11 SAMT Journal Spring 2017 PDF

THE SWISS
TECHNICAL
A N A LY S I S
JOURNAL
SPRING 2017
Frühjahr
Primavera
Printemps
Spring
2017
The Swiss Association of Market Technicians
ZÜRICH • GENEVA • LUGANO • CHUR

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From the President’s Desk Dear SAMT Members & Industry Colleagues,
As with every Journal, we feature articles by industry experts about technical
analysis. This issue is no exception - but five of the articles were written by
speakers of the upcoming IFTA Conference in Milan in October. First is an
interview between our SAMT Vice President and Editor, Mario V. Guffanti
and Francesco Caruso who is co-chair of the conference, and next, Francesco
tells us about his Fear/Complacency Index on page 8.
We hear from Professor Hank Pruden about Combining the Wyckoff
Method and the Elliott Wave Principle in a Life Cycle Structure of
Market Analysis on page 11.
On page 18, Perry Kaufman shows us how to get Get Higher Returns
When You Create Your Own Sectors and Robert Prechter shares an
excerpt from the first chapter of his new book, The Myth of Shocks,
on page 23. SAMT Vice-President, Alberto Vivanti, gives us Some
Thoughts about the Construction Process of a Sector Rotation Strategy
on page 28.
Along with the conference speakers, we have three additional
interesting articles:
We learn about the Eight Widespread Misconceptions About Bitcoin by
Giacomo Zucco on page 33 - which is timely after the recent wave of
“ransomware” attacks (ie the infamous “Wannacry”). Paulo Musto talks
about Monetary Policies and the Current Juncture on page 37 and SAMT Vice-
President, Ron William, writes about the EUR/USD: Parity Target, a Clear
and Present Reality on page 44.
This year’s IFTA conference, hosted by SIAT, will be held in Milan with the
theme: “Sailing into the Future”. If the conference is anything like their
introductory video, it should be a most successful event. Consider attending
the conference in October - it would be wonderful to see so many of our SAMT
members and industry colleagues in Milan.
Sincerely yours,
Patrick
Patrick Pfister, CFTe,
President of the Swiss Association of Market Technicians (SAMT)
The Swiss Technical Analysis Journal • Spring 2017 • 3

THE SWISS
WHAT’S INSIDE
TECHNICAL
ANALYSIS
IFTA 30TH ANNUAL CONFERENCE, MILAN
JOURNAL AN INTERVIEW WITH FRANCESCO CARUSO
Mario V. Guffanti, CFTe 6
Volume Five • Issue 1
SPRING 2017
FEAR/COMPLACENCY INDEX
(FC INDEX)
Francesco Caruso, MFTA 8
Journal Committee
Mario V. Guffanti, CFTe
+ 39 33 691 91 70 Combining the Wyckoff Method and the El-
mario.guffanti@samt-org.ch liott Wave Principle in a Life Cycle Structure
of Market Analysis: The present position and
Ron William, CMT, MSTA the probable future trend of US Equity Prices
+44 7857 245 424
ron.william@samt-org.ch Henry “Hank” Pruden, PhD 11
Design & Production

Barbara Gomperts
+1 978 745 5944 (USA) GET HIGHER RETURNS WHEN YOU CREATE
barbara.gomperts@samt-org.ch YOUR OWN SECTORS
Perry Kaufman 18
BOOK REVIEW
The Socionomic Theory of Finance
Henry “Hank” Pruden, PhD 22
THE MYTH OF SHOCKS - An Excerpt from

Chapter 1 of The Socionomic Theory of Finance
Robert Prechter 23
Follow SAMT on
SOME THOUGHTS ABOUT THE
CONSTRUCTION PROCESS OF A
SECTOR ROTATION STRATEGY
Alberto Vivanti 28
4 • Spring 2017 • The Swiss Technical Analysis Journal

GENEVA: HIGH-LEVEL NETWORKING
OPPORTUNITY FOR FINANCIAL
PROFESSIONALS
Mario Valentino Guffanti, CFTe 32
EIGHT WIDESPREAD MISCONCEPTIONS

ABOUT BITCOIN
Giacomo Zucco 33
MONETARY POLICIES AND THE

CURRENT JUNCTURE
Paolo F. Musto 37
EUR/USD: PARITY TARGET, A To read articles on issuu.com

CLEAR AND PRESENT REALITY from the past three years of
Ron William, CMT, MSTA 44 The Swiss Journal of Technical
Analysis, click here.
THE SWISS ASSOCIATION OF MARKET TECHNICIANS

Board of Directors 51
Swiss Journal of Technical Analysis 52
Membership 53
The Swiss Association of Market Technicians (SAMT) is a not-for-
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CFTe Immersion Preparatory Course 54 License. It is the aim of the SAMT to promote the theory and
practice of technical analysis, and to assist members in becoming
IFTA’s CFTe Certification Program 55 more knowledgeable and competent technical analysts, through
meetings and encouraging the interchange of materials, ideas and
information. In furthering its aims the SAMT offers general material
Partner Societies 56 and information through its publications and other media.
The information provided on this Journal has been compiled for
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SAMT makes no warranties implied or expressly, as to the
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ZÜRICH • GENEVA • LUGANO • CHUR of this information.
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IFTA 30th Annual Conference, Milan
An Interview with Francesco Caruso
Mario V. Guffanti, CFTe
The first IFTA conference was held in 1988 in Tokyo, Each speaker will be selected with regard to its added
hosted by the NTAA. Since then, IFTA has held an annual value to the participants and to the overall evolution of
conference in different locations throughout the world, Technical Analysis. I can also say that our idea has had
usually in the autumn, hosted by the member society of an enthusiastic response and I can already announce
that country. SIAT hosted its first conference in 1998 in the participation of speakers such as Robert Prechter,
Rome, and this time, the conference will be held in Milan. John Bollinger, Professor Hank Pruden, Perry Kaufman,
The event is organized by SIAT (Società Italiana di Analisi Gregor Bauer, Riccardo Ronco (HF manager Caxton and
Tecnica), which is the IFTA member Society for Italy, and I IFTA 1998 Speaker on Chaos Theory, multiwinner of
have the pleasure to share some details of this conference the European Technical Analyst Award), Andrea Unger,
from one of the organizers of the event, Francesco Caruso, Richard L. Peterson (author of “Trading on Sentiment”
SIAT Vice President and head of the Scientific Committee. and CEO of MarketPsych), Kathryn Kaminski (fund
manager and author of “Trend Following with Managed
Mario V. Guffanti (MVG) - Hi Francesco, it’s a great pleasure to Futures: The Search for Crisis Alpha”), Spiros Skouras of
interview you about the next IFTA conference that will be held The Scientific Fund, and Alberto Vivanti from SAMT. And
in October in Milan. many others will be joining us, thanks to the efforts of our
Francesco Caruso (FC) - It is a great pleasure for me to be President, Davide Bulgarelli.
interviewed in your beautiful SAMT Journal, and I really MVG - Let’s speak about the presence of Technical Analysis in
compliment you on the dissemination and the quality of Italy: how has it evolved over the past decade and what is the
both content and format. actual state of the art?
MVG - After nine years, the 2017 IFTA annual conference will FC - Technical analysis in Italy has grown a lot, in terms of
be back in Italy. What motivated you to propose Italy for the practitioners, especially with the advent of online trading,
2017 conference? both in terms of quality. We must not forget that Italy has
FC - The choice to propose SIAT to host the conference is a great tradition and level all the times that an Italian was
due to a number of factors. First, as you pointed out, it has confronted with major worldwide technical analysis has
been nearly 20 years since an IFTA conference was held always obtained excellent results. I remember the World
in Italy, a long time for a country with long traditions in Trading Championships with Andrea Unger, Riccardo
technical analysis like ours. Second, in 2016 SIAT changed Ronco at European level (by the way both will be keynote
directors and one of the mandates of the newly-elected speakers) and even my personal experience as twice
directors was to try to bring the IFTA conference in Italy. winner of the Leonardo of financial research award and
In addition, Italy and Milan hosted the 2015 Expo so now recipient of the first IFTA John Brooks Award.
everyone in the world knows of Milan. MVG - The term “heretics of finance” was the nickname for
MVG – Last year the IFTA conference was held last year in technical analysts coined by Professor Andrew Lo, based on the
Sydney, with two SIAT speakers: you, with a revisit of the trend fact that the academic world, in the beginning, saw Technical
that leads to an original multi-strategy portfolio; and Andrea Analysis as a sort of alchemy. They thought that Technical
Unger with a speech about the evolution of Algorithmic Analysis was to financial analysis as astrology was to astronomy.
Trading and the role of Technical Analysis. Were these topics in Despite these first historical misgivings, a vast number of
anticipation of what will be covered in the Milan conference? academics have studied Technical Analysis and have come to
several interesting conclusions regarding its benefits and pitfalls.
FC - Absolutely. The title of the conference, “Sailing to But many investment professionals are still very skeptical about
the Future”, will allow us to go beyond the usual themes Technical Analysis: Is it the same in Italy?
of Technical Analysis, exploring a sea of opportunities
originated by a totally new “quant” generation of FC - I would say that the pattern identified by Professor Lo
technology, markets and instruments. We will also try has been followed in Italy in recent years. The first attempts
to go inside the vast theme of the collaboration between to introduce technical analysis academically in Italy are
our discipline and many other fields of economics (i.e. likely to be found by some pioneers as my first professor
Behavioural Finance, AI, Big Data, Cryptocurrencies), Angelo Bertotti, who wrote a quantitative book in the mid
with top institutional and academic contributions. ‘80s about technical analysis with Bocconi University’s
professor, Andrea Fornasini. Since then, there has been

a silent contradiction, in the sense that if on one hand the (Head of Capital Markets & Post Trading Regulation,
technical analysis was deemed as useless, on the other Borsa Italiana) and Thomson Reuters that will speak on
hand it was studied carefully, especially in its relation to Mifid2; Frederic Leroux (nr 2 at Carmignac Gestion) about
behavioural finance and quantitative modelling. the human’s role in asset management; Neil Dwaine
In fact, in recent years there has been an exponential (Global Strategist, Allianz) on artificial intelligence; Denis
growth in the interest in our discipline in the institutional Panel, CIO Theam (BNP Paribas) on behavioural finance.
side of asset management and in the academic world. One We are also planning a round table dissusion with Spyros
proof is the success of the institutional SIAT courses and Skouras, John Bollinger, Riccardo Ronco and Professor
special seminars. I think the most evolved part of technical Sergio Focardi. We have also planned two events, one to
analysis will be recognized at all levels in the future. promote IFTA with the financial media in early May and
the other to promote it to the two largest independent
MVG - It looks like the Italians, in general, are more interested financial organizations in Italy, in early June.
in TA for short-term trading purposes than a more organic
and structured approach. This is the main focus of most public MVG - How do you see the evolution of Technical Analysis
events (conferences) that are held in Italy. Do you agree, or worldwide in the coming years?
other aspects emerge despite the appearances? FC - I think that the key challenge is credibility. We must
break away from the image of financial alchemists and
FC - It is true but this is not just an Italian phenomenon. we must use its best technology and all branches of our
The expansion in online banking and electronic trading discipline that have a scientific basis or that can be traced
made the TA popular worldwide. Many see it as an easy back to quantitative or behavioral patterns. As they say in
means of making money, but we all know that making many fields - “go big or go home”!
money in the markets isn’t simple at all. The level of
knowledge in technical analysis is quite diffused today MVG - Thank you, Francesco.
but just among those professionals who are faced directly
with the issue.
MVG - In 2017 in Italy it is officialy born the register of financial
advisors. Can technical analysis emerge from its peculiarity and
be diffused among these investment professionals?
FC - Definitively. Our association promotes the procedures
for obtaining the professional recognition within the
category. It is not an easy road but it is a road required for
the, let’s call it “customs clearance”, of technical analysis.
As President of the Scientific Committee of SIAT, I am
personally involved in the improvement of the public
image of Italian Technical Analysis.
In the following pages I’m pleased to provide to
MVG - Let’s understand to which extent a deep training in
Technical Analysis can open the doors to students into a our readers articles by five of the speakers from the
professional future.What is your relationship with the academic upcoming IFTA conference in Milan.
world?
FC - SIAT is pursuing relationships with the academic world Francesco Caruso will introduce us to his work about
with an unprecedented effort. We are trying to involve his contrarian indicator: the Fear/Complacency
different universities and especially some professors who,
by their nature or by their affinity for material on technical Index. Professor Hank Pruden presents us with an
analysis, are open to the development of partnerships. The article about the Wyckoff Method combined with the
Milan IFTA conference will be the springboard for these
initiatives as well as having several academic names, and Elliott Wave Principle. We then have an interesting
we are studying the possibility of supporting a major article by Perry Kaufman about index and portfolio
experiment in behavioral finance that will take place at
the same time and place as the conference. construction and the first chapter of Bob Prechter’s
new book about the Socionomic Theory of Finance
MVG - Are you planning something particular for the conference
in Milan? with a review by Prof. Pruden. Finally, Alberto
FC - Yes. We are planning an IFTA 2017 Kickoff event that Vivanti gives us his thoughts about the construction
will take place the day before the start of the Conference,
on 12 October, at the Italian Stock Exchange with full process of a sector rotation strategy.
financial and non-financial media coverage. We will have
a speech by Raffaele Jerusalmi, CEO of the Italian Stock Happy reading!
Exchange; a Deloitte speech on Fintech; Fabrizio Plateroti

Fear/Complacency
Index (FC Index)
Francesco Caruso, MFTA
One of the Holy Grails of technical analysis is the search for tops and bottoms.
Because it is an approach that has a lot of limits and exposes the operator
more to disillusionment and damage than to successes and joys, there have
been many attempts to find a solution, the best possible, in detecting excess
situations, i.e. where it becomes statistically and objectively interesting to
assume a „contrarian“ attitude (i.e. to buy or cover short at the hypothetical
end of a downtrend, or to sell, profit or hedge at the top of a rally). The Fear/
Complacency Index, which owes its name to the two forces that move the
markets from a psychological point of view, is a contribution in this direction.
Building logic
The Fear/Complacency indicator is based on price and the sequence of closes.
It may in some respects resemble RSI, Williams% or stochastic, although it is
actually softer than the first two and less dispersive than the third one. It also
clearly indicates the overbought areas (between 85 and 100) and the oversold
ones (between 15 and 0). The goal is to identify areas of potential reversal or
risk/opportunity potential.
Display
Fear/Complacency Index (fear between 15 and 0, complacency between 85
and 100) – Arrows are automatically placed on the reversals in the indicator
(big arrows on Major ovb/ovs peaks at 100 and 0, small arrows on Minor
reversal between 100 and 85 and between 15 and 0).
CAC Index – Monthly data

FTSE MIB Index – Weekly data
GOLD – Weekly data

Interpretation
The Fear/Complacency Index is very simple in its construction and has a scale
and interpretation not dissimilar to those of the RSI. This is an indicator that
can overcome some problems in the same RSI, momentum, rate of change,
or other such oscillators. These indicators generate significant complications
in their interpretation, especially when there is a sudden movement in the
market. Therefore, for a better and more comprehensive analysis, it is necessary
to minimize these distortions on the one hand, and to highlight a precise
and narrow band where it is possible to identify the excesses. In addition to
solving this problem, the FC Index has a constant oscillation band, from 0 to
100, which allows a comparison of values at certain predetermined levels and
the identification of the two overbought/oversold bands (between 85 and 100
and between 15 and 0).
Strength points:
• simplicity of display;
• identification of extremes and, therefore, of areas of risk/opportunity on an
objective and clear scale;2
• possibility for the indicator to easily reach full scale (at 100 and 0) and,
therefore, generate two different levels of signals (Major and Minor)
Use
The FC was built to identify only overbought/oversold areas over any time
frame. The goal is to identify most of the pivot points and excesses (not
obviously all, which is virtually impossible given the delusional nature of the
markets) and therefore the potential turning points. The FC Index, therefore,
indicates the areas where it is statistically appropriate to proceed to the
clearance or reduction of positions or possibly to the opening of counter-trend
positions. The Fear/Complacency Index is a quantitative and non-qualitative
indicator: it identifies the setup for potential turning points, but does not in
itself give any indication of the importance of the turning point or the potential
of the next movement. The indicator has no optimization parameter and does
not vary as a mode of use over any time frame.
Metastock formula
HP:=If((C-Ref(C,-1))>=0,(C-Ref(C,-1))/(H-L),0);
LP:=If((C-Ref(C,-1))<0,(C-Ref(C,-1))/(H-L),0);
PR:=HP/(HP+LP);
FCST:=Sum(PR,3)/3*100;
FCI:=(Mov(FCST,3,W)+FCST)/2;
FCI
Francesco Caruso, MFTA, is the founder and owner of Market Risk Management, an investment advisory company
that provides technically-driven money management services, and develops and provides proprietary research for
institutions and individuals. He is member of the IFTA Board,Vice President of SIAT, the Italian Technical Analysis Society
and President of the SIAT Scientific Committee and has been a speaker at IFTA 1998 (Rome), IFTA 2006 (Lugano) and
IFTA 2016 (Sydney). He graduated in Economics at Bocconi University and since 1989 focused on the development
and application of trading systems and quantitative analysis to asset management and asset allocation models. He
published books and articles and created technical models and indicators, such as the Composite Momentum and
the Fear/Complacency Index. In 2008 he became the first MFTA (Master of Financial and technical Analysis) in Italian
history and was awarded the first IFTA John Brooks Award® for the best MFTA paper (“Technical Tools and Equity
Selection: A Reward/Risk Rating Indicator for the Stock Market Components”, was also published in the 2010 IFTA Journal). He is also
the recipient of the award “Golden Leonardo of Financial Research” in the technical analysis division (1997 and 1998) and recipient of
the SIAT Award 2011 and 2015. Mr. Caruso is also advisor for funds and institutions and is involved in projects and courses regarding the
diffusion of technical analysis. He is a visiting professor at the Cassino University and teacher in the Executive Master in “Quantitative and
Technical Analysis of the Financial Markets”. www.cicliemercati.it www.compositemomentum.com

Combining the Wyckoff Method
and the Elliott Wave Principle
in a Life Cycle Structure of Market Analysis: The present position
and the probable future trend of US Equity Prices
Henry “Hank” Pruden, PhD
So DNA, which is in itself a kind of The herd instinct is reflected by the Combining the Wyckoff Method
metaphor, is one more, and perhaps S-shaped curve of the life cycle model, and the Elliott Wave Principle
the ultimate, way to consider how while the bell-shaped model shows how in a Cycle Structure of Market
Analysis: The present position and
markets possess a kind of life of their groups of market participants may be
the probable future trend of US
own. This is useful in encouraging positioned and interrelated, ranging Equity Prices.
the analyst to identify ever more from the smart money to those who
— Henry “Hank” Pruden, PhD
basic structural components, how enter the market last. Together, the two
they interact, and ultimately to form a cycle model that can be used to
predict outcomes… organize indicators to gauge technical
— Robert Miltner, market conditions and to predict crowd
Scientist, Chemist and Entrepreneur, behavior.
Larkspur, California
— Hank Pruden, PhD
Figure 1: Markdown. The Life Cycle Model Wyckoff Method Combined with Elliott Wave

The Life Cycle Model can be used to combine the independent powers of
the Wyckoff Method and Elliot Wave Principle. Together Wyckoff and Elliott
forge a partnership that combines their strengths and offsets each other’s
weaknesses.
I offer the Life Cycle Model, a further refinement of the DNA metaphor
combining Wyckoff and Elliott. A more detailed application shows the
Wyckoff Method and the Elliott Wave Principle at work together over a bull-
bear market cycle.
The conceptual scheme that I apply in this presentation is based upon my
“Life Cycle Model of Crowd Behavior,” which first appeared in the Technical
Analysis of Stocks and Commodities magazine, 1999. I offer it as a further
extension of the DNA metaphor combining Wyckoff and Elliott.
The framework for combining Wyckoff and Elliott is The Life Cycle of Crowd
Behavior (see figure 1). The reward of combining Wyckoff and Elliott is in the
confirmation of one theory by the other. Those cross validations can be drawn
from the price and volume structure (patterns) and from the counts of waves
and price objectives. Let’s start with the pattern formation under the Wyckoff
Method (consult figure 1).
Figure 2:
Schematic of the Wyckoff Method. It is a
drawing of the price action depicting the
Key Wyckoff Stages of Accumulation,
Markup, Distribution, and Markdown.
Figure 3:
Schematic of the Elliott Wave Principle.
Figure 3 is an assembly of Elliott Wave
Principle cycles in three different degrees
of refinement, thus wave 1 in the first level,
top schematic that is the first of five waves
found in a bull market. Wave 1 in turn
is composed of another five smaller wave
bull movements, illustrated immediately
below it. The third level schematic is in
turn sub-divisible into 21 sub waves that
reflect the five wave bull movement of the
immediate higher degree.
Source: R.N. Elliott, “The Basis of

the Wave Principle,” October 1940,
Wikipedia

Figure 4.
Life Cycle Schematic,
Accumulation Phase.
Figure 5.
Markup Phase.

Figure 6.

Distribution Phase
Figure 7.

Mark-Down Phase.

Figure 8.
DJIA bar chart for Future Projections. Source: BigCharts
Figure 9.
DJIA Point-and-Figure Chart with Price Projections, 2014. Source: PubliCharts.

Figure 10.
Crowning Formation. During a
classic crowning formation like this
one, volume expands and prices
oscillate between a support and
resistance level. A few stocks record
dramatic price gains.
Figure 11.
INDU. Point-and-Figure
Pattern. Double Top Breakout.
Source: StockCharts

Figure 12.
Dow Jones Industrial Average, past twelve
months. Bar chart for Future Projections.
Source: BigCharts
Figure 13.
Connect the Dots. Three-Scenarios Trend-Projections Exercise.
A = current position of the market. B, C, and D are the expected
or possible end points for each of your scenarios. There are
expected/potential terminal points for each of your three
scenarios. Look out 12-36 months from now. Draw in a line
chart approximating what you think would/could happen to the
price under each of your scenarios. Which do you believe is the
most likely? Second most likely? Least likely scenario? Use the
below figure to illustrate your scenarios.
Henry O. (Hank) Pruden, Ph.D. is a Professor of Business and Director of the Technical Market Analysis
Program at Golden Gate University, San Francisco, CA, USA. He is also a Chairman of the Technical
Securities Analysts Association of San Francisco (TSAASF). Hank is an honorary member of SAMT.
www.hankpruden.com

Get Higher Returns When
You Create Your Own Sectors
Perry Kaufman
According to the advertising “Why trade one healthcare company when you
can trade them all?” It’s a good line and it avoids trying to decide which
companies to trade. On the other hand, trading all the healthcare companies
includes some that are “not-so-good” and puts more risk on the large caps.
The SPDRs ETFs weren’t intended to maximize your returns or reduce risk,
just to track an industry. If you’re looking for profits, you can do much better.
Capitalization weighting, the way the S&P is calculated, is the way most sector
ETFs are constructed. If you want to extract the piece of the S&P that is exactly
like the S&P, they have it right. But that doesn’t mean it’s the best way to
make money. After all, they are interested in an index, while we’re interested
in profits.
Correcting Two Problems

We’re going to make two simple changes to the SPDR sectors, using Healthcare
(XLV), and Energy (XLE) as examples.
Choose the fewest stocks that represent 50% of the weighting of the index, and
ignore the rest.
Weight them equally, that is, invest the same amount in each of the stocks
The reasoning behind this is that stocks with the largest weighting have the
greatest impact on performance. If the top few healthcare companies post big
losses, then it hardly matters what the rest of the sector does, you’ll end up
with a loss. That’s not the way diversification should work. Each stock should
Chart 1. Healthcare components in have the same risk and should contribute equally to the returns.
order of descending weight.
Over-Diversification
Source: www.sectorspdrs.com
Adding more and more stocks to your index, or your portfolio, will gain some

diversification, but less and less. In addition, the first stocks chosen are usually
the best, and adding more gives you marginal returns, which lowers overall
performance. Picking a few of the best is better than trading a large number of
stocks. In the case of the Sector SPDRs, the largest cap stocks are not necessarily Table 1. Nine largest
the best performers, but we’ll use them anyway to show how this works. Healthcare companies
representing 50% of the
Healthcare (XLV) XLV index.
The Healthcare sector has 57 components, which change from time
to time. Chart 1 shows the distribution by weight. As you can see,
more than half of them have weights less than 1%.
We’ll take the top 9 companies representing 51% of the index,
beginning with JNJ, shown in Table 1. That makes a manageable
number of stocks and allows a small investor to participate, by
buying $1000 of each stock.
In Chart 2 we see that an equally-weighted portfolio (each stock
gets the same initial exposure) of the 9 largest stocks consistently
outperforms XLV. A quant might argue that there is some ex poste
selection here, that is, the largest cap stocks may be the ones that
have outperformed others. If that were true, then XLV, which weights
those more, would outperform our new portfolio. As we can see, the
equally-weighted portfolio gains steadily over XLV.
Looking at the statistics, XLV had a 15.9% return with almost the
same volatility, giving an information ratio of 1.021. Our new
portfolio had a return of 22.0%, volatility of 18.1%, and a ratio of
1.215, a nice improvement.
Table 2. XLV versus a Chart 2. Comparison of Healthcare

portfolio of the largest 9 (XLV) and an equally-weighted
equally-weighted stocks. portfolio of the largest 9 healthcare
stocks.

XLE, the Energy ETF
To put aside the idea that XLV was selected because it worked, we can also
look at the energy sector, XLE, which is both volatile and well off its highs.
For this sector we’ll choose the largest 8 stocks, comprising 60% of the index,
shown in Table 3. We chose eight stocks here because the top 50% would have
been only five stocks, which would be marginal diversification.
Table 3. Eight stocks
representing 60% of
XLE.
Chart 3. Comparison of By equally-weighting these stocks we get results shown in Chart 3 and the
Energy (XLE) with an statistics in Table 4. The equally-weighted consistently outperforms XLE.
equally-weighted portfolio of For this sector the returns are much lower than healthcare, but the equally-
the 8 largest energy stocks. weighted portfolio shows a similar advantage over XLE.
Table 4. XLE versus

a portfolio of 8 largest
energy stocks.

The Main Points
The sector SPDRs were never intended to improve returns of those sectors,
simply to isolate various industries as benchmarks. A portfolio that is
capitalization weighted means that the largest cap stocks must perform best
for an investor to capture the best returns. That rarely happens.
Using a large number of stocks correctly isolates the industry performance,
but those companies with the smaller weights don’t contribute much and
more likely cause over-diversification when viewed as a portfolio.
Investors interested in trading a sector should look first at an equally-weighted
portfolio of a small number of very liquid stocks. As shown with healthcare
and energy, they will most likely significantly improve your returns.
Perry Kaufman is the author of Trading Systems and Methods and A Guide to Creating a Successful Algorithmic
Trading Strategy. He has been the managing director and general partner of investment funds and the chief
architect of their strategies. He is president of KaufmanSignals.com, a website that offers subscriptions to
trading strategies and portfolios. He may be contacted via his website, www.KaufmanSignals.com, or by
email at Perry@kaufmansignals.com.

The Socionomic
Book Review Theory of Finance
Henry “Hank” Pruden, PhD
This prodigious piece of work (813 pages) encompasses a new school of thought
that proposes to more accurately explain the behavior of financial markets.
Building upon scientific, empirical observations plus theories and findings
from psychology and the social sciences, Mr. Prechter presents a comprehensive
theory that is intended to displace the efficient market hypothesis and kindred
economic models. The implications of this endeavor by Mr. Prechter are
profound for students and practitioners of financial markets.
At the base of The Socionomic Theory of Finance is the thesis that
financial markets, such as the Stock Exchange, are a manifestation
of “Unconscious Herding Behavior.” Hence, financial market
trends and patterns are a reflection of endogenous herding
behavior. Changes in market trend direction occur because of
changes in social mood. A swing in mood, say from optimism
to pessimism radiates throughout the financial community
to shape herd behavior. The price, volume, and sentiment
measures of markets follow in an orderly, predictable fashion
according to a hierarchy of fractals and the structure of the
Elliott Wave Principle.
Mr. Prechter buttresses his main thesis that market behavior is
a manifestation of herd psychology in action through a careful
and comprehensive critique of earlier and recent thought in
economics, psychology, and social sciences plus practitioners’
observations and actions. Aiding Mr. Prechter in his endeavor are excellent
contributions by Alan Hall, Brian Whitmer, Wayne D. Parker, Wayne Gorman,
John R. Nofsinger and Kenneth R. Olson. All of those contributions appear in
this book by Reobert R. Prechter.
I am convinced that both students and practitioners in financial markets
will discover these brilliant excursions by Prechter et. al to be intellectually
broadening, financially rewarding and in many cases entertaining. In sum, The
Socionomic Theory of Finance by Robert R. Prechter is an important book and a
worthwhile purchase.
The Socionomic Theory of Finance by Robert R. Prechter

published by the Socionomics Institute Press, Gainesville, GA, USA
ISBN: 9781540510433 Copyright 2016 Robert R. Prechter
Henry O. (Hank) Pruden, Ph.D. is a Professor of Business and

Director of the Technical Market Analysis Program at Golden
Gate University, San Francisco, CA, USA. He is also a Chairman
of the Technical Securities Analysts Association of San Francisco
(TSAASF). Hank is an honorary member of SAMT. www.
hankpruden.com

The Myth of Shocks
An Excerpt from Chapter 1 of The Socionomic Theory of Finance
Robert Prechter
Few people find a new theory accessible until they first see errors in the
old way of thinking. Part I of this book challenges the universally accepted
paradigm under which humans’ rational reactions to exogenous (external,
or externally generated) causes purportedly account for financial market
behavior. The current chapter explores whether dramatic news events affect
financial markets.
Testing Financial-Market Reaction under Perfect Conditions

In the physical world of mechanics, action is followed by reaction. When a bat
strikes a ball, the ball changes course.
Figure 1
Most financial analysts, economists, historians, sociologists and futurists
believe that society works the same way. They typically say, “Because so- Good economic news
and-so has happened, it will cause such-and-such reaction.” This mechanics propels markets
– USA Today, January 15, 2004
paradigm is ubiquitous in financial commentary. The news headlines in Figure
1 reflect what economists tell reporters: Good economic news makes the stock Bad economic news
market go up; bad economic news makes it go down. But is it true? is chilling investors
– The New York Times, July 15, 2012
In the second half of the 1990s, a popular book made a case for buying and
holding stocks forever. In March 2004, after several terrorist attacks had
occurred, the author told a reporter, “Clearly, the risk of terror is the major
reason why the markets have come down. We can’t quantify these risks; it’s
not like flipping a coin and knowing your odds are 50-50 that an attack won’t
occur.”1
In other words, he accepts the mechanics paradigm of exogenous cause and
effect with respect to the stock market but says he cannot predict a major
cause part of the equation. The first question is, if one cannot predict causes,
then how can one write a book predicting effects? A second question is far
more important: Is there any evidence that dramatic news events that make
headlines, including terrorist attacks, political events, wars, natural disasters
and other crises, are causal to stock market movement?
Figure 2
Suppose the devil were to offer you historic news a day in
advance, no strings attached. “What’s more,” he says, “you
can hold a position in the stock market for as little as a single
trading day after the event or as long as you like.” It sounds
foolproof, so you accept.
His first offer: “The president will be assassinated tomorrow.”
You can’t believe it. You are the only person in the world who
knows it’s going to happen.
The devil transports you back to November 22, 1963. You
quickly take a short position in the stock market in order to
profit when prices fall on the bad news you know is coming.
Do you make money?
Figure 2 shows the DJIA around the time when President John
F. Kennedy was shot. First of all, can you tell by looking at the
graph exactly when that event occurred? Maybe before that big
drop on the left? Maybe at some other peak, causing a selloff?

Figure 3 The first arrow in Figure 3 shows the timing of the assassination.
The market initially fell, but by the close of the next trading
day, it was above where it was at the moment of the event, as
you can see by the position of the second arrow. The devil had
said that you could hold as briefly as one trading day after the
event, but not less. You can’t cover your short sales until the
following day’s up close. You lose money.
You aren’t really angry because, after all, the devil delivered on
his promise. Your only error was to believe that a presidential
assassination would dictate the course of stock prices. So, you
vow to bet only on things that will directly affect the economy.
The devil pops up again, and you explain what you want.
“I’ve got just the thing,” he says, and announces, “The biggest
electrical blackout in the history of North America will occur
tomorrow.” Wow. Billions of dollars of lost production. People
stranded in subways and elevators. The last time a blackout
occurred, there was a riot in New York City, causing extensive
property damage. “Sold!” you cry. The devil transports you
back to August 2003.
Figure 4
Figure 4 shows the DJIA around the time of the blackout. Does
the history of stock prices make it evident when that event
occurred? After all, if market prices change due to action and
reaction, then this surprise economic loss should show up
unmistakably, shouldn’t it? There are two big drops on the
graph. Maybe it happened just before one of them.
The arrow in Figure 5 shows the timing of that event. Not only
did the market fail to collapse, it gapped up the next morning.
You sit all day with your short sales and cover the following
day with another loss.
“Third time’s the charm,” says the devil. “Forget it,” you
reply. “I don’t understand why the market isn’t reacting to
these causes. Maybe these events you’re giving me just aren’t
strong enough. What I need is a real shock.”
The devil leans into your ear and whispers, “Terrorists will
detonate two bombs in London, leveling landmark buildings
Figure 5 and killing 3,000 people. Another bomb planted at Parliament
will misfire, merely blowing the side off the building. The
planners will vow to continue their attacks until England is
wiped off the map.” He promises that you can sell short on
the London Stock Exchange ten minutes before it happens
and even offers to remove the one-day holding restriction.
“Cover whenever you like,” he says. You agree. The devil
then transports you to a parallel universe where New York is
London, the Pentagon is Parliament and the DJIA is the LSE.
It’s a replay of September 11, 2001.
Figure 6 shows the DJIA around that time. Study it carefully.
Can you find an anomaly on the graph? Is there an obvious
time when the shocking events of 9/11 show up? If markets
react to exogenous shocks, as baseballs do, there would be
something obviously different on the graph at that time,
wouldn’t there? But there isn’t.
Authorities closed the stock market for four and a half
trading days after the 9/11 attack, and it stayed closed over
the following weekend. Was it certain that the market would re-open on
the downside? No. Some popular radio talk-show hosts and administration
officials advocated buying stocks on the opening just to “show ‘em.” You

sit with your short position, and you are nervous. But you Figure 6
are also lucky. The market opens down, continuing a decline
that had already been in force for 17 weeks. You cheer. You’re
making money now! Well, you do for five days, anyway. Then
the market leaps higher, and somewhere between one and six
months later (see Figure 7) you become disgusted and confused
and finally cover your shorts at a loss.
The devil spreads his hands in apology. “Wait! You saw how it
worked for a few days! I can’t help it if you held on too long.”
You start to walk away. He gives it one last shot. “I know. You
need something that’s going to work long term. How would
you like to take a long term trade that’s guaranteed in print?”
You hesitate. He says, “I happen to know of a devastating event
that future historians will describe as ‘the costliest natural
disaster in the history of the United States.’2 Does that sound
promising?” You’re not sure. “Where is it going to hit?” “New
Orleans will get the worst of it.” “Forget it. I can’t short New
Orleans.” The devil smiles slyly. “No, but you can buy oil
futures contracts. Hang on. Just read this future description of
the effects of the event, which will be available on the Internet
ten years after the fact.” He hands you this report: Figure 7
Katrina shut down 95% of crude production and 88% of natural
gas output in the Gulf of Mexico. This amounted to a quarter
of total U.S. output. About 735 oil and natural gas rigs and
platforms had been evacuated due to the hurricane. The price
of oil fluctuated greatly. According to [a spokesman on the
scene], “half billion dollars a day of oil and gas is unavailable.
Hurricane Katrina will impact oil and gas infrastructure, not
just short term but long term as well.” The storm interrupted oil
production, importation, and refining in the Gulf, thus having a
major effect on fuel prices.3
“C’mon!” he says. “You can’t get a better guarantee than that!”
You think, “He’s right. It’s there in black and white: ‘a long term
impact... a major effect on fuel prices.’” This is the trade you’ve
been looking for. You agree to go for it. The devil transports
you back to the early morning of August 29, 2005, the day
Hurricane Katrina hit shore. As soon as the market opens, you
buy an armload of oil futures contracts. You sit back and wait
for the outcome future historians had described.
Figure 8 shows the day you placed your all-out bullish bet: Figure 8
August 29, 2005, right at a top in oil prices and just before a
three-month slide of over 20%. You are stunned. A record-
breaking, surprise disruption in the supply of oil failed to make
oil prices zoom. On the chart, it even looks as if somehow the
event made prices fall. You are bewildered. You took Econ
101 in college, and the market’s reaction makes no sense. You
finally sell out, taking a loss.
You look into the history of the matter and come across a
footnote on Wikipedia saying that President G.W. Bush had
released oil from the U.S. Strategic Petroleum Reserve in the
wake of Katrina. Maybe that was the devil’s secret! But, no. The
U.S. was consuming 21 million barrels of oil a day at the time,4
and the Reserve over a period of weeks released only half a
day’s worth.5
You pull out a historical chart of oil and discover that even in
late August 2007, two years after the event, its price was exactly

the same as it was on the day you had bought, even though oil was in the middle
of a monstrous bull market in which its price soared over 1300% from 1998 to
2008. Somehow your purchase caught one of the few setbacks within it.
You do a Google search, and there it is—the passage the devil had read. The
historians lied. They must have figured that a disaster of such magnitude simply
had to have a major effect on oil prices, so they just said it did. Their devotion to
exogenous-cause logic obscured their perception of history.
You take a day off to do some research and come across an exhaustive, 40-year
study of the impact of 177 large earthquakes on the returns of stock market indices
in 35 different countries from January 1973 to August 2013. You read that despite
limiting the earthquakes under study to those causing at least 1,000 fatalities or
a minimum of $25 million in property damage, the authors were able to identify
“No systematic effect of earthquakes on aggregate stock market indices, either
directly or through the control variables.”6 Then you realize: This must go for
assassinations, blackouts, terrorist attacks and hurricanes, too.
If you are an everyday thoughtful person, you decide that events are irrelevant to
markets and begin a long process of educating yourself on why markets move as
they do. If you are a conventional economist, you don’t bother.
Now think about this: In real life, you don’t get to know about dramatic events
in advance. Investors who sold stocks upon hearing of the various events cited
above did so because they believed that events cause changes in stock values.
They all sold the lows or bought the highs. I chose bad news for these exercises
because it tends to be more dramatic, but the same irrelevance attaches to good
news.
Exogenous-Cause Claims Lead to Perverse Conclusions

Economists often say that an unexpected “shock” would cause them to re-
evaluate their bullish stock market forecasts. It does seem logical that a scary
event such as a destructive terrorist attack, particularly one that implies more
attacks to come, would be bearish for stock prices.
Take a moment to study Figure 6 again. Surely all of those exceptionally dramatic
swings in the DJIA must have been caused by equally dramatic news: bad news
at each of the peaks and good news at each of the bottoms. At least that’s what
the exogenous-cause model would have us believe.
As it happens, there was a lot of scary news during this time. Aside from the
Figure 9 9/11 terrorist attack on the World Trade Center and the Pentagon, there was also
a slew of mailings of deadly anthrax bacteria, which killed
several people, prompted Congress to evacuate a session and
wreaked havoc lasting months. Where on the graph of stock
prices in Figure 6 would you guess the anthrax mailings
happened?
If you guessed, “the very day of a rally high and all through
a four-month stock-price collapse,” befitting exogenous-cause
theory, Figure 9 would vindicate you. It shows that the first
anthrax attack occurred precisely on the top day of a rocketing
advance that appeared destined to take the Dow to a new all-
time high. The stock market reversed sharply and then fell
throughout the period of attacks. When the attacks stopped,
the decline stopped, and the market turned on a dime and
soared. Good for you and exogenous cause theory!
The only problem with your case is that Figure 9 is a lie.
Figure 10 tells the truth. The first anthrax attack actually
occurred on the very day of the low for the year, after a
dramatic, 18-month decline in the Dow. Afterward, despite six
more attacks and public concern that more were in the works,

the stock market rallied for six months. These attacks, deaths Figure 10
and scares, moreover, occurred throughout the strongest
rally on the entire graph. To put it more starkly, the market
bottomed the day the attacks started and topped out as soon
as people realized they were over.
Figures 7 and 10 reveal an irrefutable fact: Terrorist attacks
do not make the stock market go down. The assumption
behind economists’ repeated implications that terrorist
attacks would constitute an “exogenous shock” that would
serve to drive down stock prices is simply wrong.
Since even possessing advance secret knowledge of highly
dramatic, surprise events provides no advantage for
speculating, guessing about coming events is an utter waste
of time. There can be no causes related to external events
that even the most prescient person could exploit.
It gets worse. From the viewpoint of exogenous cause,
Figures 3, 5, 7, 8 and 10 make it appear as if the assassination
of President Kennedy was bullish, the New York City
blackout contributed to a rally, Hurricane Katrina caused oil
prices to drop, and terrorist attacks made stock prices soar.
These conclusions are discordant and perverse.
People object, “You can’t tell me news doesn’t move the market. I see it happen
every day!” But they don’t see any such thing, and it takes careful study to
reveal that they don’t. Consider: If the market’s moves and the tenor of news
were independently random, the two types of events would still fit each other
half the time, wouldn’t they? That’s more or less what people see, and they
expand those coincidences into what they think they see.
As this chapter shows, the notion that exogenous shocks change market trends
is highly suspect. Chapter 2 will broaden the scope of our investigation. As we
will discover, a fundamentally different theory of social causality accounts for
the chronology so as to turn discordant perversity into harmonic compatibility.
1 Shell, Adam, “Fear of Terrorism Jolts Stock Market,” USA Today, March 23, 2004.
2 Wikipedia, “Hurricane Katrina.”
3 Wikipedia, “Strategic Petroleum Reserve.”
4 “United States Crude Oil Production and Consumption by Year,” Index Mundi, indexmundi.com
5 Wikipedia, “Strategic Petroleum Reserve (United States).”
6 Ferreira, Susana and Berna Karali, “An Assessment of the Impact of Earthquakes on Global Capital
Markets,” Annual Meeting of the Agricultural and Applied Economics Association. Minneapolis,
MN. July 27-29, 2014
The above text is excerpted from Robert Prechter’s new book, The Socionomic Theory of Finance.
For readers of The Swiss Technical Analysis Journal, the publisher is offering hardback copies
of the book for half price ($US39) through the end of June 2017.
For details, visit www.elliottwave.com/wave/STF-SAMT
Robert Prechter is known for developing a theory of social causality called

socionomics and for developing a new theory of finance. He is president of the
Socionomics Institute, which studies social mood and its influence on financial
markets, the economy, politics and cultural trends. Prechter and colleagues have
written several academic papers, including “The Financial/Economic Dichotomy in
Social Behavioral Dynamics” (2007) and “Social Mood, Stock Market Performance,
and U.S. Presidential Elections” (2012), which became the third most downloaded
paper on the Social Science Research Network that year.

Some Thoughts About
the Construction
Process of a Sector
Rotation Strategy
Alberto Vivanti
The field that attracts me the most in technical analysis, and is still the main
object of my research, is the study of relative trends among assets, especially
single equities or sectors, versus the market or region to which they belong.
Sector indices enable investors to benchmark the performance of stocks in a
specific industry and are today reproducible by employing the increasingly
popular exchange-traded-funds (ETFs), through which it is possible to create
dynamic portfolios. The investment criterion is well known, it is based on the
assumption that the stocks, or sectors, that have performed better in the past,
are poised to give better returns.
As a matter of fact, the construction of a sound portfolio strategy is not so easy
and requires an accurate process of analysis and back-testing. I will describe
some of the principle that I usually follow for this purpose.
Benchmark
When operating into a specific market, or geographical economic reality, we
usually refer to a benchmark, an index that highly represents that markets,
such as the S&P500 in the U.S.A or the Stoxx600 in Europe. Such indexes are
segmented in sub-indexes regrouping stocks categorized by their primary
source of revenue (sectors). Our purpose is to invest in these indexes, that can
be replicated through the employment of specific market traded instruments
(the ETFs). A market benchmark is that to which we refer when calculating
the relative course of the sector but not in all the sectors-rotation strategies
we need to calculate the relative trends against an index representing the
market. One interesting methodology that I often use, compares the single
trends of each sector in order to choose those that are supposed to be stronger.
The algorithm does not need to include the market’s benchmark since we can
compare the sectors among themselves. The benchmark will turn useful, and
even necessary, as a reference for evaluating the results of our strategy.
Equal Weighting vs Capitalization Weighting

Most benchmark indexes are capitalization weighted, or market value-
weighted. It means that the weights of their components depend on their
total market capitalization. So, the larger components weigh much more than
the smaller components. Such discrepancies are replicated by the sectors
weighting. In the MSCI Europe, for example, the weight of financial sector is
twice as much that of the consumer discretionary sector, and four times that of
the technology sector.
Here is why, when calculating relative trends against the market, I rather
employ an index that equally weights the sector indexes that contribute to its
composition. Equal weighting prevents the imbalance caused by capitalization
weighting.

The chart in Figure 1 compares the Index MSCI Europe to a series derived by
the equal weighting of ten underlying sectors since 1999. Each single sector
weighs 10% thanks to a constant rebalance on a weekly basis. Its performance
over the long run is better than the capitalization-weighted index, but this is
not the issue. It could well happen the opposite if the heaviest sectors had
outperformed instead of underperforming after so many years (this is the
logical explanation of the performance spread), but leads me to conclude
that calculating relative strength against an unbalanced benchmark may take
misevaluations.
Relative Momentum Figure 1

There are many ways to calculate Relative Strength. The most popular is the The MSCI Europe (in red) compared
ratio between the two assets, by taking the price of one asset and dividing it with a constantly rebalanced equal
by another. The number resulting from the operation is meaningless but it is weighting of its sectors components,
the direction of the new price series that we obtain to be noteworthy. We can since 1999. The latter performed a yearly
analyze it like any other chart, by studying its trend and applying indicators compounded 5.5% against 4.5% because
like moving averages, momentum and so forth, always considering that the of the uneven sector weights of the MSCI
result of our analysis will relate to the relative course. When we judge an asset Europe.
as relatively stronger then we expect it to go better, or less worse, than the
market, not necessarily go well.
We can get to the same conclusions by calculating relative momentum. This
is my favorite method, a difference between the momentum of the asset
(sector in this case) and that of the benchmark, both calculated with the same
parameters. A rate of change, rather than pure momentum, fits better because
it is calculated as a ratio between the actual price and that of n periods ago,
allowing, this way, to compare the returns among several time series in which
figures can be totally different.

Figure 2 The chart in Figure 2 tracks the weekly data of the MS World Technology index
(in US dollars) since 2012. The red line in the center window is its relative
The MS World Technology index since
strength against the World Index. The blue line in the lower window represents
2012 with relative strength against
the difference between the rate-of-change at 12 weeks of the sector and the
the World Index (red line). The spread
same rate-of-change calculated on the benchmark. The difference has then
between the rates-of-change at 12 weeks
been smoothed by a simple average at four weeks. Values above zero for such
of both, sector and market index, is
difference reflect relative strength. By comparing the courses of both the red
represented by the blue line. Values
and the blue line we can see that a rising trend of the ratio (red line) corresponds
above zero for such spread reflect relative
most of the time to positive values in the spread of rates-of-change.
strength.
Absolute Trends are not Less Important
Relative momentum helps to enhance the returns in the long run, but to
reduce neither volatility nor drawdowns, especially in bear markets. A trend
following method, based on the direction of absolute trends of sectors, for the
determining the global exposure to the market, strongly increases the reward-
risk ratio of the investment by minimizing volatility without decreasing the
profit potential.
For this reason, my multi-sector strategies can’t do without an absolute trend-
following component when the goal, as often the case, is that of reducing the
volatility of the invested capital and the unavoidable sharp drawdowns that in
a constantly fully-invested portfolio occur during bear markets.

The chart in Figure 3 is that of the MS World Consumer Discretionary Index (in Figure 3
US dollars) since 2012, also with a spread between the rates-of-change of both, The MS Consumer Discretionary Index
the sector and the World Index (blue line at the bottom of the chart). The red since 2012. On the top (in red), a long-
histogram on the top is a long-term trend indicator. The vertical lines show the term trend indicator. On the bottom (in
occurrences when both indicators are positive. Investing in relative trends but blue). At the bottom, the spread between
only when the absolute trend is positive. This is a good to stay out of the sharp the 12 weeks of both, sector and market
downtrends and the drawdowns that they produce. index. Values above zero for such spread
reflect relative strength.
Alberto Vivanti, Independent analyst, founder of Vivanti Analysis in 2003. He is a technical and quantitative analyst
since the early 1980s, with a sound experience as an asset manager with Swiss Institutions. Author of a technical
newsletter, lecturer for institutions and instructor in Technical Analysis courses in Switzerland for the IFTA
Certification, author of articles and books, he has been co-author of a book with Perry Kaufman. Alberto chaired
the IFTA conference held in Lugano in 2006. He has been a speaker at the IFTA Conferences 1998 in Rome
and 2006 in Lugano, in 2017 in Milan. Alberto is Vice President of the Swiss Association of Market Technicians,
representing the Chur and Liechtenstein Chapters.

Geneva: High-Level Networking
Opportunity for Financial
Professionals
Mario Valentino Guffanti, CFTe
The third edition of Findating, will take place on 22 June order to arrange meetings, could be very effective and
2017 in Geneva. This prominent event, is organized by useful.
FinLantern, the company that has managed another well-
The event will finish with a dashingly chic soirée. A
known annual meeting held in Lugano since 2011: the
very special Geneva Forex Event will be organised by
Lantern Fund Forum. Also, Geneva’s Findating concept of
Dukascopy, featuring an exquisite after-business party
financial networking is aimed at asset managers, private
with also an exclusive fashion show sponsored by Vannina
bankers, family officers, wealth managers and investment
Vesperini.
professionals.
This year the event will be focused on Fintech, with
In order to facilitate networking, FinLantern has created
a special attention to the blockchain technology and
the “FinLantern Community”, reserved for all the
new Swiss Regulations in this field. For information on
participants at this event and totally free. The “FinLantern
participating in Findating 2017, please visit their website.
Community” is not the usual community where you
can contact other profiles in a virtual world with a low The Swiss Association of Market Technicians (SAMT) is
probability of developing business with them effectively: an event partner and all our members can participate.
all the members of this Community can meet each other
For a preview, we are publishing an interesting article
in the real world during the Findating event, and you can
about Bitcoin, written by Giacomo Zucco, one of the main
imagine that the possibility to send messages to them, in
speakers at Findating 2017.
3rd edition
22th June 2017
The high-level Financial networking
in GENEVA
Organized by
@FinancialDating
Geneva Finance Group

1
www.FinDating.com
Eight Widespread Misconceptions
About Bitcoin
Giacomo Zucco
With its price touching all-time-high these to change or replace. Companies and products will be
days, Bitcoin is something many traders and developed on top of Bitcoin infrastructure, but Bitcoin
analysts are looking at with interest. While itself is something completely different. Many Bitcoin
trading bitcoins (and other “altcoins”, i.e. companies, even very big ones, have gone bankrupt, have
bitcoin clones with some distinctive features) failed, have been hacked and robbed, but the protocol
is extremely easy, due to the lack of any kind of significant itself is sound and safe, protecting wealth stored in it
entry barrier, successfully performing technical analysis constantly since 8 years now, even if under constant attack.
on this market is not trivial at all. One reason for this Rather than thinking of Bitcoin as a product released by a
is, of course, the very small dimension of the analyzed traditional corporation, it is more appropriate to think of
target (small market cap, insignificant market depth, it as a self-sustaining digital commodity, similar to gold.
concentration of wealth in the hands of few “whales” that It has a healthy satellite industry that provides products
can easily move the market, early and changing regulatory and services based around it, and it has its own business
and economic environment, etc.), but another important and advocacy organizations, but there is no central Gold
reason is the inescapable difficulty that analysts find in Corporation. The databases that show Bitcoin addresses
giving at least a very general and broad “fundamental” with a given bitcoin balance are all collectively managed
frame, in the context of which develop technical analysis. by the network using a peer-to-peer network, similarly to
Bitcoin is a complex and strange beast: to properly the peer-to-peer networks used by file sharing services.
understand its goals, characteristics, origins, potentials Also: while personal vicissitudes of Elon Musk could affect
and implications, one has to master many distinct and Tesla in a significant way, that’s not the case for Bitcoin:
specialized fields like applied cryptography, distributed the code of the protocol is there, open for anyone to read,
systems engineering, game theory, software development, review and study, almost impossible to modify (but in the
monetary policies. But even without the need to become unlikely case of a plebiscitarian active agreement between
experts, there are certain myths and misconceptions, every single entity who is now running a node). During the
widespread and strongly maintained by almost all age of Internet development, few analysts were aware of
mainstream publications, that could be easily avoided the name of the inventors of the technology, and that was
with some research. In this article, I would like to debunk not even considered relevant, while many today think that
8 of the most common misconceptions about Bitcoin, that the real-world identity of “Satoshi Nakamoto” (Bitcoin’s
could potentially lead to a deep misunderstanding of the pseudo-anonymous creator, or creators) is important to
phenomenon and the market. understand the phenomenon: it’s not. Whoever analyzed
the “.com bubble” thinking at the World Wide Web as a
1.“Bitcoin is like a company, or a product” single company, or as a commercial bubble, would have
Accustomed as we are to product-based and company- had a hard time in making sense of the market data.
based technology innovations (Google, Apple, Facebook,
Tesla, WeChat), it seems natural to many to consider 2. “Bitcoin is used by criminals, so it will be
Bitcoin through this kind of interpretation. Nothing could probably illegal”
be further away from the reality of the phenomenon. Bitcoin has a strong reputation of being used «only by
Bitcoin is an infrastructure-level open standard, like the criminals», thus leading someone to think there are strong
Internet itself, or like the eMail protocols. Many talk about probabilities of a global ban on this technology. This is
bitcoin as a company (there have been many hilarious expecially true after the recent wave of “ransomware”
news in mainstream media with titles like “Bitcoin’s CEO attacks (ie the infamous “Wannacry”), using the protocol
arrested”), or as a product, which is heavily misleading. as a payment system for the ransoms. The cryptocurrency
Market dynamics operate in very different ways for open first came to public attention in 2011 as the payment
infrastructural protocols and for commercial products. method for Silk Road, an online black market for illegal
Products can be easily replaced, surpassed, modified, drugs, fake IDs and other illicit goods and services. When
forgotten, while technical open infrastructure-level FBI shut down Silk Road and apprehended its alleged
standards, when they succeed, are extremely difficult creator, the price of Bitcoin dropped sharply but quickly

recovered, and yet, even since that bust, the media has no special meaning. We say that there will be only “21
lost no opportunity to tie Bitcoin to Silk Road in report millions of bitcoins” in circulation (since the supply is
after report. Journalist Lewis Sanders IV had to publicly strongly fixed once for all by the protocol), but it would
apologize, after launching the “news” of the use of Bitcoin be the same to say that there will be only “21 billions of
by the Islamic State: the news was further denied by milli-bitcoin” in circulation. When someone says that
Europol, but it is still in circulation. This “Bitcoin surpassed the value of Gold”,
is not new: almost the same was said of that’s heavily incorrect: while a single
the Internet itself at the beginning of its The whole Bitcoin bitcoin is now more valuable than a
adoption. Even ignoring the fact that any single gold ounce, that would not be true
technology can be used for crime (cars are economy is now little anymore if we considered grams instead
used for bank robberies every other day, above $36 billion. of ounces, or “micro-bitcoins” instead of
but this is not considered a good reason “bitcoins”. The only significative measure
to ban them and return to the carriages), Accounting is easy: there is would be to compare Bitcoin’s market
and even by labeling as “criminal” any no space, in Bitcoin market cap with overall physical gold market
activity that a certain political regime cap: if we did that, we would see that
forbids (hence not only indisputably evil cap, for even a very small there’s still a long road to go for Bitcoin
things like “international terrorism”, but part of relevant illegal in order to actually “surpass Gold”. At
also: poor Afghan women who want to the same time, it doesn’t make any sense
work and get payed outside the system, activity. to state that a 21 millions supply is “not
Venezuelan families who want to protect enough”: if needed, the whole global
its life savings from inflation, immigrants, economy could be accommodated in
refugees and underage people who want to receive and those 21 millions, provided that we use submultiples,
move money but have no access to bank accounts, people and that the price of the units goes up enough. A single
with strong civic sense who want to donate to Wikileaks for bitcoin, by the way, is not “too much expensive” at current
more transparency on illegal government activities, etc.), price: a $36 billion US market cap is very little if compared
still numbers don’t add up. The world’s illegal economy is with other potential benchmarks (physical gold itself for
estimated at around 22% of global GDP. The whole Bitcoin store of value and inflation-hedging functions, VISA/
economy is now a little above $36 billion. Accounting is Mastercard/Paypal volumes for online payments, USD
easy: there is no space, in Bitcoin market cap, for even a cash for grey and informal markets, etc.).
very small part of relevant illegal activity. If, for example,
Bitcoin was used today for a series of significative money- 4. Bitcoin is “controlled by China”
laundering operations (which usually happen through Bitcoin “mining” activity is now concentrated in China
the banking system), its value should be greater of many (possibly more than 70% of the computing power
magnitude orders. To be precise, the whole Bitcoin market dedicated to this process is now delivered inside that
cap is less than 0.15% of the estimated illegal and irregular country). It was concentrated in the US during the
economy, less than 0.18% of the irregular economy, less first 4 years of life of the system (with peaks of more
than 1.15% of the illegal economy. What we are left with is than 90% of the computing power), but that was never
some exchange of illegal drugs on the deep web and some perceived as as serious problem. For some reasons, many
“ransomware”: something estimated around few million now conflate this geographical concentration (which
dollars in total. The safe choice for illegal activity, right has many explanations: cheap electricity coming from
now, are US dollars. Often moved, stored and laundered oversize government-funded hydroelectric operations,
by regulated banks (see, for a recent example, the billions close contact with chip producers, centralizing effects of
of dollars laundered by Well’s Fargo’s subsidiary from the Internet “Great Firewall”, etc.) with a direct control
Mexico’s murderous drug cartels). Also, it is extremely over the protocol by “the Chinese”. Bitcoin is actually
unlikely now that Bitcoin could be ruled “illegal” in many the product of subtle checks and balances, the output of a
common-law countries, after several auctions in which resilient (even better: “anti-fragile”) equilibrium between
law enforcement sold on the market bitcoins seized from many forces, none of which can impose anything on the
people and groups under arrest. others. One of these forces is represented by the “notaries”
of the system, called “miners”, whose role is, if crucial,
3. “One bitcoin is now too expensive - also very limited: to collegially establish a unique relative
supply is too limited” chronology of the transactions. If a single player controlled
There is this die-hard meme about one bitcoin being the majority of the mining calculation power, the worse
“too expensive”. Since the value of Bitcoin has reached he could do would be to spend his own money twice
a high of about $2,200, buying an entire Bitcoin would (and never others’ people money) or slow down others’
be so prohibitive that it would not be practical for use transactions, and even these attacks would be very easy
as a currency. One of the main features of the Bitcoin to find, so they could be used one-off. Miners cannot alter
protocol is the extreme divisibility of every single unit. the protocol rules, enforced by every single node of the
It is possible to buy, sell or exchange even a very small system. The ultimate proof that bitcoin is not controlled by
portion of what is commonly known as “a bitcoin”: the miners (much less by Chinese miners, or “China” itself) is
way the unity is defined is completely arbitrary, carrying that even when a majority of them wants to change rule of

the current Bitcoin protocol (like it’s happening right now, bring to frauds and chargebacks, causes the transaction to
in the context of the so called “block-size debate”), that’s be really “settled and cleared” only after many days, and
not possible without plebiscitary consent of every other with significant costs...but it’s mostly a social, political
player involved in the system (full nodes, exchanges, and regulatory problem, not a technological one. Millions
wallet providers, users, etc.). of transactions could be processed in a second without
significant problems, in these kinds of database. In
5. “The underlying technology is interesting, Bitcoin, even if the network is not running at full capacity,
not the asset” a transaction takes almost an hour to be finalized, and
Mainstream media, along with financial incumbents, like the cost is of several dollars for every single registered
to repeat that “Bitcoin is not important, but the underlying operation (the transacting party will pay only a small part
technology, called blockchain, is”. That doesn’t make of this cost, with “transaction fees”, while the most part
any sense, since the entire architecture of a “blockchain” of the cost will be payed by all the holders with “inflation
system relies on the existence of a financial incentive for tax”). If the network is congested (as it will likely be most of
the mining process, thus on the existence of a native digital the time, predictably), costs and waiting times for a single
asset. Also, many of the typical transacting party raise even
limitations and shortcomings of more. The Bitcoin network, right
this tech, only exist because of There has certainly been few real-world now, is capable of processing a
Bitcoin’s particular assumptions: little more of 3 transactions for
a global, permissionless, uses of this technology, so far, to create new second. They could get to 14 or
trustless, open system. This is tools in order to manage, transmit, store, 16 transactions for second, with
not new at all. During the ‘90s, some optimizations, but more
telco incumbents were strongly sell, buy or register “traditional” financial than that would heavily hurt the
opinionated about the point not assets, like stocks, bonds, commodities, security and the decentralization
being about “the Internet” itself, of the network. Of course,
but in general about “online government-issued currencies. adding this technological
technology” (often declined as limitations to the “social” ones,
“private permissioned intranets” using a bitcoin-like system
or “wallet gardens”). Now, financial incumbents are inside the trust model and the regulatory environment of
mainly negative toward “the Bitcoin” itself, but inexorably traditional financial structures, would just be like taking
bullish about “blockchain technology” (often declined the worst of two worlds. That said, there is actually the
as “private permissioned ledgers”). The narrative will possibility, for Bitcoin, to scale to millions of transactions
turn, as it did for the Internet. There is no significative for second (mostly free and instant) without loosing most
“online without Internet”, as there is no significative of its typical features, with technical structures called
“blockchain without Bitcoin”. There is hardly any use of “payment channels” and “lightning networks”. But even
the “blockchain technology” outside moving and storing with these future evolutions, a decentralized, redundant,
bitcoins (one of these use could be trustless notarization of trust-less and open system will never be, ceteris paribus,
data, using the Bitcoin blockchain as an “anchor”). There as cheap and as fast as a centralized and permissioned
has certainly been few real-world uses of this technology, one, technologically speaking.
so far, to create new tools in order to manage, transmit,
store, sell, buy or register “traditional” financial assets, 7. Bitcoin is “encrypted” and completely
like stocks, bonds, commodities, government-issued anonymous
currencies. On the other hand, there could be a lot of The fact that Bitcoin was invented having financial
uses of “traditional” financial tools (like ETFs, custodian privacy as one of its main goals, coming from a cultural
banks, funds, regulated exchanges) in order to manage, (and political) environment deeply interested in privacy,
transmit, store, sell, buy or register new blockchain-based anonymity, confidentiality, encryption, plausible
assets, like bitcoin itself. deniability and so far, brings many to think that it’s
a particularly “private” system. Some mainstream
6. “Bitcoin’s technology is cheap, fast, efficient” resources arrive to define it “completely anonymous
Technically speaking, the underlying technology of Bitcoin money”. It is not. Even if somebody uses Bitcoin for
is particularly expensive, slow and inefficient. And that’s anonymity purposes, the current nature of the protocol
by design, and due to a trade-off with other characteristics is not very confidential or private: the way in which the
of the system (“trustlessness”, “permissionlessness”, etc.). blockchain work is publishing every single transaction
Only a complete misunderstanding of the technology, on the common, global ledger, accessible and queryable
made easy by its exotic and complex nature, could lead by anyone with an internet connection, forever, without
almost all mainstream commentators to reverse the any chance to delete or ament the history of an user.
narrative completely. In traditional financial databases, And every transaction is chained to the others, in a way
a transaction can reach a final, determined and verified which is usually very easy to track and follow, in order
state in milliseconds, and this operation is virtually to connect “pseudonymous” addresses with real-life
without any cost. The fact that financial institutions are persons, using forensic techniques. That could be seen
heavily regulated, and that the trust model can easily as the very opposite of privacy and anonymity, indeed.

Another side of the misconception is probably just effects” of these kind, that make really difficult, for any
terminological: everyone knows that Bitcoin is based on possible alternative, to contend the place of the “first
“cryptography”, and usually this scientific discipline comer”. Market cap, merchant adoption, development
is associated with “encryption”. But in Bitcoin, actually, mindshare: these are all example of dynamics guided by
nothing is encrypted at all: cryptographic functions are network effect. Many of the difficulties in understanding
used instead to sign transactions and to verify signatures, this point probably originate from the confusion between
as well as to solve and verify cryptographic puzzles an infrastructure-level open standard and a commercial
(“Proof of Work”). That’s another reason for which product (see misconception number 1): since it’s natural
Bitcoin use for illegal activities is seriously overstated to see specific products and services suffering competition
by mainstream media (see misconception number 2). and eventually being replaced, the same could appear to
Actually, many experts around the world are actively be applicable to Bitcoin, but that’s a fallacy. To give an easy
looking for ways to improve Bitcoin’s confidentiality example, consider the (in)famous Facebook-based game
(just some names as example of this innovative research Candy Crush Saga. It was a success, but how hard would
trends: Coinjoin, JoinMarket, Tumblebit, Mimblewimble, it be to eventually replace it, for other, superior Facebook-
Confidential Transactions, zkSNARKS, etc.), and some of based games? Not really, actually. But it would be harder
the most promising scalability solutions (i.e. Lightning to replace the Facebook platform itself, on top of which
Network, see misconception number 6) are privacy and the game is based, even with a slightly better alternative
fungibility solutions as well. But Bitcoin is one of the most (not impossible, though: we can for example remember
easy to track financial systems in existence so far. And its the story of MySpace, replaced by Facebook). It would
anonymity is often as weak as the regulated gateways to be way harder to replace the World Wide Web platform,
get in and out of the system, buying and selling the asset. on top of which Facebook is based. And even harder to
replace Http protocol, on top of which the WWW was
8. “There could be numberless competing based. The probability of modifying the TCP-IP protocol,
clones of Bitcoin, and there are actually more underpinning the Http, is close to zero in the foreseeable
advanced alternatives” time-frame (actually, even trying to “replace” its current
Provided that there is very little of interest, from a version, IPv4, with a new improved version, IPv6, is
technological point of view, in current experiments about taking decades and it turned out to be quite difficult).
“private permissioned blockchains without a native digital Bitcoin is not Candy Crush Saga...bitcoin id the TCP-IP of
asset”, one could think that, anyway, a number of other money. That means that it would be very hard to replace
“public permissionless blockchain with a native digital it, even for better alternatives (or for better versions of
asset”, such as Bitcoin, could co-exist for an indefinite itself). That said, it would be not true, by any technical
amount of time in mainstream adoption. If that was the parameter, to state that “better alternatives” are available
case, it would be false that there is really a strong cap on the right now. Some clones of Bitcoin have been launched with
total issued amount of this new kind of asset: alternative- different choices and different trade-offs that still have to
coins would de-facto dilute existing coins as a kind of prove to be “better” (for example: Litecoin adds some
inflation, without a clear predictable limit. In reality, that’s speed giving up decentralization, Ethereum adds some
probably not how this kind of infrastructures works. expressivity giving up predictability or scalability, Zcash
First of all, the mechanism underpinning the “mining” adds some privacy giving ups almost everything else,
process, that characterizes Bitcoin’s design, is strongly etc.). Furthermore, these specific “improvements”, even
subadditive: the overall security of two blockchains, with if considered as such, are always developed by a small
a certain about of computational power each, is way lower group of engineers, absorbing all the focus at the expenses
than the security of a single blockchain with the sum of the overall security of the system. There are not (yet)
of all that hashing power. “Proof of Work” mechanism significative alternative to the Internet, and Bitcoin is the
shows overwhelming incentives to converge on a single Internet of Money.
system. Also, Bitcoin shows very strong “network
Giacomo Zucco is a Theoretical Physicist, former Technology Consultant for Accenture spa, serial
entrepreneur in the field of emerging technologies. Economic blogger and contributor to several
Italian newspapers. Involved in several projects in Bitcoin and blockchain space since 2012, he is now
CEO of Swiss-based research/developement/incubation/consulting firm BHB Network, a world-class
competence center in the field.

Monetary Policies and the Current Juncture
Paolo F. Musto
One analysis tool our readers can find both useful and easy to find even in
common software like MS Excel, is the standard deviation.
Let’s see how this can help to get a view on the current state of affairs of the
Swiss real estate market.
Figure 1 shows the UBS Swiss Real Estate Bubble Index, which indicates the
risk of a real estate bubble forming on the Swiss housing market with +1 and -1
standard deviations marked with a dashed red line. This index is conveniently
expressed in terms of z-scores. This basically means standard deviations.
So our readers do not need to perform any calculations since a reading of
+1, for instance, it means one standard deviation above the mean, +2, two
standard deviations above the mean, and zero at the mean.
As we can see, moves beyond +1 and -1 standard deviations (marked in the
graph with dashed red lines), are not sustainable and at some point they revert.
At the moment, we see the index is approaching 1.5 standard deviations. Let’s
look at this from another point of view to see if we can get more clues regarding
potential risks building up in the sector.
Figure 1

Figure 2 shows the UBS Swiss Real Estate Bubble Index along with an
“oscillator” constructed by combining Real Estate with interest rates (the 10-
year rate). The rationale is that since most real estate investments are financed
with loans, if loans become more expensive, the market cools off and prices
could decline. Vice versa for declining rates, let’s see if such an “oscillator” can
be useful to invest in the Swiss Real Estate market.
We can see that once the oscillator goes above one and then crosses below it
(red dashed line), the Real Estate market becomes vulnerable to a down turn
and it’s not a good time to invest. On the other hand, when the “oscillator”
crosses below -1 and then back above, it is a good time to invest. In the last 20+
years, three signals were triggered and they all proved correct.
Right now, the Swiss Real Estate market is not cheap but the recent up-move of
the interest rates, has helped to decrease the vulnerability of the market. Thus,
while Monetary Policies (MP’s) on one hand can help the economy, at a closer
look they are a double edge sword, so to speak. Since they can, and often do,
add risk to the economic system and in turn to the investors. And this is not
just confined to the Real Estate sector discussed here. Many people trying to
Figure 2 compensate the lower returns from bonds are considering riskier investments.
Is this justified by the benefits of Quantitative Easing (QE)? Let’s look at some
European data. Ideally, the QE should produce positive effects on: Inflation,
Employment and Confidence. If we chart these three dimensions quarter by
quarter, we should get, in theory, a picture like Figure 3.

Figure 3
As previously mentioned, the reason is that quantitative easing should have a

positive impact on all three of them. Let’s look at some real European data for
Figure 4
these three dimensions, since the starting of the European QE:
As one can see comparing the pictures, what happened is not really what
theory suggests. Most notably, the effect on employment tends to fade (as we

Some of these problems also arise from the confidence given to some theories
and market-extracted info. For instance, Figure 5 shows a popular measure
of inflation: the 5-Year Forward Inflation Expectation Rate: the light blue line
is taken in 2009 and for each month (2= Feb., 4=Apr., etc.) it shows, at that
time, what the market thought inflation will be 5 years later. The orange line is
where inflation actually was for each month, 5 years later, i.e. in 2014.
Figure 5
Noticeably, what the market believed about inflation was wrong: the value
was wrong and also the trend of the move was pointing in the wrong direction.
What if a New Recession Strikes?
Probably there is still hope and ironically it lies in an asset that central banks
(CB’s) used to be very familiar with, but they seem to have forgotten about:
gold.
With Executive Order 6102, in 1933, right in the middle of the great depression,
President Franklin D. Roosevelt launched one of the first QE operations we are
aware of. With that order every US person had to sell their gold to the Federal
reserve in exchange for $20.67 per troy ounce, later increased, overnight, to $35
(a 75% increase!). Let’s try to understand why.
All in all, it was a very simple reason, at that time the Federal Reserve (FED)
needed to back its notes with (40% of) gold and by late (19)20s the FED was
very close to its limit. This prevented them from increasing the money supply.
Executive Order 6102 de facto shifted that limit upwards. That same year both
the real GDP and inflation got a substantial boost that lasted until the second
World War.
Figure 6

How About Today?
For the last 40 years, and including the last data points, we can still see a
relationship between gold and the US CPI.
Figure 7
Figure 8

Therefore, indications on the future direction of gold can also be used for
inflation linked bonds. In Figure 9, the trading approaches that have been more
Figure 9 suitable to generate profits on gold for the last 3 years. In green the best ones.
Wrapping up, while I think the focus should be real growth and not inflation
per se, based on the actual positive results in 1933, and the data in Figure 9, I
believe this makes more sense that everything we tried so far.
Moreover, as it happened in the 30s it might not just boost inflation, but also
the real economy.
Post Script
A better approach would be through the disposable income. This way,
consumers can create (real) business opportunities for entrepreneurs which in
turn will create real economic growth. But this also means less fiscal pressure
on salaries and companies. Arguably a more challenging task than just buying
an asset.
If this is combined with a (short term) boost on energy prices (that in turn
affect the prices of many things we move or produce) and wages are linked
to inflation, we have a good chance of seeing a notable effect on the overall
economy.
Also, what some prominent economists thought about inflation and monetary
policies years ago has not been confirmed by the QE.

From the Meeting of the Federal Open Market Committee
December 15-16, 2008
Bullard (President of the Federal Reserve Banks of St. Louis)
[….] The way we are looking at it now, you would be talking far into the future,
promising some more inflation—you know, in 2013 we will do 5 percent or
something like that […]
President Evans (Alternate Member of the Federal Open Market Committee)
I think that what we have contemplated will lead to the base increasing and that
will generate expectations about inflation beyond just Taylor-rule dynamics, I
would guess. In fact, there is certainly a lot of discussion and criticism out there
that our balance sheet is going to lead to large inflationary risks.
President Stern (President, Federal Reserve Bank of Minneapolis)
I do get a lot of comments and questions along the lines that President Evans
mentioned – “Gee, with that expansion in your balance sheet, with all those
reserves, aren’t we going to have a lot of inflation in the future?” Maybe I ought
to say “yes” to that question.
President Lacker (Member of the Federal Open Market Committee)
But in almost everyone’s mind is the phrase “too much money chasing too few
goods.” It provides, for a lot of people, an intuitive link between money and
inflation, and I think we—for all the warts of our policy in the early 1980s under
Chairman Volcker—exploited that well, to convey to the public that we were
committed to bringing inflation down in a simple, intuitive way.
I think that can help us now, analogously, in convincing the public that we are
going to be able to prevent deflation because we control money.
Author’s Notes
• Unless otherwise specified, source for all data: Bloomberg
• The thoughts and opinions expressed here are those of the author alone.
Paolo F. Musto is a portfolio manager who works for one of the largest financial institutions in Italy. He also covers
quantitative, statistical, technical, and financial analyses; ad-hoc and periodic forecasting reports, model development
and research across major asset classes, including assessment of the impact on the markets and portfolios of
economics and monetary policies.
He worked for Nordea Bank in Luxembourg and for various asset management companies in the US, developing
investment strategies and quantitative analysis tools. Paolo is a member of SAMT.

EUR/USD
Parity Target, a Clear
and Present Reality
Ron William, CMT, MSTA
Why History Rhymes, but Does Not Repeat?

Despite the latest short-term weakness in the USD index, we must not forget
its previous up-swing earlier on this year, which had broken out of a 2-year
trading range and reactivated a historic 31-year trend breakout signal (see
Fig 4).
Technically speaking, this renewed bullish USD sentiment is still part of a
5-wave cycle that started in 2011 (Fig 3). The final impulsive move offers a
paradigm shift for the market’s collective investor psychology, capital flow
trends and perception of key events ahead.
Such a positive technical backdrop helped amplify price reactions to the
Fed’s sequel 0.25% hike in Dec 2016, relative to the prior year. History had a
positive market rhyme, but to a much larger extent. Back then the USD index
Source: RW Market Advisory, made a higher intraday gain of 1.1%, dwarfing the previous lacklustre move
Market Analyst of 0.02% (Fig 1).
From a macro perspective, the difference of market reaction was also driven
by the Fed’s more hawkish long-term stance, which raised their “dot-plot”
projection and reversed a strong 2-yr decline (Fig 2).

Markets had become so conditioned to dovish Fed surprises, that even a
mildly hawkish shift was enough to trigger significant market reactions.
Speculative flows in net long USD positions also reflected greater confidence Source: RW Market Advisory,
in this latest rise (Fig 2 & 3 inset). Market Analyst
USD Breakout Signalled L-T Gains into 120

USD gains are still likely to extend sharply higher, as part of a 5-wave impulsive
cycle, if and once it resumes its breakout from of a 2-year trading range (Fig 3).
The move which started in 2011, represents a paradigm shift within investor Source: RW Market Advisory,
psychology and capital flow trends. Market Analyst

CFTC large speculative net long USD positons have already triggered a
bullish trend reversal and reflect growing confidence. Although these liquidity
indicators do not offer precise market timing, they can still be provide valuable
directional confirmation. Watch for a test of the old 2015 high to re-fuel USD.
In terms of the big picture, USD’s previous upswing had also reactivated
a 31-year trend breakout, which if and when triggered again, will signal
further upside scope into 110 and 120. The latter price target equates to a
Source: RW Market Advisory, 50% quantum retracement of the decline from 1985 and +2 STD of the USDs
Market Analyst historical value zone (Fig 4).
A closer study of the USD’s long-term cycles (measured from peak-trough

since 1985), projects an average 8-year cycle that would extend into 2019.
Expect a non-linear move and stay alert for key cycle windows during mid-
July, into H2 2017, when market volatility is expected to spike and renew safe-
haven flows into the USD and related haven assets.
Rate Divergences Pushes EUR/USD Lower

The growing divergence of interest rate policy, particularly between US
and Europe, is weighing on EUR/USD. Fig 5 illustrates the spread between
US/German 2-year government yields previously at a historic widening of
-238bps, leading EUR/USD lower. 30-day rolling correlations remain very
strong and stable at around 0.90.
Here, the bond market is still likely to be acting as a potential remote
proxima to currencies, where the bond-dog controls the FX market-tail e.g. by
offering greater investment yield return on the USD.
On the surface level both government yields are steepening, but for very
different reasons. The US curve is being led the Fed’s renewed Hawkish
stance, coupled with rising l-t rising yields. Such a scenario, marked by rising
short and long-end yields, with the latter outperforming, is termed as a ‘bear
steepener’. Whereas, the European short-end of the curve is being pinned
down by the ECB’s altered QE policy (reducing the market’s desire of holding
EUR in the medium-term). In contrast, this signals a ‘bull steepener’ curve,
with the short-end falling faster than rising l-t yields.

The higher interest rate environment is also supported by a rising trend in l-t Source: RW Market Advisory,
yields, pre-and-post President-elect Trump’s victory (Fig 6a). This marks an Bloomberg
important end of the 35-year bear trend in yields, after a two-stage bottom
process in 2012 and 2016. Potential remains for a UST yield rise to 3%, which
equates to +1 STD of the historical mean (Fig 6b).
Source: RW Market Advisory,

Market Analyst

This psychological level could indicate a pain threshold for rising inflation,
weighed by toxic debt or/and future tail-risk (see Fig 8b).
Parity Target, a Clear and Present Reality

EUR/USD is currently trading at a make or break level at 1.0970-1.1015. If the
major rate fails here, it will suggest a resumption back down to its extreme
low at 1.0341, which serves as the lowest level since 2003. The move would
be part of a much larger historical price symmetry last seen between 1985-
2001, which exhibited a two-stage impulsive rise and volatile corrective fall.
Both price analogs developed strong uptrends, lasting 91-93 months that were
short-circuited by crisis events. (Fig 7).
Source: RW Market Advisory A sustained weekly close beneath 1.0341 would make the parity target a clear
and present reality, into a 31-year trend support. Of note, EUR/USD parity
target was projected over 2-years ago, following a major breakdown from a
12-year accumulation pattern, supported by a long-term bear cycle skew (Fig
7 inset).
Using more traditional methods such as Point & Figure charting also signals
further downside scope into 0.9900 and 0.9700 (Fig 8a). The latter target was
activated in October 2014. Only a close back above 1.1000 (value zone) would
neutralize this scenario.

There is a perfect storm of asymmetric risk, marked by the latest technical Source: RW Market Advisory,
breakdown, growing interest rate divergences, compounded by geometric Jeremy duPlessis, Updata,
event risk into 2017 (Fig 8b). The highest probability tail risk is signalled Bloomberg
by our timing models, predicting a panic/rogue cycle this year. Political
instability in the Euroland is a plausible trigger, not least, ahead of the
oncoming elections. Both factors are EUR/USD negative.
Ron William, CMT, MSTA, is a market strategist, educator and trader, with 17 years of financial industry experience,
working for leading economic research and institutional firms; producing macro research and trading strategies.
He specializes in macro, semi-discretionary analysis, driven by cycles and proprietary timing models.
Ron is a board member of the International Federation of Technical Analysts (IFTA),Vice President & Head of the
Geneva Chapter of the Swiss Association of Market Technicians (SAMT) and Honorary member of the Egyptian
Society of Technical Analysts (ESTA); holding both the MSTA and CMT professional designations. He is also co-
founder of the SAMT CFTe Immersion Course and SAMT Journal.

SAMT
BOARD OF
DIRECTORS &
OFFICERS
Patrick Pfister, CFTe Elsbeth Hauser
President & IT Webmaster Treasurer
patrick.pfister@samt-org.ch elsbeth.hauser@samt-org.ch
The Swiss Association

of Market Technicians
Established 1987
www.samt-org.ch
Henrik Mikkelsen, CFTe Ron William, CMT, MSTA

Vice President Zürich Chapter Vice President Geneva Chapter
The Swiss Association of Market Technicians (SAMT) is and IFTA Liaison
henrik.mikkelsen@samt-org.ch
a non-profit organisation (Civil Code Art 60ff) of market ron.william@samt-org.ch
analysis professionals in Switzerland, founded in 1987.
SAMT is a member of the International Federation of
Technical Analysts (IFTA).
Technical analysis is the study of prices and markets. It
examines price behavior on an empirical and statistical
basis. It extends to the study of all published information
on price trends, volatility, momentum, cycles and the
inter-relationship of prices, volume, breadth, sentiment
and liquidity. A comprehensive understanding of
technical analysis requires a knowledge of statistics and
pattern recognition, a familiarity with financial history
and cycles. Mario Valentino Guffanti, CFTe Alberto Vivanti
SAMT encourages the development of technical analysis Vice President Vice President Graubünden
Swiss Italian Chapter and Liechtenstein Chapter
and the education of the financial community in the uses mario.guffanti@samt-org.ch alberto.vivanti@samt-org.ch
and applications of technical research and its value in
the formulation of investment and trading decisions.
SAMT has a wide range of activities including:
n Organising meetings on a broad range of technical
subjects encouraging the exchange of information

and knowledge of technical analysis for the purpose
of adding to the knowledge of its members.
n Technician (CFTe) exams and the Masters level degree
Master of Financial Technical Analysis (MFTA) in
Switzerland. These exams are controlled by IFTA.
n Developing CFTe preparatory courses which are Barbara Gomperts Marco Zahner
given twice yearly in advance of the IFTA exams. Social Media Manager Auditor
barbara.gomperts@samt-org.ch ma_zahner@bluewin.ch

We would especially like to see
contributions that draw from areas
THE SWISS not previously examined, and/or
topics tangential to technical analysis.
TECHNICAL The topics list is just a guide and
should in no way be considered
ANALYSIS restrictive. We wish to make the
Journal open to new and innovative
ideas from all areas of technical
JOURNAL analysis and those that connect with
it.
Submitting Contributions
Submission of contributions to mario.
The Swiss Technical Analysis Journal guffanti@samt-org.ch
is a quarterly publication established Material deadline for
by The Swiss Association of Market Language
Technicians (SAMT). It is compiled Contributions must be submitted
the Autumn 2017 issue
by a committee of SAMT colleagues. in English with British grammar
The Swiss Technical Analysis Journal required. 15 October 2017
is essential reading for academics,
students and practitioners of technical Writing Style
analysis in all arenas. It is an excellent Papers should be written in a thesis Advertising
reference source for anyone interested style. The Swiss Technical Analysis
in technical analysis, containing a Journal is a quarterly publication
References
wealth of resource material. which is published in A4 size, in
All texts referred to in the paper must
Credibility And Recognition be appropriately referenced with a pdf format only. SAMT will accept
bibliography and endnotes (footnotes advertisements in this publication
The Swiss Technical Analysis Journal if the advertising does not interfere
has original contributions from its will not be accepted.)
with its objectives.
members covering developments in Responsibility for the accuracy of
technical analysis in global markets. references and quotations is the The appearance of advertising in
The Journal’s aim is to reach leading author’s. We expect the authors to SAMT publications is neither a
practitioners and students of technical check thoroughly before submission. guarantee nor an endorsement by
analysis throughout the world. SAMT.
All references are to be included
The Swiss Technical Analysis Journal as endnotes. No separate list of Advertising Policy
is a professional resource. Its online references or bibliography should be Advertising is subject to approval by
publication on the SAMT website provided. SAMT. All advertisements must be
will make its work available as a non-discriminatory and comply with
future resource to the community of Figures, Charts and Tables all applicable laws and regulations.
technical analysts. Illustrations and charts must be SAMT reserves the right to decline,
referred to by Figure Number and withdraw and/or copy edit at their
Topics source (when applicable). Tables discretion. Every care is taken to
SAMT is seeking papers that cover must be referred to by Table Number avoid mistakes, but responsibility
developments impacting, either and source. cannot be accepted for clerical error.
directly or indirectly, on the field of
technical analysis; they may be drawn Length of Contribution Advertising Rates
from such areas as: Papers should be approximately Rate Size
• Basic market analysis techniques 1,200 to 3,000 words, with supporting
graphs and charts. Inside covers CHF 750 21.0 x 29.7 cm
• Indicators—sentiment, volume Full page CHF 500 19.3 x 26.9 cm
analysis, momentum, etc. Format
• Global and intra-global technical We ask for submission in MS Word 1/2 page CHF 350 19.3 x 13.4 cm
analysis or other text format. PDF format will Payment

not be accepted. Charts and graphs
• Styles of technical analysis may be in gif or jpeg, but we ask that Pre-payment by wire transfer is
authors also keep a tif format in case required for all ads. Bank details will
• Data be provided upon request.
it is required.
• The changing role of technical
analysis in the investment
community.

SAMT
SAMT encourages the development
MEMBERSHIP of technical analysis and the
education of the financial community
in the uses and applications of the
The Swiss Association technical research and its value in
of Market Technicians the formulation of investment and
SAMT Disclaimer trading decisions.
The Swiss Association of Market Technicians Established 1987
(SAMT) is a not-for-profit organization that does www.samt-org.ch
not hold a Swiss Financial Services License.
It is the aim of the SAMT to promote the theory
and practice of technical analysis, and to assist
members in becoming more knowledgeable and
competent technical analysts, through meetings Benefits of Membership
and encouraging the interchange of materials,
ideas and information. In furthering its aims the
• The organisation of meetings on a broad range of technical subjects
SAMT offers general material and information encouraging the exchange of information and knowledge of technical
through its website and publications therein. analysis for the purpose of adding to the knowledge of the members.
The information provided on the SAMT website
has been compiled for your convenience and
• These meetings provide an excellent opportunity to meet and socialise
made available for general personal use only. with other traders in your local area and thus develop friendly and
SAMT makes no warranties implied or expressly, professional relations among financial market specialists.
as to the accuracy or completeness of any
information contained on the SAMT web site. The
• The organisation of presentations from guest speakers from around the
SAMT directors, affiliates, officers, employees, world.
agents, contractors, successors and assigns, will • SAMT is affiliated with the International Federation of Technical
not accept any liability for any loss, damage or
other injury resulting from its use. Analysts (IFTA). All SAMT members are, therefore, colleagues of IFTA
SAMT does not accept any liability for any and are entitled to attend the annual IFTA conference at reduced rates.
investment decisions made on the basis of this • The “IFTA Update” - the quarterly newsletter from the International
information, nor any errors or omissions on the
SAMT website. This web site does not constitute Federation of Technical Analysts.
financial advice and should not be taken as such. • The possibility to sit for the Certified Financial Technicians (CFTe) at a
SAMT urges you to obtain professional advice
before proceeding with any investment.
discounted rate. These exams are controlled by IFTA.
The material may include views and statements of • Members receive discounts on a range of products and services related to
third parties, which do not necessarily reflect the technical analysis, including software, tuition, seminars and reference
views of the SAMT. Information on this website
is maintained by the people and organization
books.
to which it relates. The SAMT believes that the • Only fully paid-up members have access to the member area and SAMT
material contained on this website is based on events.
the information from sources that are considered
reliable. Although all care has been taken to
ensure the material contained on this website is Cost of Membership
based on sources considered reliable we take no • Initial one time registration fee of CHF 50.
responsibility for the relevance and accuracy of
this information. • The membership cost for each subsequent year is CHF 150. (The total
Before relying or acting on the material, users cost for the first year is CHF 200).
should independently verify its accuracy,
currency, completeness and relevance for their Membership Payments to Join or Renew
purposes. Before making any financial decision
it is recommended that you seek appropriate To renew your membership or to join online, log onto our website.
professional advice. The SAMT website may
contain links to other websites, these are inserted
merely as a convenience and the presence of
these links does not constitute an endorsement
of the material at those sites, or any associated
organizations, products or services.

regularly takes place in major cities (NTAA) and have been awarded
throughout the world. Additional the designation of Chartered
IFTA CERTIFIED fees apply to candidates requesting Member of the Nippon Technical
the exam in a non-English language Analysts Association (CMTA)
FINANCIAL or non-IFTA proctored exam location. are also exempt from both levels
IFTA will attempt to accommodate and may proceed to the MFTA
any exam location request. Program.
TECHNICIAN In preparation for the exam, n Beginning January 2013, individ-
candidates should use this Syllabus uals who have passed the
(CFTe) PROGRAM and Study Guide (CFTe II). Register STA Foundation and Diploma
here for the next CFTe II on 19 October Courses offered by the Society of
2017. The deadline to register for Technical Analysts (STA) and have
this exam is 1 September 2017. No been awarded the designation
registrations will be accepted after of Member of the Society of
this date. No registrations will be Technical Analysts (MSTA)
accepted after this date. Download are eligible to receive the CFTe
practice (mock) CFTe II examination. certification (please contact STA’s
Administration for procedures)
Curriculum and may proceed with IFTA’s
Examinations
The program is designed for self- MFTA Program. Prior to January
Passing the CFTe I and CFTe II study. Local societies may offer 2013, holders of the Society of
culminates in the award of an preparation courses to assist potential Technical Analysts (STA) Diploma
international professional qualifi- candidates. are exempt from Level II, but must
cation in technical analysis. The pass Level I (a multiple-choice
exams are intended to test not only Exemptions test) before qualifying for the CFTe
your technical skills knowledge, but n Individuals who have successfully certification.
your understanding of ethics and the completed IFTA accredited
market. Additionally,
certification programs through:
Level I: This multiple-choice exam Australian Technical Analysts n Individuals who passed the Market
consists of 120 questions covering a Association (ATAA), Egyptian Technicians Association (MTA)
wide range of technical knowledge, Society of Technical Analysts Chartered Market Technician
but usually not involving actual (ESTA), Nippon Technical Analysts (CMT) levels I and II on, or before,
experience. In preparation for the Association (NTAA), and Society 28 June 2013, are eligible to receive
exam, candidates should use this of Technical Analysts (STA) are the CFTe certification. Please sub-
Syllabus and Study Guide (CFTe exempt and may proceed directly mit an application and provide a
I). This exam is currently offered in to the MFTA program. See below pass confirmation from the MTA,
English, German, Spanish and Arabic. for more details: including dates attained. There is
It will be offered in Chinese at a later a one-time application fee of $550
n Individuals who have successfully
date. Download the CFTe I practice US. No future fees or membership
been awarded the Diploma in requirements apply.
(mock) examination (English) or Technical Analysis (DipTA)
CFTe I practice (mock) examination by the Australian Technical
(Arabic). Cost
Analysts Association (ATAA) are
Level II: This exam incorporates a considered to have the equivalent IFTA Member Colleagues
number of questions requiring an of the certificate and may apply for CFTe I $550 US
essay based analysis and answers. the MFTA Program. CFTe II $850* US
For this, the candidate should
n Individuals who have successfully
demonstrate a depth of knowledge Non-Members
completed Levels I, II, & III of the
and experience in applying various CFTe I $850 US
Certified ESTA Technical Analyst
methods of technical analysis. The CFTe II $1,150* US
Program (CETA) through the
exam provides a number of current
Egyptian Society of Technical
charts covering one specific market
Analysts (ESTA), and have been
(often an equity) to be analysed, as *Additional Fees (CFTe II only):
awarded the CETA diploma, are
though for a Fund Manager. n $100US applies for non-IFTA
exempt from both levels and may
The CFTe II is a paper and pencil proceed to the MFTA Program. proctored exam locations
exam that is offered in English,
n Individuals who have passed Level For more information on the program
French, Italian, German, Spanish,
I and Level II of the certification please email admin@ifta.org
and Arabic, bi-annually, typically in
April and October. It will be offered program offered by the Nippon
in Chinese at a later date. This exam Technical Analysts Association

Swiss CFA Society
SAMT The Swiss CFA Society boasts over
International Federation of
Technical Analysts (IFTA)
2,400 members in Switzerland,
PARTNER against barely 100 in 1996 at inception.
IFTA is a non-profit federation of
26 individual country societies who
It is the largest CFA Institute society individually and jointly dedicate
SOCIETIES in continental Europe. With more themselves to
than 2,000 candidates taking the Research, education, camaraderie and
rigorous Chartered Financial
n
dissemination of technical analysis

Analyst® (CFA®) exam in Switzerland of world markets. The IFTA societies
each year, the society’s impact on the support sharing technical analytical
Swiss investment community is self- methodology that at its highest level
evident. is a valid, and often-indispensable
It was the first society of CFA element in the formulation of a
charterholders in the EMEA reasonable basis for investment
region to be directly affiliated decisions.
Groupement Suisse des Conseils with the prestigious CFA Institute, n Promotion of the highest standards
en Gestion Independats (GSCGI) which includes more than 110,000 of professional conduct, international
CSCGI is a group of economic members in 139 countries. cooperation and scholarship between
interests formed by specialized The vision of the Swiss CFA Society is all its Member and Developing
independent financial intermediaries to be a leader in fostering the highest Societies within all arenas of technical
who are confirmed professionals in level of knowledge, professionalism, analysis.
the financial services industry. The and integrity in the investment n Providing centralized international
group is open to contacts with any business. exchange for information and data
person interested in the business
www.cfasociety.org/switzerland of various financial centers while
of wealth management seeking to
respecting individual country and
promote dialogue with the banking
Society business practices, legal
partners and authorities at all levels.
structures and customs.
Their goals are to:
n Encouraging the standardization of
n Promote contacts between
education and testing of its constituent
professionals motivated by the
members in technical analysis, making
same desire for independence,
sure that each individual country’s
wishing to maintain and develop Swiss Futures and Options security analyst licensing, legal and
relationships with counterparts. Association language /communication priorities
n Find common ground for The Swiss Futures and Options continue to be individually accepted.
exchanging experiences and ideas, Association (SFOA), previously the n Fostering the establishment of
a field where diversity and novelty Swiss Commodities, Futures and individual societies of technical
are prevailing. Options Association, was founded analysts without bias in regard to
n The enrichment of the links that in 1979 as a non-profit professional race, creed or religion. It supports the
can be forged on a friendly and association for the purpose of promot- need for maintaining a free and open
professional level within a well ing derivative financial instruments, worldwide markets under normal,
defined and recognized framework particularly standard futures and and in particular crisis periods.
to favour professional consultation options contracts on financial instru- As a growing bridge of communication
and close dialogues. ments and commodities, to the widest worldwide, IFTA remains open to
www.gscgi.ch possible audience, and to serve the methods of technical analysis, while
interests of its members. SFOA serves encouraging the consideration and
users of commodity and financial support of membership for both
derivatives, as well as professionals, developing and established societies.
their institutions and the exchanges. www.ifta.org
www.sfoa.org
Journal Media Sponsor
Training: www.technicalanalyst.co.uk/courses/calendar/
Awards: www.technicalanalyst.co.uk/awards/the-technical-analyst-awards-2016/
Research: www.technicalanalyst.co.uk/research/

The village of Silvaplana
56 • Spring 2017 • The Swiss Technical Analysis Journal Photo: Alberto Vivanti
The Swiss Association of Market Technicians
ZÜRICH
The • GENEVA
Swiss Technical • •LUGANO
Analysis Journal Spring 2017 • • 57CHUR

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THE SWISS

The Swiss Association of Market Technicians

ZÜRICH • GENEVA • LUGANO • CHUR

Willkom men Chur

The Swiss Technical Analysis Journal • Spring 2017 • 3

Design & Production

THE MYTH OF SHOCKS - An Excerpt from

4 • Spring 2017 • The Swiss Technical Analysis Journal

EIGHT WIDESPREAD MISCONCEPTIONS

MONETARY POLICIES AND THE

EUR/USD: PARITY TARGET, A To read articles on issuu.com

THE SWISS ASSOCIATION OF MARKET TECHNICIANS

The Swiss Technical Analysis Journal • Spring 2017 • 5

6 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 7

8 • Spring 2017 • The Swiss Technical Analysis Journal

GOLD – Weekly data

The Swiss Technical Analysis Journal • Spring 2017 • 9

10 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 11

Source: R.N. Elliott, “The Basis of

12 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 13

Life Cycle Schematic,

Life Cycle Schematic,

14 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 15

16 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 17

Correcting Two Problems

18 • Spring 2017 • The Swiss Technical Analysis Journal

Table 2. XLV versus a Chart 2. Comparison of Healthcare

The Swiss Technical Analysis Journal • Spring 2017 • 19

Table 4. XLE versus

20 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 21

The Socionomic Theory of Finance by Robert R. Prechter

Henry O. (Hank) Pruden, Ph.D. is a Professor of Business and

22 • Spring 2017 • The Swiss Technical Analysis Journal

Testing Financial-Market Reaction under Perfect Conditions

The Swiss Technical Analysis Journal • Spring 2017 • 23

24 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 25

Exogenous-Cause Claims Lead to Perverse Conclusions

26 • Spring 2017 • The Swiss Technical Analysis Journal

Robert Prechter is known for developing a theory of social causality called

The Swiss Technical Analysis Journal • Spring 2017 • 27

Equal Weighting vs Capitalization Weighting

28 • Spring 2017 • The Swiss Technical Analysis Journal

Relative Momentum Figure 1

The Swiss Technical Analysis Journal • Spring 2017 • 29

30 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 31

Geneva Finance Group

The Swiss Technical Analysis Journal • Spring 2017 • 33

34 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 35

36 • Spring 2017 • The Swiss Technical Analysis Journal

The Swiss Technical Analysis Journal • Spring 2017 • 37