TECHNICAL STRATEGIES QUARTER IN BRIEF: CORE ASSET ALLOCATION REVIEW Q3 // 2014 <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
EOGHAN LEAHY, CMT, MSTA MAURIZIO PIETRINI, MSTA GUIDO RIOLO, MSTA OLIVER WOOLF, CAIA, CMT, MSTA PAUL CIANA, CMT GREG BENDER, CMT CONTENTS Crisis.” Financial Globalthe beforesince levelsnothitting seen “ underperformers. relative significanthave been which copper and silver nickel, like metals corn and industrial cotton into such as wheat, commodities out of agricultural rotation be a appears to There levels. resistance term testing long such as copper, and gold silver markets several with space interesting is commodity The healthy correction. sharp a yet from recovering to be look Arabia and Saudi Dubai Meanwhile quarter. last the over well very and quarters. Russia India have performed several for strong have been which indices European out of peripheral rotate as investors attractive more relatively look starting to BRICswith space market emerging inshiftthe be a to seems There weakness. to although push the higher continue markets Equity highs. week 52 its from significantly has back pulled the Euro while Dollar the USversus strong remains Sterling the quarter. over in Europe sharper been increases have rate Meanwhile zero. virtually now the two between the spread with to continue CDSfall and European USCrisis. multi registers across markets volatility across asset impliedclasses as continues the volatility low and extreme high correlation The ABSTRACT 1. 4. 3. 2. 1. Implied volatility across marketsmulti volatilityacross registers Implied Woolf Oliver COMMODITIES Woolf Oliver RATESAND FX Eoghan MARKETSEQUITYGLOBAL MaurizioBender, Eoghan OVERVIEW MARKETGLOBAL Eoghan ANDCONTENTS ABSTRACT
Leahy, Oliver Woolf, Woolf, Leahy, Oliver Woolf, Leahy, Oliver
Leahy, Oliver Woolf, Paul Oliver Leahy,
Pietrini
- year lows hitting levels not seen since before Financial the Globalsince before seen not hittinglevels lows year Gudio Gudio
Riolo Riolo Ciana , Greg
Euro Euro 10. 9. 8. 7. 6. APPENDIX AND DISCLAIMER Van Lex Dam BRIEFINGEXPERT Maurizio Woolf, Oliver IN BRIEF STRATEGIES Guido SURVEY SENTIMENT BLOOMBERG Guido SPOTLIGHTMARKETBRIEF S toxx
is starting to show short term signs signs of show term short starting to is Riolo Riolo , Jennifer Warren Jennifer ,
- year lowsyear
Pietrini
Ph [email protected] Greg Bender, CMT Ph [email protected] Paul Ciana,CMT Ph: +44 [email protected] MSTA Oliver CAIA,Woolf, Ph [email protected] MSTA Riolo, Guido Ph [email protected] Pietrini,Maurizio MSTA Ph: +44 [email protected] MSTA Leahy,Eoghan CMT, Contributors Strategies Quarter inBrief Technical BRIEF: Bloomberg : + : +1 : + : + 1 44 44 - - 646 212 - - - - 20 20 20 20 ------324 617 7073 7330 7073 7392
- - 3169 8229 - - - - 3148 7211 3666 0599
2
// THE QUARTER IN BRIEF – Q3 2014 1. Blue/red signals signals Blue/red 1. exhaustion The Fisher TEMA
uptrend
starting remains
signal
continues, f rom Volstall indicator 2. Painted barsromfrom triplePainted Volstall 2. crossover average movingis LowerFisherindicator panel 3. Transform with Squee to
bullish
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TEMA revert as
still
the
bullish
suggesting is
Euro
still Chart 3 .
bullish
S toxx
weakening
OVERVIEW however continues
momentum there
to
drive
is
a
Volstall higher .
.
Transform S&P following Daily
continues
Euro EQUITIES
a divergence
recent S
toxx to
drive
V 600 olstall
suggest
higher
looking
signal
however waning
.
negative Potential Chart 4 Chart 2
momentum
the ze .
recent rising TEMA
wedge
Volstall
in has
the
near pattern turned
signal
term
.
bearish and
.
Fisher
3
// THE QUARTER IN BRIEF – Q3 2014 1. Blue/red signals signals Blue/red 1. momentum. reversion mean Fisher However suggests TEMA. waning upside outlook More bullishEurope in as trendweekly up is confirmed as by remains US
10
Year
negative
continues f rom Volstall indicator 2. Painted barsromfrom triplePainted Volstall 2. crossover average movingis LowerFisherindicator panel 3. Transform with Squee
and
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a OVERVIEW
tight
has
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broken .
range .
TEMA
FIXED FIXED INCOME 122 Daily reversal saw Downtrend
and
TEMA a
127 very
highlights
. negative channel
Volstall extreme
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4
// THE QUARTER IN BRIEF – Q3 2014 1. Blue/red signals signals Blue/red 1. weekly indicators.weekly continues to stayat elevated levels. No signs of weakness onyet GBP continues to surge higher.positive remains and TEMA Fisher tested has Weekly
now .
Squeeze
turned f rom Volstall indicator 2. Painted barsromfrom triplePainted Volstall 2. crossover average movingis LowerFisherindicator panel 3. Transform with Squee
negative
signal
fired
and
short
the Chart 1 Chart 3
as uptrend
Euro
has support
reversed OVERVIEW
is
currently
lower .
TEMA being
significant Volstall Daily would now Euro
chart
negative
failed
exhaustion likely .
TEMA of
dramatically result GBP
FX following
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5
// THE QUARTER IN BRIEF – Q3 2014 1. Blue/red signals signals Blue/red 1. psychologicallysignificant $100be key.willlevel support hold then of retest 2013 highs Supportlooks likely. around bullish remains despiteTEMA recent pullback. Should uptrend increasing higher Having
to
found
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in f
support rom Volstall indicator 2. Painted barsromfrom triplePainted Volstall 2. crossover average movingis LowerFisherindicator panel 3. Transform with Squee its
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of term
at
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the downtrend
move
key Chart 3 Chart 1 .
OVERVIEW 300 .
TEMA
level,
is Copper
positive
is
and
now
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driving
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horizontal signal Daily COMMODITIES signal strength Daily
chart
at TEMA right
of recent support
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Crude downtrend is
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resistance is negative extreme
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Confluence Fisher may to
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mean
hold
some reading .
revert Key following
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level
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Volstall .
Volstall .
and
6
// THE QUARTER IN BRIEF – Q3 2014 1. Blue/red signals signals Blue/red 1. prior has Gold downtrend bullish Silver
turned
downtrend starting
finally for
is positive both
to broken looks f rom Volstall indicator 2. Painted barsromfrom triplePainted Volstall 2. crossover average movingis LowerFisherindicator panel 3. Transform with Squee
look resistance
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positive which mirroring TEMA
price OVERVIEW Chart 3 Chart 1
now
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be turned
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of
and bullish, Gold
above support long
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is
PRECIOUS PRECIOUS METALS
by and Recent Volstall move Multiple
red
shoulders
Volstall
higher blue
signals Volstall
Volstall
indicator has pattern
and
signals
broken
potential signal .
. However
Potential
at
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horizontal flag
mark upside . near
Perhaps Chart 4 Chart 2
the term
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support momentum
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7
// THE QUARTER IN BRIEF – Q3 2014 4. Volatility Volatility 4. bands Q2. Q2. An all underwas Currencyvolatility60 its day averagemoving everyday of the new maybe floor closer to 10. levels 2007.since The S&P 500 gained nearlyQ2 4% in and the VIX fell to its lowest - time low was reached waslow on time June 19th.
The The 12 consideredwaslevel the floor for volatility Chart 3 Chart 1
OVERVIEW
–
levels as some has levels some as volatilityreturned to volatility. Band. Bandwidth (distance betweenbands) has reverted to more normal early June intime low but quicklyrebounded to tag the +1SDBollinger of The implied volatilitythe UnitedStates Fund Oil anotherETF made all May2013.since finished MOVE Q2 taggingby the andspikes earlyAprilin June werequicklyretraced lows.The lowerby volatilityImplied of optionsTreasury continued to trend in Q2.The lower
VOLATILITY
Chart 4 Chart 2
- 3SD Bollinger3SD Band
–
the readinglowest - 8
// THE QUARTER IN BRIEF – Q3 2014 4. Volatility Volatility 4. bands Comments… multiple times. Like times. multiple crude bandwidthoil,starting to is slowly widen. continuedGold volatility to trend in Q2,tagginglower the
Chart 3 Chart 1 OVERVIEW - 3SD band
VOLATILITY implied volatility of of allimplied volatilityfive asset classed covered in this Below is a normalized of chart the past quarter of the relative on an absolute basis. relativevolatilityto havestarted Commodities slowlyto divergeand showsome rates. bound and tightin ranges followingbenchmark interest U.S. and Treasuries markets currencyhavebeen range largely has drifted lower. VIX, whichhas a strong negative correlationto equityprices, has established a strong bullish trend. The followedwidely and After volumes. low correction a brief April,inthe S&P 500 The section. theme theme for Q2 has been quiet
equities.
Conclusions
But historically volatility is stilllowvolatilityis But historically markets markets with low volatilitylowwith 9
// THE QUARTER IN BRIEF – Q3 2014 5 . World World . TrendsGraph markets extreme exceptions Virtually
.
every levels These
are
market
of copper intermarket
correlation OVERVIEW
across which
relationships
between
is the
reversing
asset
markets
classes are
up
slightly
and
remains
covered
the
unexpected ASSET CLASSTRENDS
euro .
Bonds in
the which
continue Quarterly and
is
unlikely reversing
to
has
advance
to
been last down
forever
up . despite
The
over .
risk
the the
on
strong past
phase
two
gains
continues quarters
seen .
in The and
equity
two the
10 THE QUARTER IN BRIEF – Q3 2014
// 6. RelativeGraphsTM 6. Rotation first consolidating price leading same The
time weekly
and asset .
Both in
momentum
months
classes Relative
the within
US
Silver
. the
The Rotation 10
between
leading year OVERVIEW
has Euro
and
been Graph
has
zone the
the
improving been S&P
(RRG Bund while
very and
copper are
relative weak
the leading
is Euro highlights and
improving, to
with
Gold stoxx is ASSET CLASSTRENDS
now equities
which
some which
in Finally,
the
may interesting which
may lagging
both
be
is be
bullish
interesting Gold
quadrant, driven
divergent
and for
by
both Silver .
There
however the relationships
precious
weaker are
is
improving also Sterling
metals Euro
a between
recent
. remains
. together Meanwhile
divergence
securities
strong
however
we
and within in have
relative
for
is
still the the Oil
11 THE QUARTER IN BRIEF – Q3 2014
// 6. RelativeGraphsTM 6. Rotation INDEXCF and status sharp There
Italy
.
sell have European
weakening is offs
been poised
which
peripheral some
to
too can move
interesting .
be The GLOBAL EQUITY MARKETS
into markets
expected
BRICs the
rotations outperform
have
are following
been showing
taking
quadrant
relatively the
place
some huge
having
over weak
move relative
the
been with
it
last has strength
Portugal, a
strong
quarter enjoyed
with
relative
Ireland, in
following
Russia the
laggard
emerging Greece
in the
particular
just
classification in
market
the a
few
lagging
looking weeks space
upgrade
quadrant
.
ago
Dubai interesting .
from has
with
seen frontier as
Spain
the
a
12 THE QUARTER IN BRIEF – Q3 2014
// 7. Scatter chartScatter plot 7. While, While, the RussianINDEXCF and Indian SENSEXhave performed overwell the quarter. showing sings of recovery (see the market breadth section). The recent underperformance of the European peripherals isclear. volatile. The DFMGI has pulledback over the last quarter but has stillbeen an incredible performer over 12 months and is reverse. The two strongest performers the MERVAL(extreme currency devaluation)and the DFMGI have also been the most quarterly and annualperformance. This relationship has broken downthis quarter as wehave seen the fortunes of severalmark wehighlighted the performance persistence amongst the indices as they werea displaying widerbands give higher values and suggest more volatile markets. the Finally the of levelvolatility as depicted by the Bollinger%B which refers to the distance between the upper and lowerBollinger The Scatter chart shows 3 month price performance (X axis)versus 1 yearprice performance (Y axis). The market colours show
GLOBAL EQUITY MARKETS marker marker size
represents 60 dayvolatility. positive regression regression between the
Last Last quarter bands;
ets
13 THE QUARTER IN BRIEF – Q3 2014
// 8 . Market breadth indicators Market breadth. signals in the last 10 days, whichcan be byvisualised the larger size of their markers. Saudi indiceshave sold off sharply but are showing signs of recovery as they are registering the largest percentage of MACD peripheral European stocks have been weak and are clustering around the lowerleft corner of the scatter chart. Both the Duba majority or indiceshave shown moderate gains withoutextreme readings on RSIbreadth or percent above 50 dayMAs. The India, both had the biggest price gains over percentage of securities that have givenMACD buy signals over the past 10 days. colour denotes the percentage of stocks in each indexwith RSI above the 70 while marker sizeshows a relative valueof the compare the 3 month price performance (Y axis) to the percentage of shares above 50 daymoving averages (X axis), the market Above isa Scatter Plot Chart (GS
the the quarter and highest percent of members above the 50 daymoving average. The The stand out performers have
BREADTH been Russia and
buy ia nd
14 THE QUARTER IN BRIEF – Q3 2014
// 8 . Market breadth indicators Market breadth. the the percent above the 50 daySMA and potentially some bearish divergence on the percent of members overbought on RSI. There i SMAand then a huge spike on the percentage of MACDbuysignals. The indexis not testing resistance withan extreme reading Micex AnalysingRussia and Dubaiin more detailhighlights how the market breadth tools can be used to spot turning points. The Rus SMAissub 10 whichisan extreme reading. low This may signal a significant lowhas been established. a similarsetup in the DubaiDFMGI as the percent of MACDbuysignals isabove the 80 whilepercentage of stocks above the 50
formed an inversehead and shoulder pattern that was met withan extreme lowreading on the percent of stocks above 50 day GLOBAL EQUITY MARKETS
BREADTH
sia
on da n s y 15 THE QUARTER IN BRIEF – Q3 2014
// 8 . Market breadth indicators Market breadth. GLOBAL EQUITY MARKETS
BREADTH
16 THE QUARTER IN BRIEF – Q3 2014
// 9 . Implied Historical . forward curves 10. curves for implied shorter The (lowerpanel) isnow virtually zero. indices continue to fall and the spread between the two The benchmark (black) US and European (orange) CDS
the
top
10
end curves right
year
of
chart
the tenor (US
US demonstrates
bottom
were
curve
around
left,
seeing
EU
that 3
.
25 bottom marginal
interest
and
2 right) .
RATES FX &
25 decreases rate
for
is
increases
the less
US
. aggressive
However,
and
have
EU
been
respectively
the than
anticipated sharper
1
quarter
(now in
the rise ago
c
. Eurozone
in 3 when .
07 rates
and
the
over
over 1 1 . 70
year
the
) the .
coming forward
last
quarter,
year implied
from with
rates
the the
17 THE QUARTER IN BRIEF – Q3 2014
// 11. Market Market 11.Picture at which the DXY seems to have found acceptance currently. normal distribution of the overlayon the left, the apexof which, marked by the horizontalred line,is circa 80.2. This is (70% of activitydenoted by the horizontalblue lines). The range bound nature of the overDXY recent times is reflected byt price resistance in both Apriland May.Although this levelbroke on the upsidein the first days of June in then failed at its mon Last quarter (looking 6 months back) the overlayidentified 80.6 as the most traded andlevel subsequently this became letter represents an intradayinterval, usually30 minutes). months. Here each letter represents a dayof the The Market Picture diagram above highlights levels that have been particularlyactively traded for IndexDXY over the past 6 projection, projection, marked by the dashed black line
RATES FX & month month (high (high + |mid starting starting withfor A 1st (as opposed to its customary use where each The The
- point histogram histogram on the left isan overlay of 6 all months in the chart -
POC|* 2), 2), and retreated to the middle of May’svaluearea
the thl
level y he . 18 THE QUARTER IN BRIEF – Q3 2014
// 12. Sentiment and positioning 13. Implied probabilityImpliedforecast 13. positioning andSentiment12. by has net and position In
line its
speculator been the
25
with
D is 25
for Risk
the D recent
over Risk
most
position Reversal
GBP a Reversal
positive year
for performance
. which
However, EUR
it has
has has
(top risen
been been
the the
panel)
accordingly
falling
CFTC since rising
is
2007 of EUR the net
late
FX &RATES . most large
In is (bottom .
contradicted contrast
negative speculator
panel)
the
it
would the Both than The
case
analyst the implied
could
forward of
the
consensus have
probability
EUR
for
mildly
EUR
the
for
positive bell curve
(top)
the curves
and is
end
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over
are of
Q
fairly
1 3 translated .
5 is
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2 for
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In ) .
19 THE QUARTER IN BRIEF – Q3 2014
// 14. World World 14. CurrencyRankerCorrelation 15. Matrix greatest greatest has drop levels. experiencedCHF OnlyCDS in rise. a CDS whichhave NZD, also had positive spot returns, have seen the 3. outperformers outperformers for theof remainder the year. the 3 last months SEKand areforecast NOK to be the major 1. Of theOf thatcountries havedenominated USDand AUD CDSs, Despite havingDespite thespot worst returns amongst the G10 group over
RATES FX &
realized volatilityrealizedoverin the last quarter (albeit marginal). despitespread (3m) being the onlyone to have seen an increase in 2. SEKis the onlyto currencyhave a positive implied
Strongest positive 4 Strongest negative Weakest Weakest . Correlations vs. vs. Correlations USD –
AUD & CHF AUD –
EUR & DKKEUR –
N/A
–
realized
20 THE QUARTER IN BRIEF – Q3 2014
// 6. Relative 6. Rotation aluminium are cotton as last The
though
quarter increasingly Relative
being
GraphsTM they and
(source
amongst Rotation
zinc were
exhibiting
16. BCOM 16. Index are is
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all
laggards
new showing
strength
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BCOM
to
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previously,
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looked
silver,
and
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21 THE QUARTER IN BRIEF – Q3 2014
// 6. Relative 6. Rotation most and (position gold interest open The
coffee scatter
which volatile interest
hike
within
(large
have GraphsTM
plot . anticipated
on
the
from
the blue the
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larges sphere)
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22 THE QUARTER IN BRIEF – Q3 2014
// the the Bloomberg function whichwe wouldsuggest contacting The purpose is not to teach calculationor interpretation, for weavailablefocus willon TD Sequential that spans over 40 decades. Of the many indicators DeMark One toolkit often associated withmarket timing are the affair without the appropriate tools. unsustainable, timing the upward reversal could bea tricky agree would that this levelof isvolatility unusualand a not levelseen since February 2007. While most people In the first weekof July the VIX has reached a of low 10.28,
Studies, developedby Tom DEMA > DeMARK DeMark . and TD TD Combo. over a career Analytics via base isforming. Overall 13 from 2013April and a setup 9 from last succeed. The the downside,one that ismore likelyto fail than with the recent lowsshowinga disqualified breakout to 13 The indicates the current trend is increased chance of a correction, a countdown 13 be willin blue for the purpose of this publicationCombo countdown normallyin red and magenta respectively.However, TD Countdown, is the more directional phase and it is green and it ismomentum based; the second phase, identical both, on is calledTD Setup, it isnumbered in T he formed formed back daily chart chart daily of the studies comprise two phases: the first one, the the signals on the VIX weekly chart (left) instead. A in December and a combo 13 in May, VIX VIX (above) shows setup 9 vulnerable. suggest suggest a potential showsa sequential tends tends to to indicatean a sequential May. 23 THE QUARTER IN BRIEF – Q3 2014 // has not been tested at the time of going to press. downside. suggested breakout wasnever qualified and therefore never challengedmany times sinceit’scompletion, but the The hold. downsidemomentum provided the risk TDST levels 19 of June; whereas combo, in blue, completed its 13 on the (bottom right) , the If we look at the current resistance, this June. previous support TDST, whichhad turned into a the inlevel February as wellas the back pull on the rejection of the levelTDST last October before breaking year ago and again at the turn of the year. Also, the finer points, such as the touching of the Risk oneline More advanced also identified. turning points, in November, February and Aprilwere came to an abrupt end on a sellsetup 9. The next 3 couple of months later bysetup 9. The subsequent rally summer washeralded bya combo 13,confirmed a seems to confirm this assumption. The reversal last On the chart daily (top right) a quick visualexamination participants. Generating clearer trading signals. capture and reflect the psychologyof market Index. As this isa traded instrument it should better the trade, now weconcentrate will on the traded future on If instead of using the VIX Index whichdoes not actually th VIX. VIX. The future contract used is the continuation UX1 of of risk risk for level the first signal, at 12.70, has been June. Suggesting a potential exhaustion of an increased chance of continuation on the The The risk risk linefor combo came at 12.10 and DeMark sequential completed a 13 on the 9 developments on the chart daily users alsowill appreciate the BRIEF BRIEF MARKET SPOTLIGHT th 24 THE QUARTER IN BRIEF – Q3 2014 // a potential lowerlowmay be seen before a reversal higher. underestimate the lack of completion on the monthly combo whichmay take two or more months to complete the 13 count, suggest being formed,. The dailycharts are potentiallydisplaying theall hallmarks of an imminent change of trend. However,weshou Havinganalysed both the VIX and the VIX future (UX1) using the more months before the combo confirm signal will the 13 on the sequential. require another two months to complete the count. These signals suggest a reversal could take placeimminently but may need The monthly chart (bottom right) also showsa sequential 13 two months ago in May2014, howevercombo currently on 11 might There is also a sequential 13 from the end of Marchwhose Risk hasline been touched last weekby the setup 9 bar. trend move may be at hand. There isalso a second 13 at the beginning of June 2014 whichconfirms the potential reversal scen chart (belowleft) shows a combo 9 By using the futures contract instead of the VIX, wealso get interesting readings on the weeklyand monthly timeframes. The BRIEF BRIEF MARKET SPOTLIGHT - 13 - 9 formation, often which signals exhaustion after an extended move suggesting a larger cou DeMark indicators across several timeframes it looks like a base is ld wee not ari a f kly o. ew nter nter ing 25 THE QUARTER IN BRIEF – Q3 2014 // of of gold dropped almost 2% since the previous respectively from the previousquarter. The price respondents, 3 points up and 3 points down Gold up were both selected by 56 but witha 10% swing to low high. Risk same time, oil,with around 65%, up from 45%. During the markets. The highest convictionwas on bullish The first picture isa breakdown of the viewof the selected without anystatistical In Europe, Japan, BRICs, Emerging markets and Frontier markets. the most important rate in their mind downfor the S&P500,oil, gold, dollarindex and 10 year rates, without specifying the currency, leavingpeople to decidewha The cover of this publication. for free under the function BRIEF total total wegot questionnaire wasbroken downby assets and regions, with 6 of each. In detailwe Nymex dropped 1.8 96 of of bullson dollarand rates, both BLOOMBERG IN BRIEFQUARTER ( answers, oil waslargelyoil unchanged, % or 6bp. S&Pviews from from filter. a universe - 57% of . We We then asked which regions were going to be most appealingin the next quarter: US, - on and SENTIMENT SURVEY SENTIMENT for for the quarter to come. asked: asked: Risk (on or off), and then up or QIB As wego forward, we ) t w e f ade ront as d 26 THE QUARTER IN BRIEF – Q3 2014 // See charts Seecharts overleaf but cruciallymoved to 3 from 38% to 27%) and BRICs, down to just 1%. Emerging markets remained substantially unchanged, moving from 25% to 24%, Among rates bulls again the big story was the recovery in expectations for Europe and Japan, at the expense of the US(down points from BRICs. Emerging Markets and Frontier Markets were unchanged at 22% and 3% respectively. respondents whosaw the dollarindex up. Japan went from 9% to 19% bystealing 5 points from the US, 1 point from Europe, 4 Among dollarbulls, once more Japan showedan improved appeal, the onlycountry to increase the preferences among allowed 100, as multiple selections were Obviously the sum is not meant to be quarter. before popping to up around 12% last preferences, where it wasin January, predict, going back to around 6% of BRICcountries prove difficult to than 20%. doublingfrom 10% to a shade less alsoimproved markedly, almost Japan’schances of outperformance 27.5%. of our respondents, from going 26% to markets stayed stable within the views just 1 point behind the US. Emerging rose from 25% 3 months ago to 36.7%, second placebehind the US. Europe breakdown The main story in the geographic wasthat Europe recovered BLOOMBERG IN BRIEFQUARTER ( rd place, the behind USand Europe SENTIMENT SURVEY SENTIMENT QIB ) 27 THE QUARTER IN BRIEF – Q3 2014 // view (19%). view(19%). Risk off there are more Risk risk The next of levelanalysis wasdone by qualifying the regional choice based on the viewsrisk on Dollar Dollar Up Risk Risk On - on respondents, 35% sawEurope as their main performance area. An interesting, if counterintuitive, detail that transpired BLOOMBERG IN BRIEFQUARTER ( - - off off respondents expecting Emerging Markets to do well(23%, 2 Japan bullsincreased from 7% last quarter to an impressive 19%, pushing Europe in 4 SENTIMENT SURVEY SENTIMENT Rates Rates Up Risk Risk Off nd position) than there are Risk and, displayedon below. Among QIB th place with17% - ) on with the same is that 28 THE QUARTER IN BRIEF – Q3 2014 // 17. Strategy creation and backtesting creationand Strategy 17. change oscillator The comparisons overbought thus However a smoothing As STDY very seen True making . An similar , calculated Strength in a technique exponential is: key / the across it Signal Signal TSI TSI aSS aFS absPC Double SS FS PC Double oversold) True StrengthMomentum)TrueIndex (Double output benefit easier chart = EMAvg(PC, = EMAvg(FS, = C Index = 100 * (SS / SSa = EMAvg(absPC, = as different of EMAvg(aFS, 13); = EMAvg(TSI, signal); = Abs(PC); - Smoothed Absolute PC Smoothed PC the average C>>1; the below, to (TSI) of to levels, ratio TSI the the identify securities was the (middle TSI 13); is 23); of MACD then STRATEGY IN BRIEF and created a double ); is 25); extreme double . that applied panel) also (lower by it exponential smoothed is William results (perhaps to to scaled, panel) the draw ratio in Blau . 1 day in and a net similar introduced change fashion divided in Stocks to the by MACD and a double Commodities indicator smoothed . magazine 1 day absolute . It is an 29 THE QUARTER IN BRIEF – Q3 2014 // 17. Strategy creation and backtesting creationand Strategy 17. subsequent perspective Although trades The Signal only The chart TSI shorts and line Double this of . the . when As support the For strategy it red is S&P Momentum TSI example, the a at medium is 500 short could the less , same below, . the strategy than be to long easily level TSI STRATEGY IN BRIEF 0 is . The colour term is in resistance replicated as 2013 entry trend follows coded and and following with at : to 2014 exit as depict the the a points highlighted trend strategy overbought MACD, where are filter, a then the the weekly trend only benefits level trades generated longs strength periodicity twice would of can the . by marked be occur the TSI is taken employed crossovers are – exhaustion the when obvious blue . TSI between bars from is in greater represent 2012 an the observational , TSI than whilst the and 0 long and the its 30 THE QUARTER IN BRIEF – Q3 2014 // 17. Strategy creation and backtesting creationand Strategy 17. years on a weeklybasis, thus a substantial testing period. From the Simulation Control tab the strategy assumes initialan capitalof $100,000, and the simulation windowis the last 20 <0 filter ensures that trades are never taken contrary to the direction of the major trend. No stop loss has been added as the exitson the bearish crossovers ensure that anydrawdowns are limited, whilst the >0 / from the User Defined Studies and then copy the rules as per the image below. Once the study has been created in STDY STRATEGY IN BRIEF 31 THE QUARTER IN BRIEF – Q3 2014 // 17. Strategy creation and backtesting creationand Strategy 17. the over Although The period results twice out is the below reduced of average 39 demonstrate trades to user 26 over . 41 and, % the that in most contrast 20 STRATEGY IN BRIEF the years strategy importantly, to there drops produces are of the marginally over strategy steady over 50 more gains substantially % in losing over the S&P time than limits . over winning the the drawdowns same trades, interval the . The average . greatest winner loss is over just 32 THE QUARTER IN BRIEF – Q3 2014 // 17. Strategy creation and backtesting creationand Strategy 17. What the The However front chart is extremely page below the of real is WEI impressive the benefit cumulative . of is not the STRATEGY IN BRIEF profit only strategy with the consistency an initial becomes $ 100 of , apparent 000 the gains investment but when also in it all the is the smoothness diversified 18 major global of over the equity equity a basket benchmarks curve . of indices from . 33 THE QUARTER IN BRIEF – Q3 2014 // investing I use a process called 5 As a common thread in my trading and or both, please explain why? technical analysis,fundamental analysis understanding the markets, do you use Please describe your approach to reinventing yourself and developnew skills. good as yourlast trade, you need to keep them, and because you are onlyever as intellectually stimulating to be involvedwith are continuously moving so it is always markets? What attracted you to the financial invest in stocks and currencies. teaching other howpeople to trade and that, I also run an online trading academy, excellent long onlystrategy. Aside from partner in a hedge fund, which has also an living since 1992, and currently I am a I have been trading and investing for a and what you do? How would you describe who you are Academy“ launched the "Lex Van Dam Trading stock market.In November 2010 Lex has the training and capital to trade the where eight ordinary people were given programme "Million Dollar Traders" In Hampstead Sachs, GLG and is currently at he career has worked at Goldman manager based in London. In his 20+ Lex Van Dam is a Dutch hedge fund I love the financial markets because they 2009 2009 he featured in the BBC2 - Capital. www.lexvandam.com - Step - EXPERT EXPERT BRIEFING on on judgment? Do you use automated or systemsrely judgement if a stock is ranging or trending. line remains that you first need to make a based on rotating matrixes. But the bottom looking at Windmill patterns, which are Dutch stocks I would be more interested at would look at example, Japanese stocks or the Yen, I technical traders, so Iwhen look at, for tryto understand whatdrives other purely it comes to specific technical analysis I also me set profit targets and stop losses. When me optimise my trade entry timing, and help happen to a stock in the future. They help are tryingto get a feel of what might which is a prettyimportant driver youwhen historical demand and supply patterns, tell youthe story of a stock and point out toable interpret charts and patterns. They When investing, it is super any, do you favour? What technical analysis techniques, if so I use both. fundamental as well as technical analysis, mine. 5 harder if the original investment wasn’tidea newsjudge flow. That would be much cut or hold on, as I am much better toable a stock moves against me whetherI should the stocks I invest in me helps decide when positions. Also, the fact that I understand ideas, which me helps avoidconsensus focus on coming up withmy original own rumours or copy other traders, but instead I Trading® which makes sure I don’t listen to - Step - Trading® Trading® uses both Ichimoku clouds, clouds, while for - important to be selection. selection. It is our proprietaryown tool We havea very strong process for stock equity performance statistics main signals can for we we that Yes, when what Do for opinion It both? historical, What computers. be made by human beings and not but at the end of the day the decisions will automation to screen for attractive names momentum players. Basically we use turns down. We are definitely not are happyto evenhold when the market is goal to havea portfolio of stocks that we fundamentals that are relativelycheap. Our ‘buy’ list of those stocks with attractive valuation metrics, and ends up giving us a to a large range of fundamental drivers and which ranks stocks based on their exposure really investing, the look like you is be we trend are evaluating curve based : stocks fundamentally, trend that timeframes use for depends do for the when we intraday have buy and trading, at a of look on reversals, we key trading least our entry our the use a a one? don’t on at stock trading statistics systems maximum proprietary 3 less or a the points to do and system? to like resumption a but 6 has than timeframe combination months . system for evaluate These are you we for retraced to drawdown two sell tool, mainly the also If consider . in you triggers favour signals weeks of stocks where of place . have The the the the my do . of ; , 34 THE QUARTER IN BRIEF – Q3 2014 // what record industry build Money money How work normally of scenario that goes uncorrelated Of and/or Do people but might issues that what is managers first frequency as consider is, Not systems? consider What how course course you but you this sure can thing before is venue you against not is a important with realise pyramiding arise management management . they exactly can the start is average analysis employ the It make business what . the set that who traders We . the I low adding is when Often execute as bets add . always most us least VAR out about trading much the execution aim suffer drawdowns us slippage where we down, portfolio and to so up are will they to least of techniques? some important and to important have is do, per a building in that their building our ask to performance a front have in position key drawdowns have your I the key important a i impact can survive . individual want portfolio money e when any plenty trades other . lot and if management run a parameter you performance opinion? no you be up portfolio . more aspect aspect an size . executing you one . idea As of need portfolio huge . trading want and a in We idea aspect I issues trade, . other soon track don’t than idea high and The and this . 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There this, optimistic systems, end and amazing human are on in other as then very and are the the the my do as a 35 THE QUARTER IN BRIEF – Q3 2014 // DISCLAIMER • • • RESOURCES OTHER 17. 16. 15. 14. 13. 12. 11. 10. 9. 8. 7. 6. 5. 4. 3. 2. 1. ‘A ‘A Guide to ‘Getting With Started Bloomberg Charts’ Bloomberg’s proprietary own studies. CHART BT & Read the fullBloombergTradebook here: disclaimer is the homepage is the for homepage Bloomberg charts and technical analysis links with a to variety of functions and resources including docu Studies. for the creation, backtesting for the backtesting creation, and optimisation of strategies. It will integrate your custom own studies in built A guide A to guide GraphsTM range range ( BT . GC TECH CORR FWCM WCRS DOCS 2063266 the Bloomberg’s the Bloomberg’s new Index, BCOMthe part Bloomberg of Commodity Index formerly Family, known as the and allows for the visualisation and allows for the visualisation 4 of unique sets data. of ). Squeeze signals Squeeze ). are signals shown as red and bars occur when the IPSP for a more for more a thorough walkthrough how use charting to our and technical analysis functionality. APPENDIX . Relative Relative Rotation GraphsTMRelative of Rotation Graphs Limited. See be found be found red within toolbar in the function. > for an introduction for an introduction to whatis possible. http://goo.gl/UewDb for more for information more Volstall. Volstall. It It is FXFM - shaped probability density function to calculate the position of be found be found events events flag at at DOCS 2068663 B key from within from key the function. STDY On rte an It the . rate of uses n n of the index embodies four r) . The indicator r) The. indicator the the have downside weused d d 18 as as well as a be can forum . The blue . Theand blue red and can and can also men ts on uses uses a change change of of 36 THE QUARTER IN BRIEF – Q3 2014 //