berman and mokhtari - combining ffundamental and technical analysis

8/7/2019 Berman and Mokhtari - Combining fFundamental and Technical Analysis

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Combining

Fundamental & Technical Analysis

Combining

Fundamental & Technical Analysis

Larry M. Berman CFA, CMT, CTA

Sid Mokhtari



Technical FundamentalsTechnical Fundamentals

1. All fundamentals are reflected inprice, volume & trend.

2. Monitoring momentum, breadth & sentiment are essential inunderstanding when (the trendcould change).

3. If no one is buying it, it’s not going

to go up!4. RISK vs. REWARD: Lose your

opinion, not your money!



Macro Economic vs.

Macro Technical

Macro Economic vs.

Macro Technical

1. Dow: Averages are an economicbarometer.

2. Cyclical: GDP & Inflation.3. Cyclical: Long-term trend,

momentum, breadth & sentiment.



[email protected]

Larry M. Berman CFA, CMT, CTA * Sid Mokhtari

Trend Analysis - Support/Resistance The NASDAQ and the 200-day average (Fibonacci retracement)

Last

SPX 1031 1055 1095 1137 1163

TSX 8000 8422 8478 8631 8886

NDQ 1755 1886 1910 1991 2048

DJIA 9479 9799 10065 10327 10509

MID 543 578 580 596 618

Will the 200-day average hold?

There is little doubt the major US averages are going to test their own 200

day averages in what is clearly the biggest correction in over one year

(the 10%'er that many have been looking for). The key question is will

these support areas hold or will a break of them lead to accelerated selling

by investors? It has been evident for months in technology that the tape

has been weak. Investors have failed on several attempts to take tech

stocks higher and on each decline we have seen lower lows. Breadth has

deteriorated evidenced by the weakness that has spread to a broad group

of stocks including financials and even some traditional defensive sectors.

In many cases we have seen increased volume on the trade lower (Arms

index is very high), which is a bad sign. The economy still appears to be in

OK shape to suggest this is still an overbought corrective process opposed

to the beginning of a major decline. However, the tape is painting a

slightly more bearish picture in that most of the technical readings we

monitor on the following pages that are at their worst levels in the pastyear.

March 23, 2004

»» There has been a broad based decay in most of

our technical indicators pushing many to their worst

readings in almost 1 year. Though, there are some

short-term oversold indications, there is no strong

evidence that support levels will hold.

»» We have seen some bleeding (modest breaks of

200-day averages) on many key stocks and sectors,

but this is primarily evident in semiconductors.

Typically, it's a sign of weakness and suggests

further downside price action is likely.

»» The first major index to test its 200-day

average the NASDAQ (1886). The next important

support level is at the 200-day average for the S&P

500 (1055). Below these points the 38.2%

Fibonacci levels become important targets. For the

NASDAQ, the 1755 area, close to 20% below the

recent peak.

»» Gold has held a key test of support in the $390

area that we've been looking for. It should be the

early stages of a new base for many gold stocks.

We are watching this development closely, as it

should lead to another rally for the sector this year.

Support Resistance

Many academic studies confirm that weakness in the stock market

portends a pending soft patch for the economy, which is clearly on the

radar screen. Beyond the lingering tax cut stimulus in Q2, it's hard to find

a strong fundamental to lean on--now that it looks like it isn’t more than

"just the economy stupid!" The fact that investors are beginning to think

domestic concerns are more important than the new Iraqi constitution,

puts the “protectionist and slash spending” redirect from the Kerry

campaign at odds with what Bush would like to see heading intoNovember--and what the economy needs in the second half. It should,

therefore, be little surprise that consumer confidence is taking it on the

chin in the face of the poor performance on the labor front. The markets

will likely be saddled with this heavy burden unless Q1 earnings can blow

the doors out. At this point, we have not seen a bottom for the decline and

we are in the cross your fingers mode because, frankly, the price action is

bad and deteriorating.

Equity Technical

Market Analysis

AUDIO




S&P 500 --- 4-wk ROC ---13-wk ROC --- 52-wk ROC

ROC 4-W 13-W 52-W

SPX Neu Neu Neu

TSX Neu Neu Neu

NDQ Neu Neu Neu

DJIA Neu Neu NeuMID Neu Neu Neu

SML Neu Neu Neu

NYSE -- 10-Day Arms -- 55-Day Arms -- OS -- OB

UVol DVol TVol

NYSE 682 793 Av

NDQ 373 421 Av

NYSE -- % of stocks above their 200-day -- 200-day MA

%MC >50 >200

SPX 24(32) 69(77)

TSX 46(47) 85(85)

NDQ 18(21) 46(48)

Relative Strength

»» Despite the neutral readings,

we observe a downward shift in all

timeframes of the ROC indicators.

We expect this loss of bullish

momentum to be with us a littlelonger, until we see the next

catalyst emerges i.e. a confirmation

of continued growth as we approach

the earnings season.

»» We have seen a sharp swing

higher in downside volume relative

to upside volume in the past few

weeks (a bearish development).

We also note that the 10-day Arms

index is near last year’s Marchbottom readings, though, a small

mitigating factor is that overall

volume has not been too heavy.

This is a short-term oversold

indication.

Momentum Analysis

Volume Analysis

Breadth Analysis




SPX Volatility Index --- NDX Volatility Index ----

Rank

SPX Av

NDQ Av

TSX Av

CBOE -- 5-Day Put/Call Ratio -- OS -- OB

Ratio 5-day Rank Vol

CBOE .77(.84) High Av

AAII % Bullish vs. S&P 500

%-Bull RankMkt Vn Abv Av

AAII Av

Cons Av

Volatility Analysis

Options Analysis

Sentiment Analysis

Relative Strength

Level

21.6(21.1)

14.9(15.3)

27.2(27.1)

Level

»» We observed a bottoming

pattern in the VIX and VXN a few

weeks ago. Investors are showing

that they are becoming very nervous

about the current market, more so

than at any point in the past year. Itlikely means that this could develop

into more than just a dip.

»» We have not seen a sharp spike

in put volume like this since the

index corrections last summer. Much

like the market in general, overall

volume is average, though it has

been skewed to the bearish side. It

is important that support levels hold

given the combination of what this

indicator and the VIX are suggesting.

»» The continued decline in the

63(-5)

38.6(-2.7)

53(4)



Relative Strength Larry M. Berman CFA, CMT, CTA * Sid Mokhtari

Advance-Decline Lines NYSE-NASDAQ Cumulative Advance-Decline Line

Trend

NYSE Neutral

NDQ Down

TSX Neutral

New 52 Week Highs - Lows 52 Week New Highs-Lows ---- Oversold ---- Overbought

Highs Lows Rank

All US 329 (442) 111 (84) Avg

Momentum

Weak

Weak

»» The A-D lines, for all major equity

indices, have rolled over and suggest

further weakness. In the case for the

NASDAQ, lower-lows and lower-highs have

been established, hence a bearish trend is

developing. Investors should use periods of

strength to raise cash in the technology

sector until we see strong evidence of anew base.

Bearish

»» The number of stocks making newhighs is way down and the number of

stocks making new lows is up modestly.

The decay in this indicator to its worst

level in almost 1 year reminds us that this

correction is deeper and broader than any

of the dips we've seen. We'll need a major

catalyst to turn the tides here. Until then

we look for further deterioration.

Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i)

the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all

other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or

indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Conflicts of Interest: CIBC World Markets' research analysts and economists are compensated from revenues generated by various CIBC World Markets businesses, including CIBC

World Markets' Investment Banking Department. CIBC World Markets may have a long or short position or deal as principal in the securities discussed herein, related securities or in

options, futures or other derivative instruments based thereon. The reader should not rely solely on this report in evaluating whether or not to buy or sell the securities of the subject

company.

Legal Matters: This report is issued and approved for distribution by (i) in Canada by CIBC World Markets Inc., a member of the IDA and CIPF, (ii) in the UK, CIBC World Markets plc,

which is regulated by the FSA, and (iii) in Australia, CIBC World Markets Australia Limited, a member of the Australian Stock Exchange and regulated by the ASIC (collectively, "CIBC

World Markets"). This report has not been reviewed or approved by CIBC World Markets Corp., a member of the NYSE and SIPC, and is intended for distribution in the United States

only to Major Institutional Investors (as such term is defined in SEC Rule 15a-6 and Section 15 of the Securities Act of 1934, as amended). This document and any of the products and

information contained herein are not intended for the use of private investors in the UK. Such investors will not be able to enter into agreements or purchase products mentioned herein

from CIBC World Markets plc. The comments and views expressed in this document are meant for the general interests of clients of CIBC World Markets Australia Limited. This report is

provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation

would be prohibited.

The securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or income they produce may fluctuate and/or be adversely affected by



Micro Metrics vs.

Swing Indicators& price patterns

Micro Metrics vs.

Swing Indicators& price patterns

1. P/E, P/CF, GARP, P/Sales etc…

2. MACD, RSI, Stochastic.3. Double bottoms, tops, bases &

breakouts.



Bottom-Up Stock SelectionBottom-Up Stock Selection

1. Value: Swing indicators, cycles,bottoming patterns (bases)

2. Growth: Relative Strength,Momentum indicators, breakouts



Technical Value

Characteristics

Technical ValueCharacteristics

1. Oversold: Swing indicators, cycles,bottoming patterns (bases)

2. Under Owned: Sentiment



Market Trading CyclesMarket Trading Cycles

Bearish Basing Bullish Consolidation

Unique characteristics.

Systematically classified into phases by index weight

Where are we in cycle?

One part of an Elliott Wave.



All assets don’t have same cycle.

Based on assets own volatility.

Multiple time-frame perspective important.

Periodicity and volatility (delta).

Period and AmplitudePeriod and Amplitude



TranslationTranslationBull market cycles are right translated.

Bear market cycles are left translated.



Multiple Time FrameMultiple Time Frame

Short: days to weeks (5 & 20-day avg.)

Intermediate: weeks to months (20 & 50-day avg.)

Lon : 3-12 months 50 & 200-da av .



Weighted Trading CyclesWeighted Trading Cycles

Unique cyclesbased onasset ownmovement.

Classify eachby tradingcycle and rollup to sectorsby market cap

High (>90%)Low (<10%)offers an edgefor buy-sell

decisions.



Trading Cycles and RSITrading Cycles and RSI



Tkr Name Cycle RSI RS S&P TSX 60 Large Cap - Trading Cycles (Relative Strength) As of: March, 23, 2004

A Abitibi-Consolidated Inc Bear 19 D

ABX Barrick Gold Corp Bull 64 A

AGU Agrium Inc Bear 38 D

AL Alcan Inc Bull 38 D

ATY Ati Technologies Inc Cons 37 D

BBD.B Bombardier Inc 'B' Bull 36 D

BCB Cott Corporation Bull 30 C

BCE Bce Inc Bear 29 C

BMO Bank Of Montreal Cons 49 CBNN.A Brascan Corporation Bull 51 B

BNS Bank Of Nova Scotia Bull 66 B

BVF Biovail Corporation Bear 28 D

CAE Cae Inc Bull 38 D

CCO Cameco Corp Cons 61 A

CLS Celestica Inc Bear 29 D

CM Can Imperial Bk Of Commerce Bull 62 A

CNQ Canadian Natural Resources Bull 59 A

CNR Canadian Natl Railway Co Cons 34 D

CP Canadian Pacific Railway Ltd Bear 38 C

CSN Cognos Inc Bear 32 D

CTR.A Canadian Tire Corp -Cl A Bull 61 ADFS Dofasco Inc Bull 56 B

DTC Domtar Inc Bear 31 D

ECA Encana Corp Bull 51 B

ENB Enbridge Inc Bull 64 A

FHR Fairmont Hotels & Resorts Bear 40 C

HSE Husky Energy Inc Bull 49 A

IMO Imperial Oil Ltd Bull 33 C

IQW Quebecor World Inc Cons 36 C

K Kinross Gold Corp Base 53 B

L Loblaw Companies Ltd Cons 45 C

MDS Mds Inc Bull 58 A

MFC Manulife Financial Corp Bull 41 CMG.A Magna International Inc-Cl A Cons 52 B

MOL.A Molson Inc-A Shs Base 70 B

N Inco Ltd Cons 40 D

NA National Bank Of Canada Bull 62 B

NCX Nova Chemicals Corp Cons 29 D

NRD Noranda Inc Bull 56 A

NT Nortel Networks Corp Cons 25 D

NXY Nexen Inc Bull 51 A

PCA Petro-Canada Cons 37 C

PD Precision Drilling Corp Bull 42 B

PDG Placer Dome Inc Bull 64 A

POT Potash Corp Of Saskatchewan Cons 36 CRCI.B Rogers Communications -Cl B Cons 31 C

RY Royal Bank Of Canada Cons 44 C

RYG Royal Group Technologies Ltd Bull 48 D

SJR.B Shaw Communications Inc-B Bull 37 C

SLF Sun Life Financial Inc Cons 38 C

SU Suncor Energy Inc Bull 51 A

T Telus Corp Bear 29 D

TA Transalta Corp Bull 67 B

TD Toronto-Dominion Bank Bull 64 A

TEK.B Teck Cominco Ltd-Cl B Bull 49 B

TEU Cp Ships Ltd Bear 28 D

TLM Talisman Energy Inc Bull 53 A

TOC Thomson Corp Bear 38 C

TRP Transcanada Corp Bull 68 A Extended

WN Weston (George) Ltd Base 53 B

( 0 . 6

% )

O V E R B O U G

H T

( 1 3

. 5 % )

O V E R S O L D

9 - D A Y R E L A T I V E S T R E N G T H I N D E X

RSI = Wilder's 9-Day Relative Strength Index RS - Weighted Relative Strength vs. S&PTSX A-1st Quartile B-2nd Quartile C-3rd Quartile D-4th Quartile

Bearish Basing ConsolidationBullish

11.7% 1.9% 32.7%53.6%

WN (B)

TRP (A)

TOC (C)

TLM (A)

TEU (D)

TEK.B (B)

TD (A)

TA (B)

T (D)

SU (A)

SLF (C)SJR.B (C)

RYG (D)

RY (C)

RCI.B (C)

POT (C)

PDG (A)

PD (B)

PCA (C)

NXY (A)

NT (D)

NRD (A)

NCX (D)

NA (B)

N (D)

MOL.A (B)

MG.A (B)

MFC (C)

MDS (A)

L (C)

K (B)

IQW (C)

IMO (C)

HSE (A)

FHR (C)

ENB (A)

ECA (B)

DTC (D)

DFS (B)

CTR.A (A)

CSN (D)

CP (C)

CNR (D)

CNQ (A)

CM (A)

CLS (D)

CCO (A)

CAE (D)

BVF (D)

BNS (B)

BNN.A (B)

BMO (C)

BCE (C)BCB (C)

BBD.B (D)

ATY (D)AL (D)AGU (D)

ABX (A)

A (D)

10

20

30

40

50

60

70

80

90

0.00 2.00 4.00 6.00 8.00 10.00TRADING CYCLE



BCE C T C $ 2 7 . 7 4 -.26 T 2 7 . 7 4 / 2 7 . 7 7 2 8 x 3 E q u i t y G At 1 6 : 3 0 Vol 2,476,105 Op 27.98 T Hi 28.02 T Lo 27.72 T ValTrd 6 8 9 8 8 6 4 0

Worksheet List Edit Options G 70 - DAILY INDICATORS

BCE CT: BCE Inc G70 Daily 3/23/01 to 3/23/04

25

30

35

40

20

40

60

80

A M J J A S O N D

2001

J F M A M J J A S O N D

2002

J F M A M J J A S O N D

2003

J F M A

2004

Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410

Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2004 Bloomberg L.P.

G781-398-1 23-Mar-04 18:49:11



MOL/A C T C $ 3 1 . 8 5 -.15 T 3 1 . 8 5 / 3 1 . 9 0 3 9 x 1 0 E q u i t y G At 1 6 : 3 5 Vol 616,418 Op 31.99 T Hi 32.05 T Lo 31.62 T ValTrd 1 9 6 3 9 0 5 2

Worksheet List Edit Options G 70 - DAILY INDICATORS

MOL/A CT: Molson Inc G70 Daily 3/26/01 to 3/23/04

26.00

28.00

30.00

32.00

34.00

36.00

38.00

20

40

60

80

Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2002

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2003

Jan Feb Mar Apr

2004

Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410

Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2004 Bloomberg L.P.

G781-398-1 23-Mar-04 18:51:16

h i l G hT h i l G th



Technical GrowthCharacteristics

Technical GrowthCharacteristics

1. Strong Relative Strength2. Strong Momentum

3. Price Gaps-breakouts

4. Support levels hold/resistance

levels break



Picking stocks with technical analysis using relative strengthOutperform-Best Outperform-Neutral Outperform-Worst

Market perform-Best Market perform-Neutral Market perform-Worst

Underperform-Best Underperform-Neutral Underperform-Worst

4042

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

01

2

3

4

5

6

7

8

9

10Price Rel. Strength

40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

2

3

4

5

67

8

9

10

Price Rel. Strength

40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

23

4

5

6

7

8

9

10

Price Rel. Strength

40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

2

3

4

5

67

8

9

10

Price Rel. Strength

40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

2

3

4

5

67

8

9

10

Price Rel. Strength

40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

23

4

5

6

7

8

9

10

Price Rel. Strength

40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

23

4

5

6

7

8

9

10

Price Rel. Strength

40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

2

3

4

5

6

7

8

9


40

42

44

46

48

50

52

54

1/1/01 1/8/01 1/15/01 1/22/01

0

1

2

3

4

5

6

7

8

9


Tkr Name Cycle RSI RS S&P TSX 60 Large Cap - Trading Cycles (Relative Strength) As of: March 23 2004



Tkr Name Cycle RSI RS S&P TSX 60 Large Cap Trading Cycles (Relative Strength) As of: March, 23, 2004

A Abitibi-Consolidated Inc Bear 19 D

ABX Barrick Gold Corp Bull 64 A

AGU Agrium Inc Bear 38 D

AL Alcan Inc Bull 38 D

ATY Ati Technologies Inc Cons 37 D

BBD.B Bombardier Inc 'B' Bull 36 D

BCB Cott Corporation Bull 30 C

BCE Bce Inc Bear 29 C

BMO Bank Of Montreal Cons 49 CBNN.A Brascan Corporation Bull 51 B

BNS Bank Of Nova Scotia Bull 66 B

BVF Biovail Corporation Bear 28 D

CAE Cae Inc Bull 38 D

CCO Cameco Corp Cons 61 A

CLS Celestica Inc Bear 29 D

CM Can Imperial Bk Of Commerce Bull 62 A

CNQ Canadian Natural Resources Bull 59 A

CNR Canadian Natl Railway Co Cons 34 D

CP Canadian Pacific Railway Ltd Bear 38 C

CSN Cognos Inc Bear 32 D

CTR.A Canadian Tire Corp -Cl A Bull 61 ADFS Dofasco Inc Bull 56 B

DTC Domtar Inc Bear 31 D

ECA Encana Corp Bull 51 B

ENB Enbridge Inc Bull 64 A

FHR Fairmont Hotels & Resorts Bear 40 C

HSE Husky Energy Inc Bull 49 A

IMO Imperial Oil Ltd Bull 33 C

IQW Quebecor World Inc Cons 36 C

K Kinross Gold Corp Base 53 B

L Loblaw Companies Ltd Cons 45 C

MDS Mds Inc Bull 58 A

MFC Manulife Financial Corp Bull 41 CMG.A Magna International Inc-Cl A Cons 52 B

MOL.A Molson Inc-A Shs Base 70 B

N Inco Ltd Cons 40 D

NA National Bank Of Canada Bull 62 B

NCX Nova Chemicals Corp Cons 29 D

NRD Noranda Inc Bull 56 A

NT Nortel Networks Corp Cons 25 D

NXY Nexen Inc Bull 51 A

PCA Petro-Canada Cons 37 C

PD Precision Drilling Corp Bull 42 B

PDG Placer Dome Inc Bull 64 A

POT Potash Corp Of Saskatchewan Cons 36 CRCI.B Rogers Communications -Cl B Cons 31 C

RY Royal Bank Of Canada Cons 44 C

RYG Royal Group Technologies Ltd Bull 48 D

SJR.B Shaw Communications Inc-B Bull 37 C

SLF Sun Life Financial Inc Cons 38 C

SU Suncor Energy Inc Bull 51 A

T Telus Corp Bear 29 D

TA Transalta Corp Bull 67 B

TD Toronto-Dominion Bank Bull 64 A

TEK.B Teck Cominco Ltd-Cl B Bull 49 B

TEU Cp Ships Ltd Bear 28 D

TLM Talisman Energy Inc Bull 53 ATOC Thomson Corp Bear 38 C

TRP Transcanada Corp Bull 68 A Extended

WN Weston (George) Ltd Base 53 B

( 0 . 6

% )

O V E R B O U G

H T

( 1 3 . 5

% )

O V E R S O L D

9 - D A Y R

E L A T I V E S T R E N G T H I N D E X

RSI = Wilder's 9-Day Relative Strength Index RS - Weighted Relative Strength vs. S&PTSX A-1st Quartile B-2nd Quartile C-3rd Quartile D-4th Quartile

Bearish Basing ConsolidationBullish

11.7% 1.9% 32.7%53.6%

WN (B)

TRP (A)

TOC (C)

TLM (A)

TEU (D)

TEK.B (B)

TD (A)

TA (B)

T (D)

SU (A)

SLF (C)SJR.B (C)

RYG (D)

RY (C)

RCI.B (C)

POT (C)

PDG (A)

PD (B)

PCA (C)

NXY (A)

NT (D)

NRD (A)

NCX (D)

NA (B)

N (D)

MOL.A (B)

MG.A (B)

MFC (C)

MDS (A)

L (C)

K (B)

IQW (C)

IMO (C)

HSE (A)

FHR (C)

ENB (A)

ECA (B)

DTC (D)

DFS (B)

CTR.A (A)

CSN (D)

CP (C)

CNR (D)

CNQ (A)

CM (A)

CLS (D)

CCO (A)

CAE (D)

BVF (D)

BNS (B)

BNN.A (B)

BMO (C)

BCE (C)BCB (C)

BBD.B (D)

ATY (D)AL (D)AGU (D)

ABX (A)

A (D)

10

20

30

40

50

60

70

80

90

0.00 2.00 4.00 6.00 8.00 10.00TRADING CYCLE

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