At 36, the Market Technicians Association (MTA) may come across as a relatively young organisation, but for Ralph Acampora it is an embodiment of dignity and recognition that had eluded technical analysts in the early 1970s. The origins of the US body can be traced back to a luncheon meeting at Massoletti’s Restaurant in New York in 1971 where technicians Ralph Acampora, John Brooks, and John Greeley realised that there was a serious need to set up a forum akin to fundamental analysts so as to debate and discuss ideas and principles pertaining to technical analysis.

I always tell the audience that they should not just listen to me but listen to what I say and put it in context and apply fundamentals too

“During those days, fundamental analysts used to hobnob with US corporates at the New York Society of Securities Analysis. It was a formal place to meet and have lunch with managements, but I was not permitted as I was not a fundamental analyst. At that point the realisation sunk in that we (technical analysts) too needed to bond together and that is how we started,” recalls Acampora.

Like all professional bodies, the MTA, which was finally incorporated in 1973, introduced a formal certification course called the Chartered Market Technician (CMT) program. “It is a technician’s answer to fundamental analysis. What a CFA means for fundamental analysis is what CMT means for technical analysis. It is a level of professionalism,” says the 67-year-old, who was recently in India to promote the program. According to Acampora, who has retired but continues to teach, the recognition has not come easy as it was only in 2005 that Securities and Exchange Commission, after lot of deliberation, recognised the (CMT) as an alternative to the Analysis Series 86 examination for technical analysts.

But Acampora is not only about MTA, he hogged the limelight for his predictions on the Dow. In June 1995, when the Dow was trading in the mid-4,000, he said it would hit 7,000.

Technical analysis helps you understand risk better than fundamental analysis. It gives you signals to control your risk

When it had touched that level, Acampora set the target at 8,250. But he made headlines for his 1997 prediction that the Dow Jones Industrial Average will reach 10,000. In March 1999, the index hit Bull’s Eye. Though his prediction in 1999 that the US was in the start of mega market and could touch 18,500 never came true, Acampora still believes in his charts. “I am telling the audience that they should not just listen to me. Rather they should listen to what I am saying and put it in the context and apply the fundamentals too. If they both agree then the probability of success is even greater. But if fundamentals and technicals disagree, then I go with technicals,” says the ex- analyst of Prudential Equity Group.

Today, with over 3,000 members across 70 countries, the MTA offers analysts an opportunity to network through Chapter meetings and seminars across the globe. In India too the MTA has made its debut by appointing Sushil Kedia as the India chapter head. However, the co-founder of MTA feels that technical analysts in India are too obsessed about short-term strategies. “It is not a healthy trend. We want to create professional analysts not professional traders” quips Acampora, who predicts that the Sensex could touch 17,300 in the near term. In an interaction with Outlook Profit, Acampora, who is now director of technical analysis studies at the New York Institute of Finance, shares his insights on technical analysis and his outlook for equities and other asset classes.

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Mr & Mrs Ralph Acampora at a MTA seminar in 1978

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The general perception is that technical analysts make more money by writing books and conducting seminars then by trading…

It will be outrageous to say this. The very fact that there are not too many books on technical analysis means we are not making money writing books. Technical analysis (TA) helps you to understand risk better than fundamental analysis and gives you signals to control your risk. In a bull market, most investors make money but they give it back in a bear market. People may misuse technical analysis if they are trading on a minute-to-minute or tick-to-tick trade but there are trends which can be analysed over a period of time.

How and when did you become a follower of technical analysis?

Like most technical analysts, even in India, I got involved in TA by chance. In college I had pursued history and political science, and was looking forward to a career in law. In 1964-65, I met with an accident and had to be hospitalised for three months. My father’s friend, who used to work in the Wall Street, used to visit me occasionally in the hospital. During such visits he used to bring along magazines and newspapers, which I enjoyed reading, especially about companies. Unfortunately, since I did not have a CFA degree I could not land a job as an analyst. But as luck would have it, I came across an advertisement for junior analyst without experience. They hired me and on the first day gave me a book on technical analysis. I must say it was love at first sight. Eventually, I pursued a formal degree in TA from the New York Financial Institute. My class teacher Alan Shaw later hired me as a junior technical analyst in 1965. And since then it has been 45 years of fruitful journey.

So what is the starting point in technical analysis?

The basic thing in TA is price, as volumes to me are a supportive indicator of price. There are analysts, albeit few, who lay more emphasis on volumes than price. But no technical analyst will deny that price and volumes together is the right combination. What technical analysis tries to do is to measure the supply and demand or to measure the optimism and pessimism. In technical analysis, all indicators are designed to do this. If it is taking more volume to move prices, then it means there is more supply coming in the market and price is meeting more resistance. These days because of lower cost of trading and electronic trades, volumes have increased. Hence, people are trying to make money with more volumes and lesser spreads, which is why for me volumes are secondary.

Given that TA is abound with theories, is there any one key theory? Possibly such as the Dow Theory?

Momentum and trend indicators are one of the most important aspects of technical analysis. The Dow Theory only introduced the notion of confirmations and divergences. The more indices and stocks are in gear with the benchmarks, higher the confidence you can have in an ongoing trend. In earlier days, Charles Dow (the founder of Dow index) used to compare the Industrial average with the Rail average. Today, people compare Dow with S&P 500 or Nasdaq and the breadth of the overall market with the breadth of major indices. In MTA, we are interested in teaching participants the proper techniques of technical analysis. It’s up to analysts to decide which methodology suits
them better.

So how do you go about analysing markets, given that there are over 150 indicators to choose from?

It is a top-down approach where I look at the overall market index, the breadth of the market, the sentiment indicator and then the comparative strength. The breadth of the market is measured through advances and declines. The advance-decline (A-D) line confirms whether a trend is broad-based or not. We cannot have a bull market unless we have advances outnumbering declines. The A-D line is not meant for a very short-term view. I always have at least a six- to 12-month view for which I need a confirmation on the AD line.

In the case of sentiment indicators, you should have a feel whether a majority of investors are bullish or bearish by looking at sentiment indicators. As for comparative relative strength, one has to see whether a sector is faring better than the market or not. This is how I arrive at a view on the markets. The next step is looking at the sector. I compare sectors which are doing well against the benchmarks and among themselves. Once I decide on the sector I look at the strongest stocks in the sector.

Are there any key indicators to read a stock?

I look at indicators such as the moving average convergence/ divergence (MACD) and relative strength index (RSI) on a daily and weekly basis for short term, while weekly and monthly for a longer term. The perception that if the RSI is in an oversold zone, the stock bounces back is wrong. It may stay in the over-sold zone for a long time and it does not mean that you will get a rally immediately. I like to look at the RSI at turning points in the market and look out for divergences when the market is making higher lows.

But the most important indicator for me is the price. If the price is going up and the RSI is not, then I am concerned. But this does not make me bearish, it is just the first red flag. What the RSI tells me is that the trend is slowing down, but I would still go with price and trend. I own the price; I do not own the RSI. Also as humans we develop an attachment to a particular stock and what technical analysis does is it takes out the emotional aspect and makes it more objective. The job of the analysts is to precede the change and if something has changed then act on it.

How do you read breach of a trendline?

A trend break is a trend break. If it has breached the trend and the price again climbs back above the trend line it is a matter of one’s interpretation. One can get out of the position or one may wait for the prices again to come below the trend line. But if the price closes below trendline with heavy volumes then it’s a different thing and I would never wait for any other confirmation.

It is more important to have a rule than a precise rule itself. There can be two different rules, that is a matter of interpretation, what is more important is the discipline attached to the rule and following the rule.

Does this necessary imply discipline is a vital element of technical analysis?

Making money is all about discipline and not about the rules. The rules are there to control risk. The rules are there so that you can lose a little and not a lot of money when you commit a mistake. There is no magic formula. It is about controlling the risk so that you can come tomorrow to make new decisions.

Do you see any risk in mixing fundamental analysis to technical analysis?

The fusion analysis is the combination of technicals and fundamentals. It works either way. First you can screen on the basis of fundamentals and then take the help of technicals to make an entry into the stock. Or you can screen it on the basis of technicals, see the fundamentals and then time it for the entry levels. An analyst has to use all the tools available – fundamentals, technical, economical as well as quantitative. For me as a professional there is one tool I use extensively that is technical analysis. Because that is what I do for living, I am 100 per cent technical. I always tell the audience that they should not just listen to me but listen to what I say and put it in context and apply fundamentals too. If they both agree then the probability of success is even greater. But if fundamentals and technicals disagree then I go with technicals.

So what is your call on the Dow?

On the higher side, the target is 10,500 to 11,000 over the next six months to a year. I think to a great degree a lot of the fundamental problems have been discounted in the price. May be September the markets will correct but then that will be a buying opportunity. The stop-loss will be at 8,500, if it breaks I will reassess the situation.

Is the risk-reward ratio on the Dow looking good given your view of a 15 per cent upside and a 10 per cent downside?

The risk-reward is even. But if you are aggressive then you can buy at these levels. Or else it is better to wait for the index to correct to around 8,800-9,000 levels as then the risk-reward ratio looks favourable.

The Chinese market has started losing steam off late…

In the short term, that market will stay down. But if the Dow continues to head upwards then even the Asian markets will keep going up along with the Chinese market.

How do you the see the Indian markets panning out?

Any rally will face resistance at the July and August highs of around 16,000 on the Sensex. But once the index breaks out over that level, the near-term target will be around 17300. On the downside, the stop-loss can be set at 14,700.

What is your take on other asset classes?

Gold can be rangebound between $900 and $990. In a couple of years it may touch $1,500, so the risk-reward ratio favors gold. However, a weekly close of $869 could alter my view on the call. In the case of crude, prices could stay in the range of $64-74. Below $64, it can also touch $58-59. If prices cross the June 11 high of $76.56, then oil will touch $85-90. I am not very bearish on the dollar, but if gold touches $1,500 then the dollar will be under immense pressure. However, in the foreseeable future the outlook is neutral to down.