oliver briefs master copy pdf

Oliver T. Woolf, CAIA, CMT, FRMQuantitative Technical Strategy & Data Visualization Specialist [email protected]

Quantitative Technical Strategy

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Aug. 27, 2015 Bloomberg Brief Technical Strategies 2

GERMAN EQUITIES BY OLIVER WOOLF, TECHNICAL ANALYSIS AND CHARTING SPECIALIST, BLOOMBERG LP

Elder Force Suggests DAX Slide Lost Momentum After Hitting Seven-Year LowGermany's benchmark DAX Index fell

by more than 10 percent in the Aug.1-Aug. 26 period, tracking the globalequity market slump. Bloomberg technicalanalysis suggests that the drop inGerman equities may have lost strength.

The first chart highlights the Andrew’sPitchfork on the DAX with the Elder ForceIndex shown in blue at the bottom. TheForce Index measures the strength of amove by linking the price change with thevolume it took to make it.

The reading on Aug. 24 was the mostnegative since October 2008. Previousspikes have signaled that downwardmoves are losing momentum as theyhighlight where significant volume hasbeen liquidated, shown here by the reddotted lines.

It is worth noting that in the previoustwo instances, periods of consolidationhave ensued, indicated by the ambersquares.

The Pitchfork — derived from the low ofFeb. 9, 2009, the high of May 2, 2011 andthe low of Sept. 23, 2011 — projectspotential support and resistance levelsthat held in March 2012, May 2013, theOctober 2014 low and the last high inApril of this year. The Aug. 24 troughoccurred just at the lower tongue of thepitchfork.

In recent weeks, there have been a lotof opening gaps on the DAX. Since gapshave a tendency to be filled, they arewidely used for target levels.

The dotted orange lines in the secondchart denote gaps that have been filled,most notably the Aug. 24 low which wasalso a hammer candle, traditionally abullish reversal signal. The blue linesmark those gaps that have yet to be filledand could be future target levels.

Should the rally continue, the nexttarget is at 10681.36, which coincideswith the low of the early July dip.

However, if the decline regainsmomentum, there is a lower gap target at9146.95, stemming from a gap thatopened on Halloween of last year.

Oliver Woolf can be reached at

[email protected].

This story was written by a Bloomberg LP employee involved with sales-support, product-development,

programming or another department and was edited by the News Department. To suggest ideas or

provide feedback, contact the editor for this story: Deirdre Fretz at [email protected] or 212-617-5166

NATURAL GAS

Source: Bloomberg

To see a live version of this chart, terminal users may click on the image or run G BBTA 1153

Source: Bloomberg

To see a live version of this chart, terminal users may click on the image or run G BBTA 1154

http://www.bloombergbriefs.com/

http://bloom.bg/1hFSqbm

http://bloom.bg/1MTtSZc

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STRATEGY IN BRIEF 19

Momentum Persistence for Stock Selection In a 1993 paper entitled

‘Returns to Buying Winners and

Selling Losers: Implications for

Stock Market Efficiency’

Jegadeesh and Titman argued

that “strategies which buy

stocks that have performed well

in the past and sell stocks that

have performed poorly in the

past generate significant

positive returns over 3 to 12

month holding periods”. In short

their research advocated the

persistence of momentum as a

factor in stock selection.

Bloomberg’s FTST function for

factor backtesting enables us

to backtest such a concept.

A hypothesis can be created

using a single factor for stock

selection or by creating a

composite factor where each

individual factor is assigned a

weighting.

For each component within the

model it must be stated whether

a high or low value is better in

order to create the hypothesis.

12. Strategy creation and backtesting

A universe of stocks is then periodically rebalanced into quantiles in order to evaluate the

validity of the hypothesis over time.

The universe in this case (as seen in the image above) is the Euro STOXX 600, which is

rebalanced into 5 portfolios on a monthly basis for 10 years from 30th June 2005.

The composite factor representing momentum persistence is devised 50% from the Hurst

Exponent (20 days) and 50% from the % K of the Stochastics study (20 days)

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The Hurst Exponent (middle panel of the Euro STOXX 600 chart below) uses historical information to predict future prices,

assuming that prices persist or reverse direction more often than they are random. The BLOOMBERG PROFESSIONAL(tm)

service Hurst Exponent application is based on the work of Christopher May of TLB Partners, New York. Derived form Harold

Edwin Hurst’s research into the extent to which the levels of the Nile could be predetermined from previous years it measures the

autocorrelation of the data. A higher value should indicate a higher degree of predictability, or rather, trend persistence.

Stochastics %K, the first derivative of the Stochastics indicator, measures current price relative to highs and lows over a time

period. In an up-trend, markets tend to close near the high and in a down-trend they to close nearer to the lows. This indicator is

calculated with the following formula:

%K = 100*Closing Range/Total Range

where:

Closing Range = Close - Range Minimum

Total Range = Range Maximum - Range Minimum

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The chart below displays the historical performance of each of the quintiles over the past 10 years. Quintile 1, comprised of those

with the highest Hurst Exponent and %K values, and hence representing momentum persistence, is the best performing portfolio,

whereas quintile 5 is the worst.

The Q Spread in the lower panel is the spread between quintile 1 and quintile 5 and thus analogous to going long quintile 1 and

short quintile 5.

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If we delve deeper into the performance in the Return section of the results we see clearly that Annualized Active Return

cascades in perfect descendent sequence from quintile 1 to quintile 5 suggesting that momentum persistence in the Euro

STOXX 600, according to this model, does carry a certain degree of validity.

July 2, 2015 Bloomberg Brief Technical Strategies 4

BUNDS BY OLIVER WOOLF, CAIA, CMT, MSTA, BLOOMBERG APPLICATION SPECIALIST

Market Picture Charts Identify Bund Support/Resistance

Following the recent retracement of theEuro-Bund future from its highs andsubsequent volatility, Market Picturecharts can help to identify short termlevels of support and resistance.

Market Picture charts display adistribution of time at price, is anextremely effective way to gauge keylevels of market activity. A unit of time,normally a day, forms a distribution, whichis split into intervals, typically of 30minutes, each of which is represented bya letter. The price level with the longestchain of letters represents where the pricehas spent the most time and is called thePoint of Control (blue).

This often becomes a support orresistance level. On the contrary regionsof a distribution where there are singleletter prints (often at the distribution tails)highlight where the price has beenrejected and these levels often also

become support/resistance. The valuearea between the pairs of red horizontallines denotes 70 percent of the activity.

In the chart above, the Bund future hasrecently identified 152.60 as a short termresistance level. It did so based on theJune 29 open, the lack of distributionabove the open and the June 30 highprice.

The pink line at 151.50 has been a keypivot point over the last eleven daysincluding the point of control on June 17.Most recently, the low on June 30 alignedwith the lower level of the value area fromJune 29. Also note the confluence at thislevel on June 19, 22, 24 and 25.

The green level is an estimated supportlevel at 151.15. It was also the Point ofControl on June 24, the high of the valuearea in June 25, the high on June 26 andthe low on June 29.

On Bloomberg, type {RX1 Comdty

MKTP<GO>} and select the 1Y button tosee a one year chart with monthlydistributions. Modifying this chart it'spossible to discover other support andresistance levels by searching foralignments between Point of Controls, flattails and value area lines.

For example, the low of January alignswith the low of March at a value of155.80. The point of control in Decemberaligns with the value area in May and thetop of the tail in June at 155.40. The topof the Value Area in June aligns with theDecember lows, November value areaand October highs at 152.40.

To learn more about this type of chart,type DOCS MARKET PICTURE <GO>on Bloomberg, click , or visit here MKTP<GO> and press the key.<HELP>

— Oliver Woolf can be reached at

[email protected]

Source: Bloomberg

Click on the chart or run for a live version of this chart on the Bloomberg terminal. G BBTA 904


http://blinks.bloomberg.com/screens/rx1%20comdty%20mktp

http://blinks.bloomberg.com/screens/rx1%20comdty%20mktp

http://blinks.bloomberg.com/screens/docs%20market%20picture

http://blinks.bloomberg.com/screens/mktp

http://blinks.bloomberg.com/screens/g%20bbta%20904

http://bit.ly/1Lxnp5g

March 12, 2015 Bloomberg Brief Technical Strategies 3

EURO BY OLIVER WOOLF, CAIA, CMT, MSTA, BLOOMBERG APPLICATION SPECIALIST

Fear and Greed Indicator Does Well in Tracking EURUSD TrendsThe euro has depreciated over 20

percent versus the U.S. dollar since thistime last year. Long-term trend analysis,coupled with some Bloomberg proprietaryindicators, offer targets for where supportmay be found.

The monthly chart at top highlights adownward sloping channel that began in2008 within a long-term upward slopingchannel from 1975 developed fromderived data. The two channels intersectat around 1.03. Only slightly above that,around 1.04, support has been found onmultiple occasions, marked by bluecircles.

Derived data provides some historicalreference for the euro, although the timeframe extends back before the currencywas in existence.

The histogram in the lower panel isBloomberg’s Trendstall, which measuresthe level of trend acceleration. Thecurrent acceleration is beyond any levelregistered in the last 40 years, barring1997.

A green triangle appears when thehistogram turns downward, a signal thatthe trend is stalling. Past triangles haveoften been reliable indicators of trendreversal, most notably the last redtriangle, which marked the start of thedownturn last May. That coincides withwhen price approached the outer confineof the channel.

Bloomberg’s fear and greed indicator,used on a weekly EURUSD chart, wouldhave performed well over the past 20years. Back tests using the BT<GO>function show that following the buy andsell signals would have generated 145percent with a maximum draw down ofjust 19 percent.

The fear and greed indicator iscalculated as the spread between 2weighted moving averages of the truerange. It measures whether buyingpressure is outweighing selling pressureor vice

versa. The lower chart illustrates how wellfear and greed has captured the majortrends, going long or short depending onwhether the fear and greed radar (lowerpanel) is positive or negative.

Taking all of the above into account, it is

clear that the downward trend is intact.Clues exist as to where and when it maybegin to wane.— Oliver Woolf, CAIA, CMT, MSTA, is a technical

analysis application specialist at Bloomberg LP in

London. He can be contacted at

[email protected]

ICHIMOKU CLOUDS BY AKSAHY CHINCHALKAR, BLOOMBERG TECHNICAL ANALYSIS APPLICATION SPECIALIST

Source: Bloomberg

Terminal users can click on chart to access a live version or run G BBTA 696

Source: Bloomberg

Terminal users can click on chart to access a live version or run G BBTA 697


http://blinks.bloomberg.com/screens/bt

http://blinks.bloomberg.com/screens/G%20BBTA%20696

http://blinks.bloomberg.com/screens/G%20BBTA%20697

http://blinks.bloomberg.com/screens/WCRS

Jan. 15, 2015 Bloomberg Brief Technical Strategies 2

ETFS BY OLIVER WOOLF, CAIA, CMT, MSTA, BLOOMBERG TECHNICAL ANALYST

Returns Strong in Health Care, Poor in EnergyThe strongest sector performers of last year have started 2015 in the same vein, with

health care, utilities and consumer staples offering the best returns.ETFs tracking

health care XLV US, utilities Equity XLU

andUS Equityconsumer staples

areXLP US Equitythe only sectorswith positiveperformance so farthis year. Likewise,energy continues tounderperform with a3.5 percent losssince the start ofthe year.

The scatter plotbelow summarizesthe pastperformance and future expectations for the SPDR U.S. equity sector funds. The X axisrepresents year-to-date returns and the Y axis measures a five day average of the netdaily fund flows. The marker sizes depict the funds’ market capitalizations and the colors(red weaker, green stronger) illustrate one-year returns.

Fund money flows suggest that investors had been anticipating a reversal in thefortunes of the energy sector ( ) with a positive net average of creationsXLE US Equityover redemptions in the full first week of January. The chart below shows the price andthese flows over the past year. The lower panel is a cumulative total of the daily netflows multiplied by the daily return.

Since the start of 2013 the cumulative fund money flow has mirrored the performanceof the energy ETF itself. However, since mid-November (marked by the vertical dashedline) there have been net inflows into the fund despite its continued slump.

A punt on the U.S. energy sector looks like a value trap given falling oil prices. Thoseinvested can console themselves that the best contrarian opportunities tend to look thisway.

TICKER NAMENET

FLOWS$M

% OFMARKET

CAP

XLY USEquity

ConsumerDiscretionarySelect

2,471.2 34.3%

XLE USEquity

Energy SelectSector SPDRFund

1,562.5 15.7%

IDU USEquity

iShares USUtilities ETF

1,292.6 176.5%

XLU USEquity

Utilities SelectSector SPDR F

938.5 14.2%

XLF USEquity

Financial SelectSector SPDR F

855.3 4.3%

TICKER NAMENET

FLOWS$M

% OFMARKET

CAP

XLI USEquity

Industrial SelectSector SPDR

-536.3 -5.7%

IYW USEquity

iShares USTechnology ETF

-423.1 -8.4%

GDX USEquity

Market VectorsGold MinersETF

-413.3 -6.8%

GUNR USEquity

FlexSharesGlobalUpstream Nat

-386.3 -14.3%

FXL USEquity

First TrustTechnologyAlphaDE

-215.6 -17.3%

Source: Bloomberg { }. XLTP ETF<GO>

CREATIONS AND REDEMPTIONS

Investors piled into an odd mix of thepro-cyclical and defensive sectors in themonth to Jan. 12, Bloomberg data show.The Consumer Discretionary SelectSector SPDR fund, with a one-year totalreturn of 10 percent, attracted net inflowsrepresenting 34 percent of its marketcapitalization. The next most popular fundwas SPDR's energy ETF. IShares'Utilities fund, with a net indicated yield of3.55 percent, accumulated $1.3 billionover the period.

Investors pulled almost 6 percent of themarket cap from SPDR's Industrial SelectFund. They also fled iShares' technologyETF, perhaps banking gains after thefund's storming run over the past 12months: its total return was 20 percent.

— Paul Smith, Bloomberg Brief Editor

Value Hunters Drawn to Energy

Source: Bloomberg. Top panel shows share price of in $; bottom panel is a cumulative total of theXLE US Equitydaily net flows multiplied by the daily return. This chart is available on the Bloomberg terminal at bbg://screens/G BBTA 660

Health Care Vitals Look Promising

Source: Bloomberg


bbg://screens/G BBTA 660

Dec. 11, 2014 Bloomberg Brief Technical Strategies 5

TOOLBOX BY OLIVER WOOLF, CAIA, CMT, MSTA, BLOOMBERG APPLICATION SPECIALIST

Backtesting a Pair Trade: Eni SpA and Total SAA strong correlation of .724 is present

between two integrated oil companies,Eni S.p.A. and Total SA. Despite thiscorrelation and the continued decline inthe energy sector due to collapsing crudeoil prices, these company's share pricesare starting to diverge.

ENI IM Equity FP FP Equity HRA D willshow a regression of daily share pricesfor one year, correlation and otherstatistics describing the relationship ofthese two companies.

Over the last week, ENI has continuedto make multiple new 52-week lows. Totalis about 4 percent above its 52-weekintraday low made in October and 2.3percent above its closing low inDecember 2013. The ratio of ENI to Totalsuggests ENI may continue to under-perform Total. This may add weight to theimportance of signals suggesting a longposition in ENI and short position in Totalfrom the following backtest.

Knowing when Eni or Total'sperformance will shift can be suggestedby following the Fisher Transformindicator, one of many new indicatorsadded to the backtesting functionality onBloomberg in . By creating aBT<GO>synthetic index representing ENI dividedby Total in , we can test theCIXR<GO>Fisher Transform indicator on the ratio.

The Fisher Transform indicator wascreated by John Ehlers and has producedsome impressive results on theaforementioned synthetic index. Thefollowing strategy rules applied over thelast ten years suggests fairly consistentresults by capturing the favorable side ofthe pair trade. Click to see an imagehereof the strategy rules as they are written inthe Bloomberg terminal.

The backtest is displayed in the lowerchart. The top panel shows the ratio andits long and short signals. The middlepanel is a profit/loss curve based onbuying and selling the ratio (not the actual

stocks). The curve of the profit/loss line isconsistently positive, albeit some underperformance in early 2014. The lowerpanel is the Fisher Transform indicator.

— Oliver Woolf, CAIA, CMT, MSTA, is a technical



[email protected]

ENI Underperforming Total Over Last Week

Source: Bloomberg

This chart is available on the Bloomberg terminal at G BBTA 657<GO>

Backtest Shows P/L's Upward Slope

Source: Bloomberg


bbg://screens/eni im equity fp fp equity hra d

bbg://screens/BT

bbg://screens/CIXR

http://www.bloombergbriefs.com/content/uploads/sites/2/2014/12/BacktestRules.jpg

Nov. 26, 2014 Bloomberg Brief Technical Strategies 2

COMMODITIES BY OLIVER WOOLF, CAIA, CMT, MSTA, BLOOMBERG APPLICATION SPECIALIST

Gold Support Level of 1150 Seen in Trifecta of Technical Analysis ToolsA combination of traditional trend

analysis, Fibonacci retracements andPoint & Figure highlight support aroundthe 1150 level for gold.

The dashed line in the top chart marksan upward sloping trend spanning nearly10 years that is providing support justbeneath the current price level. AFibonacci retracement drawn from thestart of this trend line (where the 2005thrust begun) finds its 50% level at 1167,in line with the trendline support. If asecond retracement is drawn from thetrough at the 2008 trend line support, its61.8% level almost perfectly overlays the50% of the larger retracement —producing what technical analyst andauthor Constance Brown would term a'zone of confluence.'

The second chart is a Point & Figurechart. The data range is the last fouryears and the value of each box (row) is$25, according to Bloomberg's defaultconfiguration for gold. It employs thestandard three-box reversal, meaning acolumn can only be reversed if the pricemoves at least three boxes in theopposite direction. The box sizes andreversal method are effective at reducingnoise and the squared, structural natureof the chart facilitates the identification ofrange breakouts. Such a breakoutoccurred in early 2013 when the longcolumn of "O"s broke below the redhorizontal line. At such a breakout we canproject a target with the following method:

1. Count the number of columns from thebreakout to the previous long column inthe opposite direction (inclusive).2. Multiply the number of columns by boththe box size and reversal number.3. Subtract the product of the abovecalculation from the high between the twooriginal columns.

In the chart, we have 10 columns alongthe red line, which produce a value of 750when multiplied by 25 and then by 3. If we

subtract this value from the high of thechart at 1900, the result is a projection of1150.

Should these support levels break, theFibonacci retracement marks a newsupport in line with the 2008 high around1000.

— Oliver Woolf, CAIA, CMT, MSTA, is a technical



[email protected]

EQUITIES TOM SCHNEIDER, BLOOMBERG APPLICATION SPECIALIST

Trend Analysis and Fibonacci Retracements Align

This chart is available on the Bloomberg terminal at {G BBTA 644}

Point & Figure Chart Supports Analysis



http://www.bloombergbriefs.com/content/uploads/sites/2/2014/11/MuniMeltdown_112514_finaldoc.pdf

Oct. 30, 2014 Bloomberg Brief Technical Strategies 2

EQUITIES OLIVER WOOLF, CAIA, CMT, MSTA

DAX Shows Relative Weakness, Head and Shoulders Neckline Key Indicator to WatchThe German DAX Index has been the

worst performer in U.S. dollars among themajor global markets year to date. Acombination of traditional pattern analysisand market breadth highlights causes forconcern.

The chart to the right shows a head andshoulders pattern that formed on the DAXfrom January to October. The neckline(dotted blue line) was breached earlierthis month to complete the formation.Following a penetration, a rally back tothe neckline often occurs. For the DAX,resistance at the neckline has beenbroken. Since then however, price isstruggling to surge much higher.

A near-term decline back below theneckline would trigger a target at around7750 (the orange dashed line) set by theprojection from the breakout using theheight of the head and shoulders.

Separately, market breadth suggeststhe German market is weak. The blue linein the lower panel represents thepercentage of companies in the largerCDAX above their 200-day averages. TheDAX only represents the 30 blue chipcompanies, while the CDAX is composedof 474 companies listed on the FrankfurtExchange, making its breadth a truerreflection of the broad health of themarket. The proportion of these 474companies above their 200-day averageis at 31 percent, having fallen slowly sincethe start of this year, even while the DAXwas still rising.

The scatter chart at right compares thebreadth of the DAX with other majorglobal indexes. The X axis is the percentof constituents above their 200-dayaverage, Y is the percentage with new52-week highs (with a five-daysmoothing), and the size of each circle isthe year-to-date price change, in percent.The color of each circle indicates thepercent of companies within each index

with MACD buy signals in the last 10 days(dark green circles have the highest andred circles have the lowest percent ofcompanies with MACD buy signals).

The location of the DAX in the bottomleft corner illustrates its relatively weakbreadth versus the other global markets.

Its small sphere highlights its poor 2014return. Its dark green hue gives somereason for optimism, which would bereinforced if the price holds support atthe neckline.

Oliver Woolf, CAIA, CMT, MSTA, is a technical

analysis specialist at Bloomberg LP in London. He

can be contacted at [email protected]

EQUITIES PAUL CIANA, CMT

Return Below Neckline Would Set Up Projection Line


DAX Market Breadth Lower Than Most Other Indexes

To replicate this chart, please contact Oliver Woolf at [email protected]


Oct. 2, 2014 Bloomberg Brief Technical Strategies 3

EQUITIES WATCH OLIVER WOOLF, CAIA, MSTA

Bloomberg Proprietary Indicators Suggest a Turn as FTSE 100 at SupportThe FTSE 100 has dropped just over 4

percent from its high in August. Varioustechnical signals hint that it may be aboutto turn back upwards.

The markings on the chart here aresignals from Bloomberg’s proprietaryTrendstall and Vostall indicators (arrowsand triangles respectively). Over the past18 months both of these indicators, whichoutperform during periods of rangeboundprice movement as they seek meanreversion opportunities, have timed FTSEreversals remarkably well, Volstall inparticular. Given the slight upward slant ofthe range the bullish signals (blue arrowsand green triangles) have been especiallyreliable. This week both a bullish Volstalland Trendstall have been registered, theVolstall in combination with a bullishdragonfly doji candle (negligible body withlong lower shadow). These signals haveoccurred on an upward trendline that hasnow held support on no less than fouroccasions.

The lower panel, which depicts thepercentage of FTSE 100 members withan RSI below 30, is starting to decline,implying that several stocks with strongdownward momentum are beginning tostabilize. The reading on September 25was the highest since June 24, 2013, which preceded an 11 percent rally.

The backtested results of Volstall as astandalone stop and reverse strategy(from Bloomberg’s ) verify the BT<GO>effectiveness of the Volstall signals on theFTSE during its sideways movement.

— Oliver Woolf, CAIA, MSTA, is an application specialist at Bloomberg LP in London.

He can be contacted at [email protected]

Trendstall and Vostall Indicators Signal FTSE 100 Reversal

Source: Bloomberg

Backtesting of Vostall Support Strategy

Source: Bloomberg


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True Strength Index (Double Momentum)

The True Strength Index (TSI) was created by William Blau and introduced in Stocks and Commodities magazine. It is an

oscillator calculated as the ratio of a double smoothed 1 day net change divided by a double smoothed 1 day absolute

change. An exponential average is then applied to the ratio in a similar fashion to the MACD indicator.

The formula which can be replicated via .Lite in

STDY<GO> is:

Double Smoothed PC

PC = C - C>>1;

FS = EMAvg(PC, 23);

SS = EMAvg(FS, 13);

Double Smoothed Absolute PC

absPC = Abs(PC);

aFS = EMAvg(absPC, 25);

aSS = EMAvg(aFS, 13);

TSI

TSI = 100 * (SS / SSa);

Signal

Signal = EMAvg(TSI, signal);

As seen in the chart below, the double exponential

smoothing technique of the TSI (middle panel) results in

a very similar output to the MACD (lower panel).

However, a key benefit of the TSI is that it is scaled,

thus making it easier to identify extreme (perhaps

overbought / oversold) levels, and also to draw

comparisons across different securities.


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The TSI Double Momentum strategy is as follows: as a trend filter, only longs can be taken when TSI is greater than 0 and

only shorts when TSI is less than 0. The entry and exit points are then generated by the crossovers between the TSI and its

Signal line. As it is a medium to long term trend following strategy a weekly periodicity is employed.

The chart of the S&P 500, below, is colour coded to depict where the trades would occur – the blue bars represent the long

trades and the red the short.

Although this strategy could be easily replicated with the MACD, the benefits of the TSI are obvious from an observational

perspective. For example, the TSI resistance at the overbought level twice marked exhaustion in 2012, whilst the

subsequent support at the same level in 2013 and 2014 highlighted trend strength.


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Once the study has been created in STDY<GO> the strategy can easily be built and tested in BT<GO>. Just select the TSI

from the User Defined Studies and then copy the rules as per the image below.

No stop loss has been added as the exits on the bearish crossovers ensure that any drawdowns are limited, whilst the >0 /

<0 filter ensures that trades are never taken contrary to the direction of the major trend.

From the Simulation Control tab the strategy assumes an initial capital of $100,000, and the simulation window is the last 20

years on a weekly basis, thus a substantial testing period.


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The results below demonstrate that the strategy produces steady gains over time.

Although out of 39 trades over the 20 years there are marginally more losing than winning trades, the average winner is just

over twice the average user and, most importantly, the strategy substantially limits the drawdowns. The greatest loss over

the period is reduced to 26.41% in contrast to drops of over over 50% in the S&P over the same interval.


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However the real benefit of the strategy becomes apparent when it is diversified over a basket of indices.

The chart below is the cumulative profit with an initial $100,000 investment in all the 18 major global equity benchmarks from

the front page of WEI<GO>.

What is extremely impressive is not only the consistency of the gains but also the smoothness of the equity curve.



INDICATORS APPLIED OLIVER WOOLF, CAIA, MSTA

Identifying Important Levels on the FTSE-100 During the past year the FTSE-100 has

been fluctuating within a slightly upwardchannel. Within this mean reversionphase, where TD Combo Setup 9s (ingreen) and Bloomberg’s Volstall indicator(blue and red arrows) have combined toform signals in close proximity, importantreversals (highlighted in amber) haveoccurred.

TD Combo is the proprietary study ofTom Demark’s Market Studies LLC.Bloomberg’s Volstall indicator identifieschanges in trend acceleration via the rateof change of a moving standard deviation.Bars painted pink highlight extremeacceleration according to Volstall. Thearrows subsequently mark the point atwhich the trend acceleration stops, oftenanticipating a reversal.

Of course, the past year should be readin the context of the longer-term pictureshown by the second chart at right. Notethere are two barriers that must bepenetrated for an attempt toward 7,000 totranspire. The first and most obvious isthe ceiling around 6,894. The second isthe lower line of the channel from 2011which, having previously formed support,has now inverted into resistance.

Should the resistance hold as it haspreviously, there is a series of clearsupport levels starting with the recent lowaround 6,530 and followed by the upwardsloping trendline from the 2009 low (red),currently around 6,500. Beyond that, the2013 low matches not only the 2010-2011highs around 6,100, but also a 38.2percent Fibonacci retracement of themove since 2011. In the event of anextremely deep correction, the 2011 lowaround 4,800 is exactly the 61.8 percentretracement of the entire move since the2009 bottom.

(Oliver Woolf, CAIA, MSTA, is a technical analysis

specialist at Bloomberg LP in London. He can be

contacted at [email protected])

TECHNICAL LEVELS

Source: Bloomberg

This chart is available on the Bloomberg terminal at {G BBTA 601<GO>}

Source: Bloomberg




FX WATCH OLIVER WOOLF, CAIA, MSTA

Ichimoku Cloud Signals Bullish U.S. Dollar Versus Japanese YenAccording to CFTC data, in the week

ending July 29, leveraged fundsdecreased their net short positions themost since March 11 by 12,812 contracts.It should be noted that Ichimoku, one ofthe most commonly employed technicalstudies in Japan, supports this outlook.For the purpose of clarity the Conversionand Base lines have been removed fromthe charts at right.

In the daily chart at right, the price hasexploited the vulnerability of the cloud’srecent thinness to burst through. Whatdifferentiates this breakthrough from thefailed breaks earlier in the year is thesubsequent follow through of the laggingline, highlighted by the blue circle. Thered circles mark where the lagging linefailed to corroborate the price action.

This signal is made stronger by thecontext of the weekly Ichimoku chart,below right, where the price has foundfirm support in recent weeks at the top ofthe cloud (dotted black circle on the right).This may support a renewed moveupwards. The four black circles on the leftdemonstrate how effectively the cloud hasprovided resistance when the price wasbeneath.

The lower panel on the second chart isthe MACD and the blue circle marks thecurrent development of a bullish MACDcrossover. Although a positive sign inisolation, it is even more significant givenits occurrence without the MACD havingdropped below 0 as it indicates strongmomentum in the longer term. Additionalsupport was also found at the one-yearmoving average (blue line).

(Oliver Woolf, CAIA, MSTA, is a technical analysis



FX WATCH AKSHAY CHINCHALKAR

Source: Bloomberg


Source: Bloomberg



July 10, 2014 Bloomberg Brief Technical Strategies 3

INDICATORS APPLIED OLIVER WOOLF, CAIA, MSTA

Market Breadth Shows S&P 500's Technical Health Still StrongU.S. equities continue to push to

all-time highs with the S&P 500 index upmore than 20 percent during the pastyear. While some analysts are concernedabout the sustainability of the rally,market breadth indicators suggest thatthe health of the index remains strong.

Market capitalization-weighted indexessuch as the S&P 500 over-represent theperformance of larger members, whilemarket breadth indicators equally weightall members in the index according to aspecified measure. As a result, marketbreadth indicators can often betterillustrate the underlying technical health ofthe index.

The top panel of the chart at right is theS&P 500 price, the middle panel thepercentage of stocks above their 50-weekmoving average, and the lower panel thepercentage of stocks making new52-week highs (green) and lows (red).The fact that more than 80 percent ofS&P 500 constituents remain above the50-week moving average, coupled withthe fact that significantly more stocks arehitting new highs than lows, are bothtechnical positives.

The new scatter plot chart{GS<GO>}shown at bottom right allows for acomparison of breadth measures acrossdifferent global equity markets. Thescatter plot chart shows major globalequity indexes from the {WEI<GO>}World Equity Index function. The X axisrepresents the percentage of membersabove the 50-week moving average andthe Y axis is a 5-week smoothing of thepercentage of new 52-week highs. Foradditional context, the color scalehighlights the percentage of memberswith a Moving Average ConvergenceDivergence (MACD) buy signal in the last10 days. The sphere representsyear-to-date performance.

In relative terms, the S&P 500 index,shown at the top right of the chart,compares favorably with the othermarkets across all four technical criteria.

(Oliver Woolf, CAIA, MSTA, is a technicalanalysis specialist at Bloomberg LP inLondon. He can be contacted [email protected])

Source: BloombergThis chart is available on the Bloomberg terminal at {G BBTA 581<GO>}

Source: Bloomberg


May 29, 2014 Bloomberg Brief Technical Strategies 2

ENERGY WATCH OLIVER WOOLF, CAIA, MSTA

Indicators Suggest WTI Crude Primed for Correction

Since the early part of this year, WestTexas Intermediate crude oil (WTI) hasbounced in a range between thelow-to-mid 90s on the downside to about105 on the upside. Such a market is idealfor the employment of mean reversionindicators to define entry and exit points,two of which, highlighted in the chartabove, suggest that WTI is primed for acorrection.

The arrows on the price chart aresignals generated from Bloomberg’sproprietary Volstall indicator (this studywill soon be made publicly available butplease contact the author in the meantimeto learn how to program the study via .Litein ). The signals, derived fromSTDY<GO>a rate of change of moving standard

deviation, highlight loss of acceleration inthe prevailing trend and thus anticipatepossible reversals. A red bearish signalwas generated on May 28.

The indicator in panel two, also createdvia .Lite in , applies Bollinger STDY<GO>Bands to a regular 14-day RelativeStrength Index (RSI) in order to createdynamic overbought/oversold (OB/OS)levels that change with the strength anddirection of the trend. The regular 70/30OB/OS levels have been retained forcomparison purposes (horizontal lines).

On three occasions since February (themost recent one marked by the verticalline on May 22), the adapted RSIhas triggered signals that would not haveoccurred with the standard OB/OS levels

because of the contracted nature of theprice action.

The lower panel displays the Kairiindicator, which simply states thepercentage deviation from a given movingaverage. At the time of writing the Kairiindicates that the current price is 1.98percent above its current 20-day meanwhich, overlaid on the price, is at 101.55.

(Oliver Woolf, CAIA, MSTA, is a technicalanalysis specialist at Bloomberg LP inLondon. He can be contacted [email protected])

Source: BloombergThis chart is available on the Bloomberg terminal at {G BBTA 568<GO>}


Apr. 17, 2014 Bloomberg Brief Technical Strategies 4

METALS WATCH OLIVER WOOLF, CAIA, MSTA

Nickel May Have Begun New Uptrend After Three-Year Bear MarketAfter a three-year decline of 55.55

percent, nickel has recently had asignificant bounce. Various bullish signalshave hinted this move was due and maybe pointing to a new uptrend.

During the six months from September2013 until March, nickel contracted into aparticularly tight range. This range ishighlighted by the blue box on the candlechart, and is depicted even more clearlyby the corresponding box on the BollingerBandwidth in the lower panel. WithBollinger Bandwidth alone, it is difficult toobjectively measure what should beconsidered a low value for Bandwidth asthis will vary from product to product. Thisis where John Carter’s Squeeze, avariation of which is in the bottom panel,provides extra clarity.

Comparing Bollinger Bandwidth toKeltner Bandwidth, calculated with ATRrather than standard deviation, results ina more standardized, objective measureof whether the Bandwidth is truly low ornot. The histogram itself is momentum inthe shape of the MACD histogram and iscolored red when the Bollinger Bandscontract within the Keltner; a Squeeze.The reversion from red to black signals apotential breakout, the direction of whichis defined by the direction of thehistogram. The orange dashed line at theprevious highs marks the next level ofresistance. Should that break, there issignificant further upside potential.

The scatter plot on the right isrepublished from Technical Strategies'Quarter in Brief review, originallypublished on April 8. It contained avaluable clue that nickel was primed for asurge.

Its previous three-month performance,displayed on the X axis, was fairlypositive. But of all the commodities in thediagram (taken from the UBS BloombergCMCI Composite Index), it had by far thegreatest three-month change inaggregate open interest, implying anaccumulation of positions during thenarrow range period. At the other end ofthe scale, natural gas had a sharpdecrease in aggregate open interest, which was compounded by high 60-day

realized volatility (sphere size).Oliver Woolf, CAIA, MSTA, is a technical analysis


netcontacted at owoolf@bloomberg.

PATTERN ANALYSIS EOGHAN LEAHY, CMT, MSTA

Source: Bloomberg

Source: Bloomberg

The top chart is available on the Bloomberg terminal at G BBTA 530 <GO>.


1 2 3 4 5 6 7 8

BRIEFTechnical Strategies 03.20.14

www.bloombergbriefs.com

analysis By Oliver wOOlf, caia, msta

after the recent decline in the russian miceX index amid the political tension in the crimea region, there now appears to be a confluence of technical support lev-els. should the predicament worsen, and support break, fibonacci analysis can help identify further support levels below.

the chart at right displays monthly price action of the miceX on a loga-rithmic scale from 2001. the low of the current candle is perfectly poised at a juncture between two technical levels. the first of these is the dashed upward sloping trend line from 2001, at which the rebound from the 2008 collapse occurred. the second is the 2010 low marked by the solid, horizontal blue line. Having held strength at these lows, the current price is now residing above the 2011 lows highlighted by the lower orange line of the descending triangle.

taking a closer look at the last six years on a weekly basis in the chart on

page two, fibonacci analysis adds some extra color.

in addition to the support levels men-tioned above, the recent fall halted pre-

cisely at the 50 percent retracement of the move from 2008 to 2011. By focusing more closely on the last two weekly can-dles, highlighted in the golden shaded

FX WATCH. eoghan leahy says the euro’s break above 1.40 may target a move

back to 2011 highs. Page 3

indiCATors Applied. cynthia a. Kase discusses how to pair candlestick charts with other indicators to reduce false turn signals. Page 4

indeX WATCH. andre lapponi looks at the Dow’s 17-year cycle and says a longer-term period of distribution may not be over. Page 5

sToCk WATCH. Paul ciana says Gilead sciences may be poised for a return to re-cent highs. Page 6

■ stops on eUr/Usd and eUr/GBp longs should be tightened as charts show signs of trend exhaustion and bearish divergence, Karen Jones, commerzbank head of fX technical analysis, wrote in a note. the eUr/UsD move to the 1.40 area may fail as a negative divergence is seen on the rsi study while a Demark 13 count was recorded on the daily chart. the eUr/GBP intraday chart shows a Demark 13 count on the 240 minute chart, which may allow for a dip toward the 0.8348/20 area.

■ new Zealand’s dollar will approach a record high set in august 2011 after briefly retreating amid signs that recent gains have been excessive, cmc markets said. in the short term, the new Zealand dollar may decline 2.5 percent from today’s level, analyst Desmond chua said, after its 14-day relative-strength index reached 77 yesterday, signal-ing the currency’s 6.9 percent jump since feb. 4 was too rapid.

■ Wheat declined from a 10-month high as a technical indicator signaled the rally may be excessive. wheat’s 14-day relative strength index rose to 73.3 yesterday, the highest since July 2012. readings above 70 indicate prices may drop.

Russia’s MICEX Index Reaches Confluence of Support Levels

insiDe tecHnicals

INDEXCF Index (MICEX Index)

The BLOOMBERG PROFESSIONAL service, BLOOMBERG Data and BLOOMBERG Order Management Systems (the “Services”) are owned and distributed locally by Bloomberg Finance L.P. (“BFLP”) and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the“BLP Countries”). BFLP is a wholly-owned subsidiary of Bloomberg L.P. (“BLP”). BLP provides BFLP with all global marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. The Services include electronictrading and order-routing services, which are available only to sophisticated institutional investors and only where necessary legal clearances have been obtained. BFLP, BLP and their affiliates do not provide investment advice or guarantee the accuracy of prices or information in the Services. Nothingon the Services shall constitute an offering of financial instruments by BFLP, BLP or their affiliates. BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKET, BLOOMBERG NEWS, BLOOMBERG ANYWHERE, BLOOMBERG TRADEBOOK, BLOOMBERG BONDTRADER, BLOOMBERGTELEVISION, BLOOMBERG RADIO, BLOOMBERG PRESS and BLOOMBERG.COM are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries.

Bloomberg ®Charts 1 - 1

CAlls And siGnAls

This charT is available on bloomberg aT g bbTa 516<go>.

03.20.14 www.bloombergbriefs.com Bloomberg Brief | Technical strategies 2

1 2 3 4 5 6 7 8

micex index…

circle, note that most of the price action in the last two weeks has been constrained between the aforementioned lows from 2011 (horizontal orange line) and the 38 percent fibonacci retracement.

in terms of targets, should there be a de-cisive break above the 38.2 percent level, a move back toward resistance at the downward-sloping orange trend line would see a return to around 1,500. if the resis-

tance holds firm there is clearly strong support around the 1,200 level. However, were this to give way, perhaps due to an escalation of the political situation, the next fibonacci level at a 61.8 percent retracement could provide support around the 1,000 level.Oliver Woolf, CAIA, MSTA, is a technical analy-sis specialist at Bloomberg LP in London. He can be contacted at [email protected]

INDEXCF Index (MICEX Index)




Bloomberg Brief Technical strategies

Bloomberg Brief executive editor

Ted Merz [email protected] +1-212-617-2309

Contributing Technicals editor

Paul Ciana, [email protected]+1-212-617-8229

Technicals editor Kevin [email protected]+1-212-617-5166

ContributorsU.s.

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Greg Bender, [email protected]

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latin America Andre [email protected]

europe Eoghan Leahy, CMT, [email protected]

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02.06.14 www.bloombergbriefs.com Bloomberg Brief | Technical Strategies 3

Heikin-ashi is an adapted version of Japanese candlesticks which filters out noise in a trend. For any candle the open, high, low and close values are smoothed by incorporating data from the previous candle, thus maximizing the probability that the given candle adheres to the pre-vailing trend.

the first chart at right exhibits six months of daily FtsE-100 data with traditional candles, each candle employ-ing its own day’s open, high, low and close values.

as denoted by the numbered black circles within the trends marked by the dotted black lines, regardless of how bullish or bearish a trend, there are anomaly candles when the sentiment on a particular day is contrary to that of the trend; a down close in a upward trend or vice versa.

Heikin-ashi filters out those anomalies by using the following calculations:

Ha close =(Open(0)+High(0)+low(0)+close0)/ 4

Ha Open=(Ha Open(-1)+Ha close(-1))/2

Ha High=max(High(0),Ha Open(0),Ha low(0))

Ha low=min(low(0),Ha Open(0),Ha low(0))

the result of this modification is that in an upward trend the close and open are positively biased and the open and low negatively biased. the contrary is true in a downward trend to the effect that minor fluctuations within the trend are smoothed.

the second chart depicts the remod-eled Heikin-ashi candles. By retaining the black circles on the chart it is apparent where the analysis would have benefit-ted from the transformation; at circles 1, 2 and 4 the candles that were previously a bullish blue have now conformed to the bearish red of the trend. likewise, the red candle at circle 3 is now blue. the contrast is particularly stark at circle 4 for Jan. 28, where Heikin-ashi has converted from a mildly bullish to extremely bearish candle in sync with the dominant trend. consequently, the Heikin-ashi formula en-

InDICatorS aPPlIeD AnAlysis By Oliver WOOlf, cAiA, mstA,

UKX Index (FTSE 100 Index)



analyzing FtSe-100 trends using heikin-ashi CandlesticksUKX Index (FTSE 100 Index)



These charTs are available on bloomberg aT {g bbTa 496 and 496<go>}.

ables one to better follow a trend without being thrown off track by an errant candle.

another product of the Heikin-ashi alteration is that, as long as the trend is strong, the bodies of the candles tend to remain large. Hence, the emergence of smaller candles, such as during the turn of the year on the chart above, can repre-sent a loss of momentum.

One caveat to bear in mind is that among traditional candlesticks there exist many patterns, the majority of which can suggest reversals. the golden shaded circles in the first chart highlight three of these patterns; a morning star, an evening

star and, most recently, a series of small-bodied candles that suggested nervous-ness prior to the FtsE-100 correction.

While these patterns can occur using Heikin-ashi candles, the repercussion of the smoothing is that the formation of the patterns will probably be delayed. there-fore, a blend of the two techniques may be useful; Heikin-ashi to retain focus on the trend, but traditional candles for when sudden changes in sentiment occur.

(Oliver Woolf, CAIA, MSTA, is a technical analysis specialist at Bloomberg LP in London. He can be contacted at [email protected])


1 2 3 4 5 6 7

analysis By oliver woolf, Caia, MsTa

author and Commodity Trading advisor John Carter in his book “Mastering The Trade” showed how to combine Bollinger Bands and Keltner Bands, depicted in blue and red respectively on the chart of the CBoe sPX volatility index (viX) at right, to form his TTM squeeze indicator.

The theory is that Bollinger bands are calculated on standard deviation and therefore tend to be more sensitive to di-rectional movement than Keltner bands, which are based on average Truerange (aTr). Therefore, when the Bollinger bands contract within the Keltner bands, it signifies that a period of consolidation is taking place. from a volatility per-spective, these periods of consolidation often precede a sharp directional move. naturally, as a new directional move begins, the increasing standard deviation of the price will force the Bollinger Bands to expand back out of the Keltner Bands, generating a breakout signal.

Catching these signals through mere

observation of the bands is a difficult task, so Carter simplified this into a bi-nary indicator, which has been replicated via Bloomberg’s Cs.lite programming language in the {STDY<GO>} function. The binary output has been transformed

into the colors black and red – black representing the regular state when the Bollinger bandwidth is greater than the Keltner and red when the Bollinger bandwith is smaller than the Keltner.

FX Watch. akshay Chinchalkar shows how to apply Bollinger Band squeeze analysis to the indian rupee. Page 3

indeX Watch. Paul Ciana looks at the recent rally for the iBeX 35 index. Page 4

indicators applied. Cynthia Kase discusses Truerange and using KaseBars to avoid inaccurate trading signals. Page 5

global trend lines. Kevin Depew analyzes long-term trends in global asset classes. Page 7

BRIEF Technical Strategies 01.23.14

■ The U.s. dollar’s rally to a more than two-month high is poised to reverse, trading pat-terns show. The U.s. dollar index is approaching its 200-day moving average, which will act as a hurdle to further strength in the greenback, according to niall o’Connor, a technical analyst at JPMorgan Chase & Co. “standard technical-momentum measures are about as overbought as they’ve been since the november high,” o’Connor said in a Bloomberg interview.

■ india’s rupee could decline 0.9 percent versus the dollar and retest the Jan. 3 low in the next 10 days, Bloomberg first word fX strategist andrew robinson wrote in a note. The Jan. 3 rupee low is at 62.5600 while trendline resistance is at 61.7375. slow stochas-tics are at 44 and rising, which is bearish, robinson said.

■ The stalemate between bulls and bears in the short term is likely to continue as market breadth for the s&p 500 index remains strong, fBn securities technical analyst JC o’Hara wrote in a note. The bullish trend is still in place even if equities are weak in the near-term. according to o’Hara, a rise above 1,850 would signal a run to 1,880.

Squeeze Indicator Suggests VIX Index May Be Nearing Breakout

insiDeTeCHniCals

VIX Index (Chicago Board Options Exchange SPX Volatility Index)



CallS aNd SIgNalS

ThiS charT iS available On blOOmberG aT {G bbTa 493<GO>}


1 2 3 4 5 6 7


bloomberg brief technical strategies

bloomberg brief Ted Merz executive editor [email protected]

212-617-2309

contributing Paul Ciana, CMT technicals editor [email protected]

212-617-8229

technicals editor Kevin Depew [email protected] 212-617-5166

contributorsU.s. Brian Barry, CMT

[email protected]

Greg Bender, CMT [email protected]

Alex Cole [email protected]

William Maloney, CMT [email protected]


latin america Andre Lapponi [email protected]

europe Eoghan Leahy, CMT, MSTA [email protected]

Philip Sexton, MSTA [email protected]

Oliver Woolf, MSTA [email protected]

Middle east Akshay Chinchalkar [email protected]

sales contact US: +1-212-617-4050 numbers EU: +44-203-216-4700

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Vix breakout…

This is projected onto the Moving average Convergence Divergence (MaCD) histo-gram, as shown on the chart above.

when the histogram is red, it indicates that the market is consolidating as the Bollinger bands are tight and within the Keltner bands. when the histogram turns black, it implies that the Bollinger bands have broken out of the Keltner, perhaps heralding the breakout of a new move. The reason for the MaCD histo-gram (John Carter employs Momentum instead) is to define the direction of the breakout. in the chart above we note that three “squeezes” have occurred dur-

ing the past year and all have preceded volatility breakouts for the viX. The most recent bar on the histogram turned red on Jan. 21.

note that the calculations for the squeeze indicator have been derived from the relevant chapter in “Mastering the Trade.” while the fundamentals of the indicator should be accurate, there may be some nuances that were not revealed in Carter’s book because it is a propri-etary indicator.


VIX Index (Chicago Board Options Exchange SPX Volatility Index)



Squeeze Indicator Can Help Identify Volatility Breakouts

ThiS charT iS available On blOOmberG aT {G bbTa 494<GO>}

MONITOR LIQUIDITY FOR MULTIPLE BONDS FIW <

GO

>


1 2 3 4 5 6

analysis By oliver woolf, caia, msta, a string of technical signals came

together to time a breakout of wti crude from its recent narrow range.

as the price of crude ground slowly lower, annotated by the curved blue line on the chart at right, it did so with increasingly less force as highlighted by the arrow on the fisher transform, a volatility-derived study shown in the lower panel, which diverged from the price. the fisher histogram becomes red when the Bollinger bandwidth (a measure of standard deviation) reduces to a lesser amplitude than the Keltner bandwidth (average true range) thus signaling abnormally low volatility. this is often the calm before the storm.

a first signal of selling exhaustion showed up with the bullish crossover in the oversold zone of the spearman coefficient (not shown), which is a study of the correlation between a sorted numerical list of prices and their actual sequence. the tD combo countdown

buy signal 13, which appeared five days later, also suggested an exhaustion of selling pressure.

also note that the Dec. 3 candle rup-tured the red trender trailing stop, which

has offered resistance since mid-sep-tember. the 38.2% fibonacci retrace-ment perfectly coincides with the June high to form resistance at 99.

the weekly chart illustrates how the

indicators applied. cynthia Kase on using Kase bars to help focus on price versus time. Page 3

gold watch. tom schneider says technical indicators show gold’s bearish decline won’t reverse any-time soon. Page 4

calendar. a look at upcoming Bloom-berg technical analysis events in stock-holm, sweden, los angeles and new york. Page 4

global trend lines. alex cole ana-lyzes major trends of global asset classes. Page 6


■ a break above 1.451 percent would confirm a new bearish phase for 5-year treasur-ies with a target of 1.659 percent, Bank of america merrilly lynch technical strategist macneil curry wrote in a note. a head-and-shoulders pattern has formed, drawn from october 2011 at 1.219 percent to 0.534 percent in July 2012. meanwhile, five-year yields have been forming a support base in the 1.224-1.245 percent area, curry wrote.

■ the s&p 500 and euro stoxx 50 are vulnerable to a minor pullback in the first half of December, according to UBs technical analysts michael riesner and marc mueller. a pullback to 1,780/1,775 for the sPX wouldn’t be surprising before moving higher toward 1,850 into late December or early January, the analysts said. the euro stoxx target is unchanged at 3,170 with key support at 3,000. “a break of this level would imply a more significant pullback toward 2,960,” the analysts wrote.

■ a technical indicator signaled the decline in russia’s Micex index may be overdone, according to alexander Kostyukov, an analyst at veles capital in moscow. the 14-day relative strength index for the micex dropped to 32.3 yesterday, the lowest since June. a level of 30 can signal a security is oversold.

WTI Crude Oil Breaking Out From Recent Narrow Range

insidetechnicals

CL1 Comdty (Generic 1st 'CL' Future)



Calls aNd sIgNals



1 2 3 4 5 6


bloomberg brief technical strategies


212-617-2309

contributing Paul Ciana, CMT technicals editor [email protected]

212-617-8229

technicals editor Kevin Depew [email protected] 212-617-5166

contributorsU.s. Brian Barry, CMT

[email protected]





latin america Andre Lapponi [email protected]




Middle east Akshay Chinchalkar [email protected]

sales contact US: +1-212-617-4050 numbers EU: +44-203-216-4700

newsletter Nick Ferris business Manager [email protected]

212-617-6975

advertising Jeff Maniatty [email protected] +1-203-550-2446

reprints & Lori Husted permissions [email protected]

717-505-9701




Crude…

current candle is sandwiched between critical levels above and below.

supporting the current candle are the converging lower line of an upwards slop-ing channel and the declining line from the 2008 high that was previously resistance. Providing resistance is what formerly was support rising from the 2008 low.

that the break from the recent limbo ought to be higher was also implied by the spearman, which traversed its moving average in the oversold area (lower panel) of the chart above. the blue vertical lines mark where this has occurred historically.

the blue and red arrows on the chart appear when the blue volstall in the middle panel crosses below its 1-day lag (shown in red). volstall is a Bloomberg-de-signed study that highlights the decreas-ing acceleration of standard deviation which often precedes a reversal. the 61.8% retracement in the first chart would see a move towards the center of the channel around 103.5.


CL1 Comdty (Generic 1st 'CL' Future)



TRACK ECONOMIC FORECASTS

ECFC <G

O>



1 2 3 4 5 6 7


indiCaTorS aPPlied oliver woolf, cAiA, mstA

contrary to the principles of efficient-market hypothesis, it has been demon-strated that momentum can persist. This was discussed in David aronson’s book, ‘Evidence-Based Technical analysis’, with reference to a study conducted by Jegadeesh and Titman. Their method was to simulate a portfolio which would be rebalanced semi-annually so as to be long the stocks with the best perfor-mance during the previous six months and long those with the worst.

Bloomberg’s factor backtesting engine, FTsT, can be used to replicate such a strategy. Based on a factor model it sorts a given universe of securities into percentile buckets periodically. in the first chart at right, the members of the Euro sTOXX 600 have been re-balanced into quintiles on a semi-annual basis since 2002 according to their distance from a 130-day (c. 6 months) simple moving average.

The chart proves that since 2002, mo-mentum has indeed persisted in Europe as the performance of the quintiles cascades sequentially from one to five. Quintile one, which includes the stocks with the stron-gest momentum from the previous period, has significantly outperformed the others and is the only quintile to have substantially surpassed its 2007 high. similarly, quintile five shows that momentum also persisted among the worst performers. The Q spread in the lower panel of the chart depicts the cumulative performance of quintile one versus quintile five. The growth of the Q spread over time highlights that the model has performed fairly consistently.

if the model is run over a shorter win-dow of five years, however, with weekly rather than monthly rebalancing and a 20-day moving average to represent one month, the order of the quintiles flips so that the fifth becomes the best performer and the first the worst.

This may indicate how integral to mo-

mentum the time component is. it seems that those trends which have endured over time are likely to persist whereas shorter term bursts have a higher prob-ability of mean reversion.


factor Backtesting engine Shows momentum Persistence in euro Stoxx 600

MONITOR COMMODITY PLAYS TO FIND OPPORTUNITY CPLY <

GO

>

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the volstall indicator can be used to help identify important reversals and is based on Bloomberg’s proprietary trendstall indica-tor. trendstall is derived from the average directional index (adX), a component of the directional movement indicator (dmi indicator). the theory behind trendstall is that the rate of change of the adX can be used to measure trend acceleration. when the slope of that rate of change turns negative at an extreme it detects the loss of acceleration in a trend before it stops to consolidate or reverse.

volstall is similar except that it uses moving standard deviation as the underly-ing factor rather than the adX. chart one shows Bollinger Bandwidth (panel 2), a proxy for standard deviation, and the adX (panel 3) on the British pound-U.s. dollar cross. the triangles are trendstall.

to create volstall use cs.lite in STDY<GO>. the ‘expression’ section is where the code for the study is written. parameters at the top are variable inputs for the expressions such as look back pe-riods, and the ‘output’ lines at the bottom define which of the expressions are visible when the study is charted or built into a strategy. all possible inputs for ‘expression’ section can be found in the ‘syntax help’ on the right hand side. the image at right displays all the required code for volstall. the third expression in the study, which is a 1-period lag of the rate of change, can identify the point at which the rate of change turns downward.

it is possible to backtest volstall using BT<GO>. while the indicator identifies reversals, it does not define the direction, so rsi has been added. signals where the rate of change is greater than 15 percent have been isolated to avoid too many signals. to do this create a new strategy and select vol-stall and rsi from the available factors on the left (volstall will be in ‘User defined studies’).

the first rule: cover and go long when volstall vol roc crosses below volstall lag and volstall roc > 15 and rsi < 50. add a rule to close and go short. in the second rule replicate the first rule but change rsi to > 50. save the strategy and click on ‘analyze’ to see the results.

Oliver Woolf, CAIA, MSTA, is a technical analysis specialist at Bloomberg LP in London. He can be

contacted at [email protected]

inDiCaToRS appLiED AnAlysis By oliver Woolf, cAiA, mstA

identifying Reversals With Bloomberg’s propietary Volstall indicatorGBP Curncy (British Pound Spot)



THe TOp CHART IS AvAIlABle ON BlOOmBeRG AT G BBTA 414<GO>.


bbg://screens/PREL

bbg://screens/STDY

bbg://screens/BT

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indiCATors APPLied oliver woolf, caia, msta

Most trading on the euro-u.s. dollar over the last year has occurred within a range of around 1.28 to 1.32. With euR-usd having fallen as low as 1.2808 on July 5, various signals suggest that the bottom of this range may again provide support.

this is highlighted by the red area in tas Pro’s taP Map distribution histo-gram in the top chart at right. the tas Pro taP Map dynamically calculates and displays a sideways, color coded frequency distribution histogram by measuring time at price, a method for aggregating trading data that has its roots in auction Market theory and clas-sic Market Profile. these “profile maps” graphically represent areas of market balance and interest.

Meanwhile, the Candle sessions, a reversal indicator based on Japanese candlestick counting, have often found reversals at a count between 8 to 10. as of July 9, the date this article was writ-ten, the euRusd pair is registering a 9.

simultaneously, the Fisher transform indicator is at an extreme low of minus 4.40 standard deviations. the Fisher transform indicator uses a gaussian probability density function (gaussian PdF) as opposed to a more traditional bell-shaped probability density func-tion to calculate the position of the price compared to its range. the last time Fisher dropped so low on euRusd was on dec. 22, 2009. as the second chart at right demonstrates, this also occurred on a Candle sessions 9 count. Over the next 17 days the price moved up around three figures before eventually succumb-ing to trender resistance and conse-quently resuming the downtrend.

should a similar pattern repeat and the euRusd rally from the current low, trender resistance is now at 1.3044.

— Oliver Woolf, CAIA, MSTA, is a technical analy-sis specialist at Bloomberg LP in London. He can be contacted at [email protected]

identifying key support, resistance Levels for eurusdEUR Curncy (Euro Spot)



EUR Curncy (Euro Spot)



These charTs are available on bloomberg aT g bbTa 398 and 399<go>.

FINANCIAL CONDITIONS WATCH:WILL LOW INTEREST RATES ENCOURAGE EXCESSIVE RISK TAKING, AGAIN?




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sales of samsung smartphones surged 56 percent in the first quarter, capturing one third of the global market. technical analysis backs the company’s strong per-formance and suggests samsung’s stock should also continue to rise.

the first chart at right shows the stock on a long-term logarithmic scale and illustrates how samsung has grown at a steady rate over the last 30 years, barely veering more than two standard devia-tions from its regression line, below which it currently resides.

the second chart is a daily for the past two years and highlights the stock’s upward trend with support just below the current price. a small triangle has formed, which if broken on the upside, may project a target toward 1.74m.

ichimoku analysis (the third chart) shows that since august 2012 the cloud has provided support on no fewer than five occasions, all circled. the most recent instance suggests that samsung could be primed to resume its trend, having faltered slightly since the turn of the year.

this positive outlook is dependent on the levels of support in all three charts holding firm. While they suggest that now may be the right moment to enter the trend, a break below support in any of the three would be a bearish warning sign.



EquITIES analysis By oliver WoolF, caia, msta

005930 KS Equity (Samsung Electronics Co Ltd)



005930 KS Equity (Samsung Electronics Co Ltd)



Technicals Suggest Samsung’s long-Term Bullish Trend Set to Continue 005930 KS Equity (Samsung Electronics Co Ltd)



These charTs are available on bloomberg aT g bbTa 355, 356 and 357<go>.


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indiCAtoRS APPliEd analysis By oliVeR WoolF, caia, MsTaMADX Index (Madrid Stock Exchange General Index) MADX Index (Madrid Stock Exchange General Index)MADX Index (Madrid Stock Exchange General Index) MADX Index (Madrid Stock Exchange General Index)MADX Index (Madrid Stock Exchange General Index)MADX Index (Madrid Stock Exchange General Index)



a number of market breadth indicators suggest the negative trend for the Madrid stock exchange General index remains intact.

The image above shows a logarithmic bar chart of the Madrid stock exchange General index in panel one with a 1-year moving average. Panel two depicts the ac-cumulated value of net advancers minus decliners. The lower panel shows the per-cent of members within the index above their 200-day moving average (blue) with a 10-period moving average (purple).

By drawing levels at 80 and 20 on the percentage in panel three one can treat it as an oscillator with overbought and oversold zones. as the raw percentage value can be quite volatile, the smoothed moving average helps to identify clear entry and exits points into and from these zones.

like the Relative strength index (Rsi), this indicator behaves very differently depending on the context of the market. in a range bound or volatile market, such

as that since 2007, the overbought and oversold zones highlight extreme market moves, which should anticipate some mean reversion. These are all the more significant if they occur at key support or resistance levels, such as at the start of February, circled in red on the chart above.

However, a sustained period within these zones is indicative of a prolonged trend, either bull or bear. This is because the majority of stocks are continuing to make new highs or lows, such as in the period from 2003 to 2007 highlighted by the blue rectangle. although the line dipped below 80 on a couple of occa-sions during this period, the breakdown in July 2007 was more important as it was confirmed by a break of the 1-year moving average on the price chart.

The cumulative line of advancers minus decliners in panel two (derived from the net daily value, which can also be charted but is not displayed here) is useful for its divergences from the price at tops and

bottoms. These occur at a top because the ratio of advancing stocks to declining stocks begins to fall before the market cap-weighted index which is more heavily weighted to larger stocks, and vice versa at the bottom.

The red and green arrows highlight these divergences in the Madrid stock exchange General index. support and re-sistance lines on the cumulative line, such as those drawn in blue, also highlight longer term broad market trends.

The failure to remain above 80 in panel three, or to break the resistance line in panel two, suggests that the downward sloping price ceiling is firm for the time be-ing as the market struggles to make any sustained advances.

Were we to see a new bull trend, an overbought signal in panel three and a trend line break in panel two may provide the first clues.

(Oliver Woolf, CAIA, MSTA, is a technical analysis specialist at Bloomberg LP in London. He can be


leading Market indicators Suggest downtrend for Spanish Stocks Remains intact


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analysis By Oliver WOOlf, Caia, MsTaThe fTse 100 index has recently

broken out to the upside from a range within which it has traded for the last three years, approaching its high from early 2008. Meanwhile, technical signals on multiple timeframes suggest that this level could act as resistance and force a correction.

The fisher Transform indicator, shown in the lower panel of chart one, uses a Gaussian probability density func-tion (as opposed to a more traditional bell-shaped probability density function) to calculate the position of the price compared to its range. in this way it “de-trends” the data and is therefore useful in identifying market extremes regard-less of whether the market is range-bound or trending.

The bands drawn at a two-to-three stan-dard deviation range above and below the mean should contain 95-to-98 percent of the price movement. last week’s read-ing of 3.49 on the weekly chart was the highest in several years. its occurence in

conjunction with Demark TD Combo 13 sell signal (illustrated in pink) suggests that the fTse may have become over-extended near the 2008 high.

The TD Combo indicator is designed to anticipate potential market rever-

sals prior to their completion through a multi-phase process consisting of setup and countdown. Potential price exhaustion is displayed on the chart with a 13, indicating the completion of

ASIA WATCH. Jonathan T. lin says the Korean stock exchange’s pattern is simi-lar to the s&P 500 in the late 1980s. Page 3

IndexeS. andrew stone says the s&P 500 may have reached trend exhaustion as it nears the 2007 highs. Page 4

emergIng mArkeTS. andre lapponi says inter-market analysis is signaling an important change in Brazilian equities and fixed income. Page 5

globAl TrendlIneS. alex Cole re-views the trendlines for global currencies, bonds, commodities and equities. Page 8


■ While U.s. stock market indicators are mixed – breadth is expanding and monthly momentum is now positive even as trading volume remains disappointing – “there is cur-rently little evidence of a major market top,” independent technical analyst louise yamada wrote in a february monthly report. yamada sees tentative signs of a possible new struc-tural bull market. The dow Jones Industrial Average is up four years in a row and a fifth up year is a “very rare event” occuring only in structural bulls in 1924, 1985 and 1991.

■ Tin, this year’s second-best performing base metal on the london Metal exchange, is poised to form a double bottom, which will help it advance to the highest level since 2011, according to Dhiren sarin, chief technical strategist for asia Pacific at Barclays PlC.

■ The selloff that has driven Treasury 10-year notes to their worst yearly start since 2009 is poised to reverse, according to Macneil Curry, chief rates and currencies techni-cal strategist for Bank of america Merrill lynch. “The risk-on move is starting to dete-riorate and we are in the process of a turning trend from medium-term bearishness to medium-term bullishness,” Curry said in a telephone interview. “We rallied off of recent yield highs in a manner that suggests that the trend has turned.”

Technical Indicators Suggest Possible Correction for FTSE 100 Index

insiDeTeChniCals




CallS and SIgnalS



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bloomberg brief Technical Strategies


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FTSE 100 CorrECTion…

the countdown phase and a high prob-ability of trend exhaustion.

This week, two further signals are sug-gesting a correction may be commencing. The red triangle on the current candle is from Bloomberg’s Trendstall indicator, which identifies points at which a trend is losing momentum or is likely to consoli-date. it implies that the current upward trend is slowing. at the time of publication the current weekly candle is also depicting only the second negative open-close rela-tionship since mid-December, suggesting a shift in market sentiment.

The chart above portrays a confluence of similar signals on the daily timeframe. a TD Combo 13 sell signal on Jan. 28 sug-

gests possible trend exhaustion and the subsequent reading above 4 on the fisher Transform indicator marked an extreme which was confirmed a day later with a red Trendstall triangle.

so far, support has held just above Bloomberg’s Trender trailing stop line in green. should this be broken, the previous resistance at the 2011 highs on the weekly chart may become a new support level around 6,100, with the weekly Trender a little lower, just above 6,000. Conversely, a penetration of the 2008 high would instead open the path towards 6,500.







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Technical signals recently suggested the shanghai composite index was set for a rally after reaching its lowest low since 2008. The index has since rallied about 12 percent. Bloomberg’s technical studies helped identify the timing for a reversal. now the question becomes whether the rally can continue.

The daily chart at top shows the moving linear regression slope (mlrs) in orange in the lower panel with a blue moving aver-age, and Bloomberg’s Trendstall indicator, the histogram in the middle panel. The divergence between the price, marked by the falling arrow between the recent lows on the price panel, and the mlrs, marked by the rising arrow, implied that the recent low was reached with less accelera-tion than the previous one and was thus weaker and less likely to be sustained.

Bloomberg’s Trendstall indicator is a third derivative of price and measures the rate of change of the strength of a trend. as the histogram rises, it turns pink. The first blue bar after a pink sequence indicates that the rate of change has slowed and thus the trend is losing its momentum. This point is marked by a triangle on the chart (green if bullish, red if bearish). These triangles, one of which appeared on dec. 4, often occur around key reversals. combined with the mlrs divergence this recent triangle suggested probabilities favor a reversal.

The Td combo from Tom demark’s mar-ket studies reinforced the timing signals. The indicator derives counts from a multi-phase price comparative process and is designed to anticipate prospective market reversals.The purple 13s often occur close to reversals, and the most recent of these circled in red was on nov. 28.

Fibonacci retracements can provide short- to medium-term targets. The last chart highlights retracements drawn over a large swing and two sub-swings. in this case, the black 61.8% and purple 38.2%, retracement levels identify resistance around 2,280. For a longer-term target the purple 61.8% and blue 50% both align around the psychologically significant 2,500 level, just above this year’s high.(Oliver Woolf, CAIA, MSTA, is a technical analysis specialist at Bloomberg LP in London. He can be contacted at [email protected])

indiCAToRs APPlied analysis By oliVer WoolF, caia, msTa

SHCOMP Index (Shanghai Stock Exchange Composite Index)



SHCOMP Index (Shanghai Stock Exchange Composite Index)



identifying Trend Reversals and Projecting Price Targets for shanghai Composite index SHCOMP Index (Shanghai Stock Exchange Composite Index)



These charTs are available on bloomberg aT g bbTa 263, 264 and 265<go>.


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CoRRelATIoNS By oliVER WoolF, caia, msta

the spread between U.s. libor and the U.s. three-month ois swap is strongly correlated with U.s. equity market per-formance. as spreads tighten, shares rise. the same cannot be said of Europe, where shares are still floundering as the equivalent European spread reaches its tightest level since the credit crunch.

the U.s. spread widens when institu-tional confidence in lending decreases and the rate for longer term borrowing consequently increases. this is usually mirrored by pessimism across broader markets and accompanies a falling stock market. the first chart demonstrates how, as the credit crunch began in 2007, the U.s. lending spread, in orange (and inverted for the purpose of analysing the correlation), rose sharply while the s&P 500, in blue, dropped. as spreads have tightened, equity prices have recovered.

in the second chart, the same analysis of the European market shows a different pattern. While spreads are back to their tightest levels since 2007, shares have not recovered to the same extent.

this divergence may indicate equities are held back by continuing pessimism in the markets, while the narrowed spreads are more reflective of the European central Bank’s willingness to intervene in capital markets. conversely, the tight spreads may indicate that confidence and liquidity in the banking system are improving, suggesting a rosier outlook for European stocks.

Julius de Kempenaer’s Relative Rota-tional graph, which portrays the evolving relative performance of securities against a benchmark, highlights that, while there has been a slight loss of momentum over the last three to four weeks, the banking sector, marked in purple, is the best per-forming industry in the European equity market. as banking stocks historically lead stock market upturns, this may be a hopeful sign that current tightening bank spreads point to future growth.

— Oliver Woolf, CAIA, MSTA, is a technical analy-sis specialist at Bloomberg LP in London. He can

be contacted at [email protected]

Analyzing Correlation Between lending Spreads and equity

SX5E Index (EURO STOXX 50 Price EUR)EUR003M Index - EUSWEC CMPN Curncy



SPX Index (S&P 500 Index)US0003M Index - USSOC CMPN Curncy



The Top Two charTs are available on bloomberg aT g bbTa 255 and 256<go>.

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CurrenCieS analysis By oliVER WoolF, MsTa

TRY Curncy (Turkish Lira Spot)



Fitch’s upgrade of Turkish foreign cur-rency debt has propelled the lira to its strongest level against the dollar since august. Technical analysis prior to this announcement indicated that the currency was primed for a breakout.

Chart one displays Bollinger bands around the price movement along with the Bollinger Bandwidth in the lower panel.

Recently the Turkish lira has been trad-ing in a very narrow range compared to its historical volatility as shown by the Bollinger Bandwidth’s low reading. such a low reading is often a precursor to a new breakout. The signal for a breakout is the price’s penetration of the lower band.

When this type of breakout occurs, an adaption of a traditional technical price pattern provides the technical analyst with a potential medium-term target.

The symmetrical triangle drawn in chart two is typically a continuation pattern, indicative of a pause before the prior ob-served trend continues. The height of the triangle pattern indicates the length of the projected move after the breakout.

in the case of the lira, should the an-ticipated breakout prove to be a reversal rather than a continuation, one can use the same height to measure a target on the downside. This target would see the lira strengthening to around 1.60 against the U.s. dollar, thus returning to levels seen from 2009 to 2011.

if the lira breaks to the upside, perhaps coinciding with an escalation of the syr-ian crisis, the traditional target using the triangle as a continuation pattern would suggest new lows for the lira of around 2 versus the dollar.— Oliver Woolf is a technical analysis specialist at Bloomberg LP in London. He can be contacted at

[email protected]

turkish lira Forms Possible Continuation Pattern, May See new lows Vs u.S. dollar

tHIs CHArt Is AvAILABLe ON BLOOMBerG At G BBtA 235 AND 236<GO>.

TRY Curncy (Turkish Lira Spot)



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the european currency has again dropped below $1.30 having recently climbed to nearly $1.32. Bloomberg’s technical analysis tools show there is a confluence of support for the single cur-rency just above $1.26.

the tas Pro taP map, above, a free indicator that forms part of the contributed tas Pro suite of studies, identifies con-solidation areas in the price over a given time period. the length of the lines repre-sents the time that the price has spent at a given price level over a specified period of time. the ‘fattest’ line, where the price has resided the most,ol is highlighted in green and is known as the ‘point of control.’ the red areas, known as ‘value areas,’ indicate where the price has commonly been. the purple areas are just outside of the value areas and the areas colored blue have of-fered little support or resistance.

recently the euro stalled as it ap-proached the Point of Control and has since reversed downwards. should it continue to weaken, the next value area would begin to give support just above 1.26 at the next purple line. this coincides with the January low of the sharp decline which commenced october last year and is denoted by the dashed black line.

tuning in to the most recent price swing from the July low to the september high, the chart on the right shows one Fibo-nacci retracement drawn from the high to the low of this swing, and another from the high to the low of a sub-swing starting august. there is a confluence of support where the 50 percent retracement from the larger swing and the 61.8 percent from the shorter swing overlap. this coincides with the purple line in the tas Pro taP map and the January low just above the value area at 1.26.

– Oliver Woolf is a technical analysis specialist atBloomberg LP in London. He can be contacted at

[email protected]

Projecting Possible Support levels for the euro using the taS PRo MaP Studies

inDiCatoRS aPPlieD By oliVer woolF







THE DAILY UPDATETHE InformATIon YoU nEED,wHEn YoU nEED IT sign up today on brief <go>

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analysis By oliver woolf, MsTaeuropean stocks are now finding tech-

nical resistance following a surge that began earlier this summer. in the aug. 29 edition of Technical strategies {nsn M9J7iX6JiJv6<Go>} Paul Ciana noted that statistically the month of september brings with it a propensity for market de-clines and increased volatility. a number of technical observations suggest the euro sToXX 50 index may face a test as summer draws to a close.

The eUro sToXX 50 index is now within a resistance zone between 2565 and just above 2600 that is related to previous highs. There are two techni-cal signs that suggest the sept. 12 high was particularly important. first, as the chart at right shows, it was achieved on a bearish divergence with the Mlr slope (orange line in lower panel), which measures the gradient of moving linear regression. This indicates a loss of mo-mentum in the upward trend.

second, a Gravestone Doji candlestick pattern (see chart page 2) – a candle-

stick pattern with a long upper shadow, and equal open and close – shows the market’s failure to push higher even after an initial bullish response to the news this morning of Germany’s top court ruling. Dojis of any type (equal open

and close) are also indicative of market indecision and can often be found at key reversal points.

a cross of the Mlr slope below its moving average (light blue) would

LATIN AMERICA. latin american indexes and eTfs are lagging the s&P 500. Page 3

goLd ANd CuRREN-CIEs. a look at gold in six major curren-cies suggests investors are less worried about europe. Page 4

pATTERN wATCh. sPTsX index may be forming head and shoulders top. Page 5

INdICAToRs AppLIEd. Using the fisher Transform to spot turning points in copper. Page 6

gLobAL TRENd LINEs. The U.s. dollar index has broken down below two-year support. Gold and silver have broken out. Page 7


■ gold denominated in euros is trading above the february high and is on its way to exceeding a record set a year ago today after breaking above the 2011-12 triangle resis-tance line at 1,345.26 euros ($1,732), Commerzbank aG technical analyst axel rudolph wrote in a report yesterday. Bullion may rally to 1,395 euros and the “psychological” 1,400-euro level in the medium term, rudolph wrote, citing a point and figure chart.

■ The euro may decline toward a one-month low against the yen should it fail to break the neck-line of a head-and-shoulders pattern, according to Takuya Kawabata, a re-searcher at Gaitame.com research institute ltd.

■ Japan’s 10-year bond futures may rise to the highest level in nine years should they climb above the cloud of the daily ichimoku chart, said akihiko inoue, chief strategist at Mizuho investors. “The contract is capped by the upper end of the cloud at 144.19 yen as resistance,” inoue said. “However, if it breaches the top of the cloud, the next target would be 144.64 yen, the highest since June 2003.”

■ The standard & poor’s 500 Index will climb another 2 percent before it reaches a resistance level near 1,450 to 1,460, according to Bill Mcnamara, a technical analyst at Charles stanley & Co. “it is far too early to suggest that the index has reached a top formation,” Mcnamara said in a telephone interview.

European Stocks Find Resistance as Summer Momentum Wanes

insiDeTeCHniCals

SX5E Index (EURO STOXX 50 Price EUR)



CallS and SignalS



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bloomberg brief Technical strategies

bloomberg brief Ted Merz Executive Editor [email protected]

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Contributors u.s. Brian Barry, CMT

[email protected]



Jonathan Lin, CMT, CFA [email protected]



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EuropEan StockS find rESiStancE…

confirm the divergence and bearish candlestick reversal. should this happen again, a confluence of fibonacci levels resides in the area just above 2425, a level which has recently held support on numerous tests.

The broader market adds color to this perspective. The five-year chart below shows the euro sToXX in red and the iTraXX index, a measure of european credit risk, in black. The two are inversely correlated and the iTraXX has been

inverted on the chart to demonstrate this relationship. The chart shows that the iTraXX is at a support level (bear in mind the inversion) that it has tested and failed to hold several times. should this occur again, and credit risk rise, the conse-quences for the european stock market would likely be increased volatility and negative returns.

— Oliver Woolf is a technical analysis specialist at Bloomberg LP in London. He can be contacted at

[email protected]

SX5E Index (EURO STOXX 50 Price EUR)



ITRXEBE Curncy (MARKIT ITRX EUROPE 06/17)SX5E Index (EURO STOXX 50 Price EUR)



These charTs are available on bloomberg aT g bbTa 189 and 191<go>.

1 2 3 4 5 6


the norwegian krone is poised for a downside breakout, suggests a replica-tion of John carter’s ttm squeeze study created via Bloomberg’s cs.lite program-ming language in sTDY <go>.

the histogram of usDnOK (right) shows momentum and is colored according to the interaction between Bollinger and Keltner bands. Bollinger bands are calcu-lated on standard deviation and therefore tend to be more sensitive to directional movement than Keltner bands which are based on average true range (atR).

When the histogram is red it indicates that the market is consolidating, as the Bollinger bands are tight and within the Keltner bands. When the histogram turns green the Bollinger bands have broken out of the Keltner, increasing the likeli-hood of a sustained trending phase. the breakouts in usDnOK have usually oc-curred in the direction of the momentum.

the histogram’s last reading is red, and the curve is headed downwards. if this direction continues when the chart shifts to green, the breakout signal will suggest a downward move.

this is supported by the second chart which shows that usDnOK (blue) has broken from its usual high correlation with the swedish krone (usDsEK, in red) as the swedish currency has appreciated. the sEK move, which also occurred on a squeeze breakout, hints at an anticipated nOK move in the same direction.

Oliver Woolf is a technical analysis specialist at Bloomberg LP in London. He can be contacted at

OWoolf@Bloomberg.

CurrenCIeS analysis By OliVER WOOlF, msta

NOK Curncy (Norwegian Krone Spot)SEK Curncy (Swedish Krona Spot)



norwegian Krone Poised for Breakout, Volatility Analysis SuggestsNOK Curncy (Norwegian Krone Spot)



DATe eVenT FeATurIng loCATIon ConTACT/regISTrATIon

Aug. 7, 8:00 - 12:00 Chart Day

Bloomberg technical analysis specialists Andre Lapponi and Paul Ciana will discuss technical analysis tools on the terminal, including new indicators, market profile, TAS Professional Study, Backtesting and Custom Studies.

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Aug. 8, 8:00 - 12:00 Chart Day See Aug. 7 event above for agenda. Bloomberg Office,

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Aug. 9, 14:30 - 18:15 Chart Day See Aug. 7 event above for agenda. Bloomberg Office,

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Contact Jessie Ho at [email protected]

bloomberg Charting and technical analysis events

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u.s. equities may see a sus-tained decline, sector rotation analysis suggests.

the chart here compares the u.s. consumer discretionary and consumer staples ratio in the up-per panel with the s&p 500 index in the lower panel on a weekly basis over the past five years.

traditionally the movements of these two data lines are quite synchronized because as in-vestors become more bullish, reflected in a rising s&p, their money flows from more risk averse staples stocks into cyclical stocks.

the ratio often acts as a leading indicator by turning before the index as highlighted by the blue arrows. We can also exploit this relationship by comparing the ra-tio to its one-year moving average, the purple line on the chart. a fall below the average implies a swing towards defensive stocks, while a cross above indicates an increased appetite for risk. these crosses, marked with red or green vertical lines according to their bearish/bullish implications, can be clearly seen in the chart to coincide with important turning points in the s&p.

the latest cross was seen at the end of June, when the ratio fell below the average, a bearish signal for the s&p, marked by the dotted red line.

the picture painted by the chart is reinforced by sector analy-sis in Bloomberg’s relative rotation graph, or RRG, a unique

chart with a three-dimensional portrayal of relative asset strength relative to a bench-mark.

the lower chart shows that over the last 12 weeks there has been a substantial swing in momentum towards safer sec-tors such as consumer staples, health care, utilities and tele-communications, which are all now outperforming the market.

Despite a recent mini-surge in momentum, this has coincided with deterioration in perfor-mance of sectors associated with growth such as industrials and information technology. as long as these sectors continue to underperform we should re-main cautious on growth for the market as a whole.

Oliver Woolf is a technical analysis specialist at Bloomberg LP in London.

He can be contacted at [email protected]

EQUiTiEs analysis By OlivER WOOlF

Bearish Outlook for U.s. stocks suggested by Outperformance of defensive sectorsXLY US Equity / XLP US EquitySPX Index (S&P 500 Index)



Top charT is available on bloomberg aT g bbTa 162<go> rUn rrg <go> To view boTTom charT.

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Gold rose last week in the longest rally since October, as investors sought out the safe haven investment among signs that the European debt crisis may worsen and that the u.s. economy is struggling to improve. a bullish case for the metal is supported by two technical tools: andrew’s Pitchfork and the Trendstall indicator.

andrew’s Pitchfork is an annotation drawn from the low of an upwards impulse to the high, and then to the low of the following correction. its goal is to project the median gradient of the ensuing trend with channels above and below, which follow the initial high and correction low.

in the chart to the right we can see how well gold has observed the Pitchfork lines. For three years following 2008 the middle line served as resistance. When price did break the middle line in mid-2011, it reached the up-per channel line but was unable to accelerate through. Recently it has bounced off support at the lower line. The green triangle from the Trendstall indicator, a derivative of the aver-age directional movement (aDX), identifies a loss of momentum. it implies the prevailing downward trend may have ended.

The middle line could provide a good me-dium target around 1800 but we can also see that a triangle has been forming. should the price break out of this triangle on the upside, a further target projected by measuring the height of the triangle from the breakout point could be the upper channel, around 2050.

Fibonacci retracements, drawn in the lower chart, are beneficial for shorter-term targets. The price has been knocking at the 38.2 percent resistance for a while. should it break through, the 61.8 percent level which was also a previous high in March could be tested around 1690.


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CoMModiTiES analysis By OlivER WOOlF, MsTa

GOLDS Comdty (GOLD SPOT $/OZ)



Gold’s Projected Rise on Fears of Worsening Economy Supported by Technical ToolsGOLDS Comdty (GOLD SPOT $/OZ)



These charTs are available on bloomberg aT bb Ta 145 and 140<go>.

daTE EvEnT FEaTuRinG LoCaTion ConTaCT/REGiSTRaTionJune 27

11:30 - 13:30 ESTTD Combo for Trading and Managing Portfolios

Tom DeMark, founder and CEO of Market Studies, will discuss how to use his TD Combo study on an intraday basis.

Global Webinar

https://www3.gotomeeting.com/register/376157974 or Doug Tengler, [email protected]

June 2716:15 - 17:00 EST Volatility Index Analysis Carson Dahlberg, CMT and Kirk Northington, CMT demonstrate using volatility indexes

to forecast market direction and key risk management levels using MetaSwing VBTA.Global

Webinarhttps://www4.gotomeeting.com/register/560824335 or [email protected]"

June 2714:00 - 18:00

Technical Analysis Strategy Backtesting

Oliver Woolf, CMT, will introduce how to test studies on the terminal with Bloomberg's new backtesting function, including your own strategies. In English.

Bloomberg, Milan Sean Standerwicka at [email protected]

June 2917:00 - 19:00

Swiss Association of Market Technicians Geneva Chapter Launch

Eugene Sorenson, Bloomberg's global head of technical analysis & charting, will dis-cuss the benefits of data visualization and the methods, approaches and applications available on the Bloomberg terminal.

Bloomberg, Geneva Emile Figueiras at [email protected]

bloomberg charting and technical analysis events bU <go>

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CuRReNCieS analysis By OliveR WOOlF, CMT, MsTa

The five-year weekly chart above shows simple support and resistance channels of the euro measured in u.s. dollars over the past 5 years, and suggests the currency could fall to 1.19.

The chart shows buy and sell opportuni-ties arose as the price oscillated between the extremes of the downwards sloping channel from the 2008 high and low.

When channels are broken, doubling their width often provides a useful price target. This marked a price support level early this year, after the upwards sloping channel from the 2010 low was broken to the downside in mid 2011. The direction of the current medium-term channel from the 2011 high coincides with the prevailing longer-term trend favouring a move lower. The dashed orange lines indicate support levels. One has been broken around 1.289 and we are currently testing previous lows around 1.26. if this level breaks the next significant support level would be the five-year low around 1.19 from mid 2010.

The lower target of 1.19 is confirmed as a long-term price target by the point and figure

graph, right. an old charting style from when charts were drawn by hand, point and figure has experienced a resurgence in popularity due to its simplicity. The chart is divided into a grid where each box represents a value. a new box is added to a column only when its value has been completely filled. The benefit is that minor moves are not shown, nor is time, as the chart will not move to the right until there is a significant price change. This is price action at its purest, without distract-ing “noise”.

Traditionally a column is only reversed when three complete boxes in the reverse direction have been completed. Xs high-light the uptrends and Os the downtrends. When there are two long columns in op-posing directions (known as walls) with a series of shorter columns in between (thus implying trend, consolidation, reversal) a price target can be measured by count-ing the number of columns from wall to wall, multiplying by the required number of boxes for a reversal (normally three), multiplying again by the value of one box, and then adding from the lowest value in

the series, or subtracting from the highest. in the euRusd example above such a calculation would provide a target of 1.19, matching the low in the candle chart.


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euRuSD may Fall Below 1.20, long-Term Trends and Point & Figure Chart Suggest




These charTs are available on bloomberg aT g bbTa 116 <go> (Top) and g bbTa 117 <go> (boTTom righT).

EURUSD Curncy (EUR-USD X-RATE)7/13/2009 - 5/23/2012

Reversal 3



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EqUITIES analysis By OlivER WOOlF, MsTa

spanish equities may be due for a rebound, the combination of a number of technical signals suggest.

The weekly chart, top right, shows that the iBEX index is currently hover-ing around a nine-year low support level.

The histogram in the bot-tom panel is the Bloomberg Trendstall indicator, a study of momentum derived from the rate of change of the average Directional index (aDX) indicator, itself a measure of trend strength. When the histogram turns downwards from its peak, a triangle is marked on the chart to signal that the cur-rent trend is waning.

Over the past five years, these signals seem to have materialized into consoli-dations or reversals. Price bars in pink, such as those on the last few bars, sug-gest that a new triangle on the chart is now looming.

in the second chart, bot-tom right, we are zoom-ing into the last four years of weekly data and have employed the Moving linear Regression (MlR) slope study, which measures the gradient of the regression over a selected number of price bars at any given point in time. a new price high or low that is not confirmed by a respective new high or low on the study is a signal that the price is flattening out and that acceleration in the direction of the current trend is slowing.

The last time the nine-year support was tested in early 2009 the MlR slope diverged from the price, as highlighted by the blue arrows which show the MlR slope turning upwards while the price moved downwards. now, three years later, a similar, albeit less sharp, diver-

gence is occurring at the new recent low. in the context of the first chart, this seems to reinforce the possibility of sup-port and a correction to the upside.

in the alternative scenario – if the pat-tern is not repeated and downward price momentum is sufficient to break through

the current support level – a further downwards move towards the 10-year low, the lower dashed line in the top chart, could be expected.Oliver Woolf is a technical analysis specialist at Bloomberg LP in London. He can be contacted

at [email protected]

Spanish Stocks May Be due to Rebound After Reaching new lows

These charTs are available on bloomberg aT g bbTa 108 and g bbTa 111<go>

IBEX Index (IBEX 35 Index)



IBEX Index (IBEX 35 Index)



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CuRRenCieS analysis By OlivER WOOlF, MsTa

The u.s. dollar could be positioned for renewed appreciation against the israeli shekel, according to ichimoku analysis.

The chart above shows the often-used Japanese technique applied to shekel spot prices over the past two years. The graph suggests robust support for the medium-term uptrend in the dollar/shekel that began in the summer of 2011 when the price (the green and red bar line) came from below and pierced through the cloud, shaded in blue and outlined by leading span 1 in orange and leading span 2 in green.

The price broke below the cloud recent-ly, but did not continue to fall. instead it hugged the support level at leading span 2. The lagging line, the thick grey line,which typically follows the price through the cloud to confirm the trend break, scarcely penetrated the cloud from above. This implies that the turn downwards was a short-term correction. Following the weak break, the price turned back above the cloud at a very thin area of resistance.

The implications of the prevailing trend are

all the more significant given the numerous occasions at which the price has failed to break through the cloud over the last 18 months. Whenever it has done so success-fully, the lagging line has subsequently followed through for confirmation.

leading span 1 is now, once again, serv-

ing as support beneath the trend. Watch for the leading span 1 to twist above leading span 2, a move which would be a leading signal of a renewed move upwards.


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u.S. Dollar Strength Against Shekel Shown by ichimoku AnalysisILS Curncy (ISRAELI SHEKEL SPOT)



This charT is available on bloomberg aT g bbTa 45<go>

ichimoku, like many technical analysis tools, relies on the notion that markets and market participants remember past valuation levels, and will repeat past trends and cycles. specifically, ichimoku uses past highs and lows to predict future zones of sup-port or resistance.

The first step in the analysis is to calculate a “base line” and a “conversion line,” not annotated here. The base line is the midpoint between the highest high and the low-est low during the past nine periods and the conversion line is the midpoint between the high and low of the past 26 periods. leading span 1 is the average of the base line and the conversion line, plotted 26 periods forward on the chart. span 2 is cre-ated by calculating the midpoint of the highest high and the lowest low of the last 52 periods, and is also projected 26 periods into the future. These two leading lines, ‘senkou’ in Japanese, form the boundaries of the ‘Kumo’, or cloud of equilibrium. The lagging line represents the current price shifted back 26 periods. a benefit of ichi-moku is that it provides various signals and multiple support and resistance levels.

ichimoku explained

oliver briefs master copy pdf

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