jan/feb 2 0 0 5 The publication for trading and investment professionals www.technicalanalyst.co.uk Contrary Opinion Looking at sentiment indicators Outlook for USD/NOK Capturing market extremes Software feature Several indices Applying Bollinger Bands The Bank of New York’s come together to the RSI portfolio flows monitor THE 11th EUROMONEY BOND INVESTORS CONGRESS QUEEN ELIZABETH II CONFERENCE CENTRE, LONDON. 22–23 FEBRUARY 2005 Reserve your place at the world’s largest fixed income investor event "The Euromoney Bond Investors Congress is unequalled in the breadth and quality of participants and is nowadays firmly established in the calendar. A continuing strength of the Congress is topical areas of discussion from which the audience can gain genuinely fresh insights and knowledge." Christopher Woods, Chief Investment O fficer for Hedge Fund Strategies, State Street Global Advisors Now in its 11th year, the Euromoney Bond Investors Congress is the world’s premier fixed income event. It brings together more than 1500 market participants - over 650 institutional investors - to discuss and debate the issues of the day and the trends for the forthcoming year. Panels of experts from all sides of the fixed income universe argue and discuss the market’s most pressing questions. Leading economists, policy makers and visionaries will give keynote speeches. Conference speakers will include Avinash Persaud, Dr Adam Posen and Stephen Roach. The plenary sessions are complemented by a series of technical, focused workshops hosted by the conference sponsors. Topics at the Congress will include: Calling the bond market turn: why everyone got it wrong in 2004 and why they won't get it wrong in 2005 Credit spreads: is the only way up? Hedge funds: How they expect to make money in fixed income in 2005 Structured products Adding value: how forex can beef up your fixed income portfolio Emerging markets: is the party finally over? Sponsors to date: ABN AMRO - BankTuranAlem - Barclays Glo bal Investors - Bond Exchange of South Africa - BondVision EuroMTS Indices - Dresdner Kleinwo rt Wasserstein - Fitch Ratings - MDM Financial Group - Morgan Stanley - Nykredit Realkredit A/S - Reuters - Trust Investment Bank - Westpac Institutional Bank Exhibitors to date: Cantor Market Data - CFA Institute - Chicago Board of Trade - eSpeed Inc - Eurex - GovPX inc. - International Securities M arket Association - Moody’s Investor s Service - Standard & Poor’s - SWX Swiss Exchange - Thomson Tradeweb To register for the Congress please visit www.bondcongress.com tel +44 (0) 845 130 7754 or fax +44 (0) 845 130 7753 WELCOME Repeat patterns in historical stock prices inevitably lead to hopes that a potentially profitable market cycle exists. We look at the theory that years ending in ‘5’ signify a positive return to US stocks. Can forecasting Dow direction this year really be that easy? In the world of FX, we ask if the Norwegian Krone will signal an important turn in dollar direction. We also take a look at contrary opinion, a well established area of technical analysis, and offer an overview of the key sentiment indicators that gauge how the majority are positioned in the markets. The Technical Analyst wishes you a happy and prosperous 2005. Matthew Clements, Editor CONTENTS 1 > FEATURES JAN/FEB USD/NOK Is the tide turning? >06 Anders Soderberg, chief technical analyst at SEB Merchant Banking, reveals his reasons for predicting a USD correction Building a better RSI using Bollinger Bands >12 Alex Douglas explains how Bollinger Bands can be used to calibrate RSI with prevailing market conditions Sentiment indicators Sentiment indicators are essential tools for >20 the contrarian trader. The Technical Analyst presents an overview of the best © 2005 Clements Biss Economic Publications Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of Clements Biss Economic Publications Limited. While the publisher believes that all information contained in this publication was correct at the time of going to press, they cannot accept liability for any errors or omissions that may appear or loss suffered directly or indirectly by any reader as a result of any advertisement, editorial, photographs or other material published in The Technical Analyst. No statement in this publication is to be considered as a recommendation or solicitation to buy or sell securities or to provide investment, tax or legal advice. Readers > > should be aware that this publication is not intended to replace the need to obtain professional advice in relation to any topic discussed. January/February 2005 THE TECHNICAL ANALYST 1 GET QUALIFIED IN TECHNICAL ANALYSIS The Society of Technical Analysts (STA) represents and accredits professional and private Technical Analysts operating in the UK Originally established in the 1960s, the STA provides its members: • Education Monthly lectures and regular teaching courses in technical analysis • Research The STA Journal publishes research papers on TA techniques and approaches • Meetings Provide members the opportunity to discuss technical approaches and markets • Representation The STA lobbies on behalf of analysts with data vendors, exchanges and regulators. The STA represents the UK at the International Federation of Technical Analysts (IFTA) • Accreditation The STA Diploma Exam is internationally recognised as a professional level qualification in Technical Analysis The next Diploma examination day is 22 April 2005 at the London School of Economics For more information on how to join and what is involved in passing the STA Diploma exam, visit our website at: www.sta-uk.org or call us on +44 7000 710207 I/We would like to subscribe to The Technical Analyst magazine for: £140 1 year subscription - UK £165 1 year subscription - Rest of World Please tick as appropriate Name: Title: Institution: Address: City/State: Country: Postcode: To subscribe to The Technical Analyst magazine post a copy of this form to: Phone: The Technical Analyst Email: Unit 201 I attach a cheque payable to ‘The Technical Analys Panther House 38 Mount Pleasant Please invoice me/my company London WC1X 0AN Alternatively, email [email protected], providing the same information as requested above. Or email [email protected], +44 (0)20 7833 1441 providing the information requested in this form www.technicalanalyst.co.uk SUBSCRIBE 32 42 CONTENTS 2 > REGULARS INDUSTRY NEWS 04 Editor: Matthew Clements Managing Editor: Jim Biss Marketing: Vanessa Green Advertising Sales: Chris Leigh MARKET VIEWS Design: Paul Simpson USD/NOK: Is the tide turning? 06 Brent crude in 2005 08 The Technical Analyst is published by Clements Biss Economic Publications Ltd UK gilts: An uncertain year ahead 10 Unit 201, Panther House, 38 Mount Pleasant, London WC1X 0AN TECHNIQUES Tel: +44 (0)20 7833 1441 Building a better RSI using Bollinger Bands 12 Web: www.technicalanalyst.co.uk Do years ending in '5' really signal a bull run for stocks? 18 Email: [email protected] Sentiment indicators 20 Five Fibonacci studies 25 SUBSCRIPTIONS THE TECHNICAL ANALYST TALKS TO… 30 Adam Sorab, chairman, Society of Technical Analysts Subscription rates (6 issues) UK: £140 per annum Rest of world: £165 per annum For information, please contact: SUBJECT MATTERS [email protected] Gold and the Kondratiev Cycle 32 ADVERTISING Comparing moving average envelopes & Bollinger Bands 36 For information, please contact: [email protected] SOFTWARE 39 PRODUCTION The Bank of New York's Interactive Portfolio Flow Monitor Art, design and typesetting by all-Perception Ltd. BOOK REVIEW & LETTERS 41 Printed by The Friary Press The (Mis)behaviour of Markets ISSN(1742-8718) by Benoit Mandelbrot & Richard Hudson COMMITMENTS OF TRADERS REPORT 44 LONG-TERM TECHNICALS 46 TRAINING AND EVENTS DIARY 48 January/February 2005 THE TECHNICAL ANALYST 3 Industry News Reuters to buy Telerate DEMARK SIGNALS LONG-TERM Reuters's is to acquire fellow Savvis Communications SELL FOR DOW information provider Corporation. Telerate has Moneyline Telerate for $175 around 30,000 users worldwide In a New Year million. The agreement is and full integration into research note, made up of $100 million in Reuters is expected to take 18 Tom DeMark, cash and $75 million in months. creator of the Reuters-owned shares in the DeMark indi- cators, said that his annual Sequential ESIGNAL LINKS UP WITH US BROKER Indicator is signalling a long- term 'countdown' sell signal for the Dow. This is the first Charting provider, eSignal, has London Stock Exchange (LSE) such signal since 1972 after linked up with broker Spear, Level 2 data, Euronext which the Dow fell nearly 50% Leeds & Kellogg's (SLK) and Equities Level 2 data, OFEX over the following two years. their REDIPlus trading plat- data and Bern Stock Exchange DeMark's indicators are form. eSignal will provide data. In addition, eSignal has available on Bloomberg and charting, formula studies and completed an agreement with CQG. back testing features to AFX News Limited - a REDIPlus. SLK deals in US European provider of interna- equities, options, electronic tional economic news - that SINGAPORE futures and European equities. will expand eSignal's set of BONDS TRADE Meanwhile, As part of its current AFX offerings to plan to broaden its business in include services such as ON BLOOMBERG Europe, eSignal’s latest release German language news. (version 7.8) now includes The Monetary Authority of Singapore has chosen Bloomberg to provide the inter-dealer trading platform for the Singapore government bond. Starting in 2005, all pri- mary dealers in Singapore will use the Bloomberg platform to transact bonds electronical- ly and will be able to view complete trading information for the market which has a daily volume of around SGD 2.6 billion. 4 THE TECHNICAL ANALYST January/February 2005 Industry News Telerate updates charting features Telerate has announced enhancements to the technical analysis functions available on its series of market data servic- es.