. So I’m saying to my people - Why wait? Why wait for the signal? Play it!

JC – Sure

Ralph – I wouldn’t go out just because it’s not working right now, or it’s not working the way you want it to work, and change the component. No, the theory basically I think, is still rather valid today. The Industrials are the makers of products and the Transports are shipping the products. They got Federal Express in there, UPS, railroads….Railroads are phenomenal! I mean they have a whole new renaissance in Railroads. Warren Buffet, haha…he bought one.

JC – Yea, outright.

Ralph – The guy likes choo choo trains so he went out and bought the whole set.

JC - Downtown Josh Brown @reformedbroker asks, “Has there ever been a time or market environment that has made you question your work in technical analysis and you told yourself that you might need to be watching something else?”

Ralph - Absolutely, that’s a great question. Remember I told you I came into the business in the late 60s. I actually started doing all the plotting and everything in 1967-68. I was just a young guy bumping along, not really understanding what he was doing but was doing it. So I had the whole secular bear market. The first 10-15 years of my business career was a horrible period of time. Fortunately for me I hooked up one of the best of the best, Alan Shaw in 1969-1970, and that man nailed it – all the tops and bottoms, he was phenomenal. Now, maybe 7, 8, years into it, it’s now the late 70’s and I’m kind of strutting around thinking I’m pretty cool and I understand this stuff. Well I almost quit, I almost left Wall Street because in the late 70’s I think were the worst periods in the world. The market would look good, rally a little bit, and then just get crushed. In fact, Oct ‘77 and ‘78 are essentially known as the October Massacres. The Dow dropped, I think, 10% to 15% twice. And it just tore me apart. My longs didn’t work out, my shorts didn’t work out. I think we’re in a similar period now. That’s one of the reasons why I’m bullish. Because so many people actually missed this whole move coming out of the June lows. A lot of people weren’t as bullish as they should have been.

JC – You’re right.

Ralph – The crash of ‘87 was my worst call. There was a Barron’s article; Marty Zweig was in it, of course Bob Prechter was in it, and they were both calling for crashes. I was in it and I was looking for a pullback (laughs). I wish I wasn’t in that article.

JC – Well granted it was a big pull back, but that day was the bottom. Was it not? And then we went on to new all-time highs?

Ralph – Yeah but I gotta tell you, going through that process, I now know what it feels like being on the deck of the titanic. It was horrible

JC – Life is Trading @Lifeistrading asks, “What do you feel is your hardest rule to follow?”

Ralph – I’m a very simple guy and I believe in trend analysis. I’m a price guy, I put price before everything. I told you before I like some of the oscillators….the heck with the oscillators. If my trend is up, I don’t care what the RSI says, I’m up. I have to respect trends. There are times when you see a trend broken and you’re in love with a situation. I’m pretty good at it now after all these years with all the battle scars on my back. I have to adhere to trend analysis, if I don’t, I usually get into trouble. I’m not sure if that answers your question.

JC – No, that’s great Ralph - makes sense. The last question comes from Barry Ritholtz @ritholz - His question is, “Whether or not quantitative easing and the Fed’s impact on liquidity affected traditional technical analysis in any way?”

Ralph – No, I don’t think it affected the subject. It definitely impacted the stock market. But we as technicians follow the stock market. And most times we don’t know why it’s going up or down but we don’t ask that question why. It’s not what we do. We just make sure we identify and go with it. So if someone wants to say with me, “Well gee Ralph you were lucky you got that summer rally behind you and you were doubly lucky because it was in anticipation of QE3 or 4 or 5 or whatever Bernanke is doing”. I’ll say, Okay you can call it luck, I call it research. It goes up for whatever reason, I’m a trend follower, and I go with the flow.

You know what’s the most important thing I can stress with you? Because you hit the nail right on the head when you started this interview. You talked about all time new highs and my response was, “Yeah, but the last time we were here, the sentiment was so positive in 2007. Today it is so negative. That to me is the most unbelievable, and the most bullish thing I’ve ever seen in all the years I’m in the business. We’ve got a market that’s on the verge of doing spectacular things and very few people either believe it or are participating in it. That is most bullish thing I’ve ever seen.

JC – Before you run, would you like to tell us a little bit about what you’re doing with the MTA Educational Foundation and what you’re doing with universities and college students?

Ralph - I think this was (John) Brooks’ idea. It’s one thing to talk to professionals and do all this wonderful stuff but you needed to reach people before they came to Wall Street. We had some friends on campuses, but not many. And what they knew was very minuscule and most of the professors that we would meet had a very minuscule background in technical analysis or had none. So the MTA created a separate organization called the MTA EF, which is Educational Foundation. Their primary reason for existing was to go to college campuses and, not only give lectures to the students, but if the institute wanted to have a technician teach classes we would supply the technicians. For example (Phil) Roth, teaches at Fordham University. If they have a professor who wants to teach the classes at the University, the MTA EF will supply that professor with all the material he needs to create his classes, lesson plans, tests, and everything with the sole purpose of educating these young students and hopefully gearing them towards taking the CMT.

JC – I’ve noticed that a lot of these professors and Universities, the academic community in general, seems to be much more fundamentally driven. Why do you think that is?

Ralph – Well I’ve got to go back in history, back to the crash of 1929, okay? There was no SEC, by the way, before the crash. The SEC came out after the crash of 1929; it came out in the early 1930’s. Shortly after new regulations, you could just imagine what the country was going through. They were reevaluating everything. They came out and said that all research on Wall Street has to be “rooted in sound fundamental principles”. That just closed the door on technical analysis. There was no MTA at the time. If there was we could have fought it. But there was no one there to fight for technical analysis. So the investment community became fundamentally oriented. The bible, “Security Analysis” written by Graham and Dodd, came out in 1934. I could be wrong with this, but I think a couple of years later the CFA came out. So all of that was mandated. And here we are 2004 they came out with more regulation, Sarbanes Oxley came out. So thank god we had myself and whole bunch of people in the MTA to stand up to it and say, “Hold on, not this time, you have to include us into this research”. And they did.

JC – Ralph, this has been so awesome for me and I know when we put it out there, everyone is going to love it. Do you have any words of wisdom that you want to pass on to young up and coming technicians?

Ralph – What would I say to the up and coming technicians? You know, I asked the same question to Richard Russell about 6 or 7 years ago for the MTA. We had a camera and we archived him. I spent a couple of hours with him, and I wanted to keep that for everyone so 20 to 50 years from today everyone could still see the master of Dow Theory. Well at the very end I said to him; “Richard, what is the best advice you could give to the new generation of technicians?” He stared right into the camera and said, “Never fight the primary trend”. I smiled and said, “Spoken like a true technician, a true Dow theoretician”. My advice is you have to respect trends.

JC – I get asked all the time what books I would recommend to somebody who doesn’t know anything about technical analysis. My answer is usually the John Murphy books; Technical Analysis of the Financial Markets and then the Intermarket Analysis book that you mentioned earlier. What’s your answer to something like that?

Ralph – Watching what’s happening with the CMT exam, the Chartered Market Technicians exam, I encourage everyone to take the exam. And for no other reason but they’re going to force you to read all the good books. All the stuff that you have to read. Murphy was the primary source for a long time. They still use his book but they have another book that compliments Murphy’s and it’s called “Technical Analysis: The Complete Resource for Financial Market Technicians” by Kirkpatrick and Dahlquist. If you really get into the subject you should buy them all and read them…“Reminiscences of a Stock Operator”… you gotta get those books.

JC – They’re both on my shelf.

Ralph – There you go.

JC – Last thing, do you want to talk about the course in Chicago you guys are doing in November?

Ralph – Yeah, November 7th, thanks for saying that. As I mentioned before, another thing I’m very happy about with my career is I had the opportunity to teach The Street. I literally taught Wall Street for 42 years. So when my lovely wife Rosemary and I came out to Minnesota, I was kind of semi-retired. I don’t know what the word retirement means. By the way, I had a couple of operations recently: one on my hand and one on my hip. One bit of advice to everybody, “Don’t get old”. So anyway, I got passed all that, thank god, the school (NYIF) wanted me to continue teaching. And of course I wanted to continue teaching. I’m going to do a couple of universities out here. The school is having a full day class, if anyone’s in the neighborhood you should stop by. I think I do a decent job. It will be in Chicago on November 7th. A lot of traders and investors are out there. It’s a good place for me to get back out and do my thing.

JC – Where can people go to sign up or find out more information about it?

Ralph – The New York Institute of Finance’s website, that’s literally the school of Wall Street.

JC – This was awesome. For me it was definitely a privilege. I’ve run into you walking down the street in the past and I’m sure I will again.

Ralph – By the way, make sure you go to the conference room at the MTA.

JC – I’m 100% going. Next time I’m down on Wall Street I’m going to stop in.

Ralph – Make sure you ask them for the black book where you can see all of the calculations done and then you’re going to say; Oh my heavens wow.

JC – I’m absolutely going to take you up on that.

Ralph – Tell them Ralph sent you.

JC – I will.

Ralph – Okay buddy

JC – Ralph thank you so much.

Ralph - You’re welcome

Also See:

One-on-One With Ralph Acampora - Part 1

One-on-One With Ralph Acampora - Part 2

Tags: $FDX $UPS $TRAN $IYT $DJIA