Episode #140: Ralph Acampora, “Don’t Ever Fight Papa Dow”

Episode #140: Ralph Acampora, “Don’t Ever Fight Papa Dow”

 

Guest: Ralph Acampora has over 50 years of experience in institutional investment advisory with top global firms including Smith Barney/Harris, Upham, Kidder Peabody and Prudential Investments. He co-founded the Market Technicians Association, and the International Federation of Technical Analysts.

Date Recorded: 1/22/19     |      Run-Time: 56:55

Summary: Ralph begins with his background and talks about the accident that left him in a body cast for months. His father’s best friend left a copy of something market related that he was reading when he visited the hospital. That piqued his curiosity, and he later found a job as a junior analyst on Wall Street. It was that job that introduced him to technical analysis.

Meb then gets into technical analysis and what is, and what it means to Ralph. Ralph discusses how he keeps it simple, looking at trends every day with a few indicators. He then goes on to explain Dow Theory before explaining that when he took a look at the market through the lens of Dow Theory, when the Dow Industrials, and Dow Transports hit low points late last year, he saw a downturn signal. He mentions the post-Christmas rally was a nice move in a short period of time, but he refers to it as a “vacuum” rally. The bad news is that he saw the rally encounter overhead resistance and is looking overbought. For this move to sustain, he’d like to see, over the next month or two, the market hold above December lows.

Looking around the world, he sees the DAX in a topping period, and emerging market stocks look like they’re trying to bottom. As far as commodities go, he thinks crude is bottoming as well. Ralph then gets into how little acceptance there was of technical analysis early in his career, and how he fought for technical analysis. Meb then asks Ralph to touch on behavioral finance. He discusses how technical analysts have been incorporating behavioral finance for years.

As the conversation winds down, Meb asks Ralph if anything has changed about his approach to analyzing markets, and Ralph quickly says “No,” and talks about how over time, technical analysis is looking at buyers and sellers, which he feels haven’t changed, so he hasn’t changed his analysis.

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Transcript of Episode 140:

Welcome Message: Welcome to “The Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the Co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

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Meb: Welcome, podcast listeners. We have a great show for you today. Our guest has over 40 years of experience on Wall Street, includes many famous institutional investment advisories with some of the top global asset management firms you’ve heard of, Smith Barney, Kidder Peabody, Prudential. Is pioneer in the development of market analytics and help start Market Technicians Association as well as the International Federation of Technical Analysts. Welcome to the show, Ralph Acampora.

Ralph: Thank you, Meb. Thanks for inviting me.

Meb: Super excited to have you on today. By the way, listeners, it’s Tuesday, January 22nd when we’re recording this. And there’s been a lot of excitement, once again, in markets after 2017 pretty mellow for a lot of people. But let’s rewind a little bit, Ralph, I’m sure most of my audience knows who you are. But take me back a little bit, would love to hear kind of the beginnings, the origin story of how you started to get interested in markets, and we can go from there.

Ralph: You really want me to go back to my beginning?

Meb: As far as you can go.

Ralph: All right. Well, let me update the introduction you gave me. It’s 52 years in Wall Street. In 1967 I was a young seminary student studying for the priesthood, the Archdiocese of New York. And on a weekend, I went and visited my parents, my father gave me the keys to his brand-new Buick. He said, “Put a scratch on, and I’ll kill you.” Well, the car got totalled with me in it. Make a very long story short, I was in the hospital having major surgery, I was semi-conscious for weeks, not for thank God if we’re here.

And while in the hospital for the next four or five months, I was in a body cast. My father’s best friend came and visited daily. And Mr. Downey was Wall Street guy and whatever he was reading he threw in the bed, and that was my first introduction to Wall Street. I was like an inverted turtle lying on my back reading the “Wall Street Journal.” And couple months later I said to him, I said, “Mr. Downey, I enjoy reading this stuff.” He says, “Oh, that’s research. If you want a job, I’ll get you a job on Wall Street.” And months later, I took him up on it. Wherever he introduced me to they wanted an MBA to be an analyst and I didn’t have an MBA.

So I was on my crutches and I saw an ad in the “Wall Street Journal.” It said, “Junior analyst wanted, no experience necessary.” I said, “Boy, that’s my job.” And the fella gave me the job, handed me a book.

He said, “You read this book and come in Monday, you can work for our firm.” And the book was “Technical Analysis” by Edwards and Magee. That was the bible in technical analysis, and it literally changed my life. So it was literally by an automobile accident, by accident that I get into the business.

Meb: It’s funny, life’s little… What seemed like… I mean, yours was more of a major event, but what seemed like probably a minor happenstance, which is the newspapers or bringing by the research ends up being career. So you know, it’s interesting because technical analysis is a topic that has had many sort of transformations over the decades. I would love to hear you talk a little bit about a broad description of what it means to you. And then kind of as we go through, I wanna start to talk a little bit about more how it’s kind of changed over the years, and your early beginnings with it.

Ralph: Well, taking my story with the Edwards and Magee book, the firm that I worked for was a little mutual fund called Distributor’s Group. And the man that ran the firm was a man by the name of Harold Schreder. He was a former Economic Adviser to President Eisenhower. My job was to update his economic charts and the point and figure charts for the firm. And one day I said to him, I said, “Mr. Schreder, why am I spending half my life putting little X’s and O’s on a piece of paper?”

And he said to me, “Son, did you ever feed chickens?” I looked at him kind of crazy, I said, “Chickens?’ I said, “No, Mr. Schreder, I’m from New York. I don’t know anything about chickens.” He said, “Well, I grew up on a farm in Ohio,” and he said, “I used to feed chickens. And here’s how you feed chickens, you take chicken feed in your right hand and you throw it over your left shoulder, and the birds run to your left. And you take chicken feed in your left hand and you throw it over your right shoulder, they run to your right.”

I thought the man was a little crazy. And then he said, “After you do that, you look down, and what do you see?” “I don’t know, I just see little footprints.” He says, “Yes, they look like little X’s, and now you know where the bird is going. That’s why you’re doing point and figure charts for me.” Isn’t it great? And then in those days again, way before computers and things, I had to, every morning, go to a place called Morgan Rogers and Roberts, which was on 150 Broadway, I’ll never forget it, and pick up my point and figure price reversals, and then I would bring them back to the office and update all the graphs.

While I was on the receiving line one morning I met a young fellow who’s about a year or two younger than me, his name is Johnny Brooks, and Johnny and I became good friends. And we were both also doing the same thing for our respective firms. And then John and I were also junior analyst at the New York Society of Security Analysts. That’s where all the analysts would meet, all the fundamental analyst would meet to discuss their industries and meet with corporate America.

In the old days, if IBM wanted to meet analysts on Wall Street, they would have a lunch at the New York Society of Security Analysts. And all the fundamental analysts that followed IBM from Merrill Lynch and Goldman Sachs and wherever, would meet, have the luncheon, raise their hand ask questions to the CEO of IBM and get their information. Today, of course, the analysts go visit the companies. In those days, the companies came to Wall Street, interesting.

And Johnny and I were kind of jealous of the fundamental analyst because they would have breakout groups where the chemical analysts would get together and talk about their industry with the drug analysts. And Johnny and I said, “Gee, wouldn’t it be great if we had a breakout group with technical analysts?” So, Johnny and I went back to our respective bosses and we asked them. And this time I was now working for a fabulous technician called Alan Shaw. The firm was Harris Upham which [inaudible 00:07:58] Smith Barney years later.

And Alan… I was in… So I was around 27, 28 years old, Alan might have been around 34 or 35. And he says, “Well, you can’t talk to us to give you the final blessing, you have to go to the senior citizens in the technical community.” And those senior citizens were men in their 60s and 70s, and maybe even 80s. And we respectfully went to them, and they said… One of the gentleman was Ralph Rotnem, and Ralph, very few people know his name, but Mr. Rotnem was director of research at Harris Upham. And you heard of year-end rallies, Summer Rallies, four-year cycle, Presidential Cycle, that was Rotnem’s work originally.

And very well respected in the industry, and he said, “Well, if you start the organisation, it has to be professional, number one. Number two, when you have monthly meetings, everybody’s attentive, politely ask questions, don’t get into fisticuffs, so my indicator is better than yours or your list market goal was bad, mine was good.” He said, “We don’t want any of that. It’s gotta be very, very professional.” And I said, “Yes, Mr. Rotnem.” That’s what we did, and we started the Market Technicians Association with those mandates.

And they told us that we had to go out and find all those who wrote a technical market letter for their firm, and they are the only ones that can be members. So Johnny and I went around the streets and we found there were only 19 people that actually wrote a technical letter for their firm. And those 19 members became the first founding members of the organisation. And as years went by, friends of mine would say, “Gee, I’d like to join.” I did a lot of teaching at the New York Institute of Finance and I taught… I’m very proud of this. I taught all the traders on the floor of the Stock Exchange. I mean, it was mandated they had to take my class. So over the years, I taught hundreds and hundreds of people.

And one of them asked us if he could be a member of the Stock Exchange because they use charts on the floor. I said, “Sure, be a member of the association,” and he gave a monthly speech which was really very nice. And at the end of it, we were supposed to give him a membership. But we looked at our constitution, he didn’t…might write a market letter. Well, we had to change that, you know, you didn’t have to be a market letter writer per se, to be a member of the organisation. And it just kept on growing.

The school gave me a little room and that’s where we started a library, the first technical library ever in the history of technical analysis. So now, the organisation had a little room, a phone, and address, and those were the humble beginnings of technical analysis.

Meb: I love it. I’d been through the programme years ago. And the funny thing to me about technical analysis is, you know, particularly so many fundamental research people are often dismissive. And to me, it often shows such a lack of understanding of history of markets in research that it’s been done going back decades. And we’ll talk a little bit about this today, but from various people and organisation’s that really laid the groundwork for what some of the largest asset managers on the planet until today.

But talk to me a little bit about sort of what technical analysis means to you? I mean, as far as the toolbox, so any sort of broad sweeping ways you think about implementing it, and feel free to give examples of any indicators maybe as a way of describing how you think about the world for the listeners who may not be that familiar with what that phrase and field even means?

Ralph: I like to keep it very simple. When my original boss told me just watch the X’s and O’s and you know where the birds are going, he’s absolutely right. I start literally every day looking at the trends. I mean, it might sound too simplistic, but it’s really where I’m at. And I’ll take… You know, I think with the computers today and the wonderful machination of data that we have kind of gets confusing after a while. I’ve been to people’s offices and seen their computers and have all these lines all over them, and I’m saying, “Well, how many moving averages do you need, how many sub-indicators oscillators, they have a series of oscillators.

And honestly, when I look at it, let’s say, I’ll pull up the Dow I would have…look at the daily chart of the Dow and I’d have RSI, and I’d had a MACD. I think that’s… Or maybe I have an OBV which would be volume. So I kept momentum and volume in there. That would be my simplest way of doing it. And then I would look at a weekly picture of the Dow, you know, get an intermediate term look and then I’d look at the longer term. And put those trend lines in, I respect trend lines, they support resistance levels, very, very important to me. And another thing, maybe it’s because I’m an old man, I love Dow’s Theory. I mean, some people are critical of Dow Theory, but it’s worked for the last 52 years for me.

Meb: Let’s unpack that a little bit because I think that is such a wonderful example of something that’s been around for over a century that we actually have never published it, but we wrote a paper on it years ago. And it’s an area that I think is a great example of mastery in a way that, you know, you talk about all the different indicators and people wanting to kind of boil the ocean, but really coming down to…boiling things down to the simplest and core can often be one of the most effective measures. Maybe explain what Dow Theory is to the listeners who have never heard of it.

Ralph: Charles Henry Dow was a newspaper reporter in Massachusetts the late 1800s. Came to New York with his good friend Ed Jones and started their own company, Wall Street Journal. And those days, there were no economist, and he wanted to write about how well the country was doing. And the late 1800s, it was a railroad boom and the United States was like the Dotcom boom in those days. And he said, “Well, gee, if I created an average of all the railroad stocks, and if that line was going up, the railroad average was doing well,” he said that he assumed that the economy was doing well. Well, he tried that for about four or five years, and it didn’t work.

And he said, “Gee, what am I missing?” The light bulb went off in his head and he said, “Gee, what are the railroads? Hauling products. Who makes these products? Industrials.” So, in 18, I believe 1896, he created the Dow Jones Industrial Average. So it was a combination of the industrials and the railroads. And he opined that if both of these averages are going up over time, they’re mutually interdependent parts of the economy, and economy must be doing well, and it’s a bull market. And when they start to divert, one going up and the other one flattening out and rolling over, he said, “Gee, it could be the beginning of a potential correction or a bear market.”

And I’d have to tell you, in 1971, the Market Technicians Association gets started, one of the biggest things they did… Listen to this, this is kind of interesting. The old-timers, now that we had a group, got together… I wasn’t part of it because I was still a young guy and they said, “Gee, why don’t we all go to the ‘Wall Street Journal’ and convince them that they have to change the railroad average because now we have other things, other than railroads hauling products, airlines, and truckers.

So I believe that the founding members of the MTA actually were responsible for the “Wall Street Journal” changing, updating their average, and now it’s called the Dow Jones Transportation Average. So if it swims, walks, crawls, or flies there, it’s represented in that average. So you gotta remember one thing about the Dow Theory is that it’s not a trading tool, it catches major trends. And that was all that Dow was looking for. He wanted to catch the major primary bulls and primary bears, as he called them.

And most calls is you’ll roll over and you won’t get a bear market call until maybe you’re down there, approximately 10% off the high. And you don’t get a bull market call until you’re going to be 10% off the lows. And people say, “Well, gee, you missed 20% of the move.” Well, that might be true, but you get 80% of the up move and 80% of the down move, I’ll take it, if you’re a long-term investor. That’s again, just one of the inputs I look at.

Meb: And so walking it forward, you know, it’s funny we did a lot of quantitative studies and different people have all thrown their own spin on to Dow Theory, made it more complicated etc. We did a simple test where we just showed, using one of the most famous technical indicators being the 200-day moving average simply, you know, if these two indices were above the long-term trends and what they look like when they’re diverging, and both down. And not surprisingly, the theory works great throughout history, largely from keeping you out of these long bear markets, which we’ve had a few of in the past decade or two. What would Dow Theory be saying today?

Ralph: When the both averages, the Dow Industrials, Dow transport, both their lows of last year 2018, that for me was the beginning of a bear market. And the rally that we just experienced was a kickback rally, if you’re a Dow theoretician, it’s actually a rally in a bear market. We would have to see a correction here, which were gonna talk short term, in a few minutes, I’m sure, the market. And I expect a little bit of a pullback, and that could be the beginning of maybe a reversal in Dow Theory, but I have to see the evidence. So to answer your question, as I interpret Dow Theory, we got a signal late last year.

Meb: And so that’s a good segue into…as we take a step back and look around the world today. As you wake up and go through your process on a daily weekly basis, what’s the world look like to you?

Ralph: Well, let’s talk about the very impressive and exciting rally we had coming right after Christmas. The Dow was somewhere around 21,600, 21,700, and as of our conversation today, we’re around 24,500 to 24,600, so we had a very nice movement in a very short period of time. I’ve been quoted recently saying…I called it a vacuum rally. And why I call it a vacuum rally, if you look at the Dow daily, we had a very significant shop sell-off that started in early November and ended just around Christmas time.

It’s like stretching a rubber band and you pull it…when you let one end go, it’s snaps back. So right after Christmas, we got that snapback rally. And again, I would say it was very, very impressive. We had days that were really, really strong, and broad-based too, I might say, everything participated. That’s the good news. Now, the bad news or at least the reality of that rally encountered what we technicians call resistance or overhead supply, and that means where was their previous overhead churning action in the Dow.

And if you go back in time, you’ll see that for about a little over a month almost two months, the Dow churned somewhere in the 24,500, 26,000 range throughout the latter part of October, all of November and early December. And that’s where we are as of this recording, we’re backup into that area. So I’d say we had a very nice near-term rally, it is overboard when I look at my RSIs and my MACDs, we’re close to overboard condition and that’s normal. So I’d say if you’re short term trader, you know, close stops to those long position jab because I think we’re due for a new term pose or correction.

Okay. Now, what I’d like to see over the next month or two is that correction get a little deeper on the downside. Just kind of like shake it out and hold above the December lows of last year. And if we can do that, then maybe that would be the beginning of that successful test that a lot of us technicians are looking for to identify a major bottom, not just a short-term bottom.

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Meb: Moving around the world, one of the nice things about TA is that, you know, can be used in almost any market. As you look around the globe, whether it be foreign stocks, bonds, currencies, commodities, anything else stand out as particularly interesting or not interesting or something that you’re thinking about that other people might not be?

Ralph: I tell you, if you take a look at the DAX index, that has been a topping period for quite some time, and I think that probably is one of the strongest markets in Europe. And for some time, I was a little concerned that we had a global situation on our hands. When you look at the mayhem that’s going on with the UK and the European Union over Brexit that. And even look at the CAC index, they’re still in downtrend, and I don’t think their bear market is over. However, as I just said with the U.S. market, we can get a test of the lows, the recent lows, and they hold, hopefully, I’ll be able to change that opinion.

So I think you have to be very specific where you move your money around. Okay. Now having said that, go look at a thing called EEM emerging markets, that’s the ETF for emerging markets. Of all the things around the world, emerging markets, to me, if you look at it on a daily and weekly basis, looks like it’s trying to bottom here. You might say, “Well, gee, that’s kind of odd,” well, emerging markets for the worst, they suffered the most of all world markets throughout 2018, and now in 2019, it’s seemingly to be bottoming out. So it appears that may if we’re flying at 30,000 feet and looking to buy something that’s been beaten down and appears to be stabilising, it might be the emerging markets longer term.

Meb: I love it. Well, you know, one of the things that we think a lot about is my ideal setup being combining trend with valuation, and emerging markets certainly across any measure would be one of the cheapest markets in the world, oh sorry, cheapest groupings. Any thoughts on any other groups, whether it be commodities, bonds is one that I know has a lot of interest to people or even currencies?

Ralph: I think you gotta look at crude because that input these days with all that’s been going on with the price of oil. And late last year, better part of the bulk of last year, crude price fell from the upper 70s to a little pool of low to mid-40s there. That was a huge decline that had a huge impact on things. I’m in the camp of saying I think crude is bottoming out. In fact, if you look at the daily bar chart of crude, the MACD and RSI may respective higher lows when crude was dropping down making lower lows late last year. Okay, that’s number one observation.

Number two observation, if you look at the daily chart of crude again, you’ll see that…I believe that many hit until the bottom is forming. Now any move above 55, I think crude could easily go to low 60s. And that being the case, take a look at energy stock, XLE, and things like that, those are the things I look for correlations, you know, into market analysis as John Murphy would call it, commodity confirming the equity. So my first few would be energy.

Meb: As we think about this, and listeners that are probably more of the fundamental bent that say, “Look, I’ve always been interested in this sort of analysis, it makes sense to me.” What’s the best way to incorporate that into my process? You know, as you’ve taught hundreds, if not thousands, of students and followers over the years, what would be your general advice to someone looking to incorporate a lot of, you know, kind of what we’re talking about today with as far as technical analysis into their process?

Ralph: You mentioned something earlier about in the old days, maybe it’s a little different today, but in the old days there was so much criticism about technical analysis. Believe me, I can justify that comment. I have scars on my back fighting for the acceptance of technical analysis. In fact, it was I that went down to the CFA people in the mid-80s, 1980s, and I tried to convince them to put a couple of questions on the level 1 of their exam, CFA exam on technical analysis. Well, they weren’t too polite to me. I mean, not that they threw me out of their office by any means, but they could care less about what I was talking about.

And I was really upset about that. And I went back to our organisation, Market Technicians Association, and I said to them, I said, “You know, maybe it’s about time we start our own exam.” Well, myself and a bunch of fellas got together, and that’s exactly what we did. And that’s called the Chartered Market Technician Designation. Okay. And we struggled along and we made the thing and now all the technicians are taking the exam, but no one else was really taking that much of an interest in it.

Until the Sarbanes-Oxley Law came out in 2004. The Sarbanes-Oxley Law says, “That all analysts of Wall Street have to take two new tests series 86 and 87,” 87 was new rules and regulations, no problems with that. But series 86 said that all analysts…and I was an analysts in those days, and they said we had to have the equivalent of levels 1 and 2 of the CFA before we can be considered analysts. Well, I was really upset about that, I said, “Gee, I spent 40 plus years of my life in Wall Street up to that date and I said…and now you’re telling me I had to have fundamentals and my technical is meaningless.”

So I went back to our organisation, I said, “Give me all the money in your treasury, we’re gonna throw it at this problem because if we don’t win this argument, we don’t deserve to represent anybody.” And that’s exactly what we did, we went to the stock exchange, we sat down and we talked with them. And the most important date in modern technical analysis history is Friday, December 17th, 2004

when myself and a small band of technicians stood in front of 15 SEC lawyers at the New York Stock Exchange presenting our case.

I spent that whole year creating a body of knowledge on technical analysis and creating everything that they wanted. And here we were on that Friday making our final presentation. One of my buddies gets up, David Krell, wonderful, wonderful fella, spoke three minutes on the history of technical analysis. Ken Tower, another super guy, spoke three minutes on the history of our organisation. Barry Sine, another terrific guy who did an awful lot with both CFA and CMT over the years. He spoke three minutes on the history of our exam. And I had the last five minutes in front of these lawyers.

And I get up in front of them and I said, “Ladies and gentlemen, imagine if you lawyers were being mandated tomorrow morning to take the medical board?” They were looking at me like I was crazy. I said, “Assuming if you passed the medical boards you wouldn’t use that body of knowledge in your daily work as lawyers.” And they all said, “Yes.” I said, “Well, that’s what you’re asking me to do. Please test us, but test us on our body of knowledge.” And with that… And one of the lawyers jumps up and man, at this point, my knees were shaking, I was so nervous. And he puts a chart on my face, “Oh Ralph, we see you on television, you’re a nice guy, what’s fact on this chart?”

And I stared at the chart and I looked at him straight in the eye and I said, “Well, price is a fact.” And his eyes got wide and with my finger was pressing against his chest and I said, “Earnings are an estimate, you restate earnings, you never restate this chart.” He turns around and he said, “Darn,” he said, “That’s the best answer I’ve ever heard.” I said, “You better believe it.” Well, March of 2005, several months later, guess what, the SEC accepted technical analysis and exempted from taking series A. We have the CMT, Chartered Market Technician, is now that exam is on the same level as the CFA. Isn’t that exciting?

So that’s a long answer to your question. If I were an individual who is a fundamentalist and wanna incorporate technical analysis… By the way, I don’t call it technical analysis, I call it fusion analysis. We should all be doing that. We should get up in the morning, you have to have an opinion of the company, you’re gonna like the company, the earnings, and the outlook, and everything about the company. And then you go see if the price is right.

And that was the whole point. There’s a difference between the company and the stock. Hello, come in America, this is where it’s all at. And I think the world today is becoming more and more familiar with that. And you know, you would think that Ralph Acampora would be very excited today listening to TN…well, it’s TV shows, business TV shows and they’re talking about Fibonacci “Liber Abaci” numbers and they’re talking about moving averages, and RSIs, and all that sort of stuff. And I say to myself, does the viewing audience really understand what is being said on television? I don’t think so, because they’re not educated.

And number two, do these people that are using these determinants, what’s their depth of knowledge of the subject? I mean, they read a book and all of a sudden, they’re technicians. So to answer your question, I’m sorry it’s so long, but to the answer the question, what should an individual do, my answer is immediately go for a CMT. And I’ll tell you, it’s not easy, it’s tough, there are three levels, but they’ll force you to read all the right books, and they’ll force you to read all the material that it’s so critical to understanding using and the discipline of technical analysis.

Meb: You know, it’s funny, so much of it it’s about framing. You and I were on a panel years ago, and I remember you talking about a similar story about the P/E, where you know, fundamental people often will say, you know, they don’t use technical analysis. And then you deconstruct something as simple as the P/E and half of it, you know, is literally price. And it’s the one that usually moves and what people often…my favourite thing is the fundamental people that looked down on TA, the first thing almost always they do when they’re talking about a stock is they pull up a chart, which, you know, you just put your palm to your face and smile.

But you know, so much of it’s framing, I mean, I think part of the acceptance at least in the past, couple of decades, has been broadened by other terms that have a lot of TA origins. I mean, the two big in my mind are certainly just the emergence of quants over the past few decades. And most quants, vast majority of them are using price as a major input. And I always laugh when people say, “I’ve never met a rich technician.” I say go pull up the top 10 earning hedge funds and I think eight of them now or are usually quantitative shops.

But also, the other one being behavioural. And you know, maybe you could talk a little bit about that side of the business, and way TA thinks about it too and sentiment. Because those have long been sort of technical inputs and things that people of our ilk talk a lot about.

Ralph: You talk about behavioural, Charlie Dow wrote about fear and greed in his editorials in the late 1800s. I have to laugh at people that talk about they’re critical of technical analysis, because it’s only in the last, I’d say, 30 years maybe that the good professors at universities are talking about behavioural finance. We technicians have been incorporating that for years and years and years. And we have measurements that we can put gold ratios and looking at bulls and bears and all sorts of sentiment indicators. That’s typical of what we do, and we’ve been doing that for so, so long.

So no, no, the use of technical today, I have to laugh because now with the market becoming so global-oriented, I mean a lot of this stuff, these programmes are based on momentum, based on moving averages. And people, they’re not getting the message, that’s all technical analysis. So whether they like it or not, it’s creeping into their life. And I gotta tell you, learn or burn. I think that’s the message, you gotta incorporate technical analysis.

Meb: It’s funny going back on the origins, too. I mean, I know people…there’s been a broader acceptance of what people call factors. And certainly, momentum is one that has received a whole bunch of academic firepower trends as well. But the funny thing with momentum almost all the people today cite Jegadeesh and Titman, but then you say, well, there’s been people levy writing books about it in 1960s. You go back further and further, it’s just like…it almost always just shows a general lack of perspective on the history.

And a lot of the books you mentioned, I mean having gone through the CMT programme, certainly I think it’s an extremely useful exercise to at least…even if you don’t end up using it to understand perspective in the history. Because there’s been a lot of work done over a century ago on a lot of these ideas that people think they’re reinventing today with different phrases.

So what do you think have been the biggest changes for you in how you think about TA over the years? Is there anything that looking back on a Ralph of 10, 20, 30 years ago where you say, you know, my process has changed quite a bit, or I believe something today that I don’t believe back then or vice versa. Anything come to mind?

Ralph: Not at all. I’m usually asked that question, “Is anything really different today?” “Has technical analysis changed?” I say no. Because basically what are you looking at? Buyers and sellers. I should change the question around. Have buyers and sellers changed? No, they’re still emotional beings. One thing that is different, the ETFs, I mean, where you just bundle things up. I own bunch of them and I was talking before, I was talking about XLE, energy and things like that, that’s the good news. The bad news is it bothers me a little bit that, you know, we lump all this stuff together. I go to bed at night worrying that maybe if we ever have it real down draft, would a lot of these combined holdings affect the market negatively. I’m a little concerned about that.

Meb: Interesting. I certainly think that there’s areas where illiquid vehicle may not be a good match with certain illiquid holdings. And the first thing that come to mind, of course, is corporate. Certain corporate bonds and bonds that, on average, don’t trade that much. But at least you have the benefit of the authorised participants out there that can kind of arb it away. And usually, arbitrage works over long periods. But for some of those illiquid markets, I agree I almost wish that there were certain categories that the SEC, as they’re waiting through the new ETF rule that’s been proposed, would be interesting to see kind of what they come out with on the other end.

I’m optimistic on some of their ideas, but as with the regulators, they usually get it right, but it takes a while. Ralph, as you look back, as you’re thinking about resources, you mentioned obviously the MTA and the CMT programme, Edwards and Magee, what are some other resources that you think are particularly useful? So this could be, you know, anything that you use on a daily basis. It could be software, it could be books that have been particularly instrumental that others may not have heard of that you think would be certainly worth adding to your quiver?

Ralph: Well, there are a lot of very nice books that have been written, Kirkpatrick and Dahlquist, that’s a real fine, they update it periodically. Excellent, excellent read for technical analysis. And again, you have Johnny Murphy, John Murphy, a former student of mine, by the way, I’m very proud of John. He’s done some great work and he’s involved with a company called StockCharts, I forget that service.

I’m actually the wrong guy to ask that question because I still drive an old car, and I still do it the old-fashioned way. And in fact, I’ll tell you something that I do and I’ll share with everybody. This was given to me many, many, many years ago, and I still do it. You know, everybody laughs at the Dow Jones Industrial Average. Well, that’s a crummy average because it’s price, it’s an arithmetic average, it’s only price sensitive and it’s not as sophisticated as the S&P 500 which is capitalization weighted. I could argue about that average for a long, long time against the S&P.

But when the old timers said to me, the title was “Don’t fight, don’t ever fight, pop it down.” And we always used the Dow Jones Industrial Average. First of all, if you ask anyone down the street, how did market close today? About 90% of them would say, “Well, gee, I think that Dow is somewhere, somewhere.” Yeah, everybody’s always looking at the Dow. So whether you like it or not, it’s the most popular average, and for that reason alone, it’s gotta be looked at.

But my bosses in the old days said to me, “Here, this is a study, you should do it once a year, maybe twice a year. Look at every one of the Dow components.” And they were only 30 of them. Said, “How long does it take to look 30 pictures?” Couple minutes, “And calculate technically what the potential minor rally would be in each one of those stocks, major rally for each one of those stocks, minor declines for each one of those stocks, and major declines for each one of those stocks.”

And we call it the what-if study. What-If, and by the way, you add up all those columns, you know, four different columns and you get four different totals, and you divide those totals by the current divisor and you’re gonna get a what-if. What if I have a minor rally and all of the Dow stocks would go to the targets that you created, this would be your objective. Whatever your major rally and you really push those numbers, and if all of them went to the same target would be a major upside target. And then your minor downside risk and your major downside risk.

Now, of course, we call it what-If because what are the odds of that happening? Not really, okay. Because some stocks will get to your target, some will never get to your target, some will exceed your targets. But what it does is it puts blinkers on your eyes and prevents you from becoming wild-eyed bullish or wild-eyed bearish. And I hear comments sometimes when people say, “Well, I think the market is going to crash and do this and that.” I say to them, “Okay, which stocks are you gonna take here?” They look at me like I’m crazy. Yeah, so you should do it once in a while, my What-If study, just say do it for Ralph and just the say, “Hey, look at this.”

By the way, I just did it recently my wild-eyed assuming everything goes perfectly, Dow goes 27,000. What are the odds of that happening? I don’t think so. Wild-eyed down on the downside, everything just collapses is about 18,500. I don’t think so either, but somewhere between here and there maybe.

Meb: You know, it’s interesting you touched on this throughout the interview that I think is an important point for a lot of people. So many analysts and PMs I chat with gets so siloed, not just on their specific sector or even asset class, but also on timeframe. You know, and you mentioned in the beginning, looking at various timeframes not just short, but medium or longer term as well, as a way to get kind of out of…get some perspective. And I think also looking at multiple markets, as a way to think about it and you just now drilled it down into not just an index, but individual components as a way to get perspective. And I think that’s a really useful exercise because so many people put on their blinders for just one asset class or just one-time frame, and I think that’s one of the biggest blind spots.

Ralph: That’s a great point. I don’t care if you’re a trader or not, you trade differently in a bull market than you can do in a bear market. Hello, are we in a bull market or a bear market? Well, look at the intermediate longer-term trends, and that’ll tell you how you should trade, short term. People don’t do that, that blows my mind, that absolutely blows my mind.

Meb: I think there’s a good piece. You know, one of the most famous investing books, “Reminiscences…” I can’t pronounce this…

Ralph: “Reminiscence Mode of a Stock Broker.”

Meb: Thank you. But one of the newest volumes within the past five years had a…is either foreword and afterward by Paul Tudor Jones, and it’s a really wonderful read. Because you have this old school hedge fund manager that has done exceptionally well over the years, but he talks about how the starting point for so much of his trading is just the 200-day moving average. And he said, you know, something about exactly what you just detailed which is, you know, you look at when you’re above the market and you trade one way, and when you’re below in a downtrend, you trade another way.

And you would think, you know, a lot of people would make the assumption that it’s infinitely more complex than that, but I think once you reach the level of mastery, you start to realise that, you know, simplicity has a lot of benefits as well. So, our listeners, we’ll link to that in the show notes, all these pieces, but that’s a particularly wonderful something to take a look at. Ralph, as you look back over the career, any mentors stick out as particularly impactful on your career whether you worked for them, and maybe any major takeaways from those guys?

Ralph: Sure. The first gentleman was the Harold Schreder, the CEO of Distributor’s Group, which was a very small mutual fund in those days in the 1960s. He actually gave me… He saw that I had this love for technical analysis and I really didn’t know the subject well, I was plotting it, but I didn’t understand it. So he literally sent me to the New York Institute of Finance to learn more about the stock market. Because as I said to you, I was a seminarian at one point, I had history, political science, and theology in college, okay.

So I really had a background for finance, so when I came to Wall Street, none whatsoever. I could pray a lot, but I made mistakes. But he wanted me to become actually a portfolio manager gearing me up that way. So at the New York Institute of Finance, which by the way, at the time is called…used to be part of the New York Stock Exchange originally. It’s called the School of Wall Street, and that’s where everybody went. And I took all series of classes and different subjects, and mostly fundamentals. And then one of them was technical analysis. And the teacher was a wonderful guy by name of Alan Shaw. Alan Shaw, he’s a few years older than me, and he was one of the respected technicians in the street at the time.

In one of the classes he asked, “Can anyone do a point and figure chart on the board?” And I got up and I was doing all sorts of additions and showing them reversals and all that sort of stuff. And in the corner of his mouth, he said, “Boy, I could use a good guy,” and I practically raped him for the job. I said I wanted that job, I wanna be a full-time technician. And he hired me, and that changed my life.

And Alan and Harold Schreder were big, big influences in my life. Alan is a dear, dear friend, and he rated number one II for many, many years, institutional investor for many, many years. And then as Johnny Brooks and I started the organisation, we met other wonderful people like Bob Farrell, Robert Farrell at Merrill Lynch, he was the counterpart to Alan Shaw at Smith Barney. And Bob Farrell was a wonderful gentleman, he was the first president of our organisation. Alan became the second president of our organisation.

These gentlemen were the perfect people to have for technical analysis, because they were respected in their own fields, and they had fundamental backgrounds also before they were technicians. It’s kind of interesting. Johnny and I were strictly technicians, but these guys were fundamentalists, and then became technicians, and they had the respect. I have to say those two I met over the years. So Richard Russell, Dow theoretician out in California, and he and I became friends, had a lot of respect for his work. As I said, you know, John Murphy has done wonderful things. So I could give you a list, it could go on and on and on. But the names that I mentioned are my early years and for sure, very, very instrumental in my career.

Meb: I love it. Bob came up in another interview. It might have been with Dave Rosenberg, but somebody was quoting Bob Farrell quite a bit, but certainly an old school…

Ralph: They were class acts, they weren’t…these guys were serious, they were bright, they were articulate, they were the best way to start this whole thing off, modern-day technical analysis.

Meb: Ralph, as we start to wind down, a question we always ask our guests. As you look back over your career, is there a particularly…and yours can be a little different because you’ve worked both as analyst and PM and everything in between. Has there been a most memorable investment, or you could also call it an investment call that kind of pops into your head over the decades, anything that comes to mind?

Ralph: Yeah, well, the report that absolutely changed my whole life was in June 1995. I wrote a report called “Dow 7000,” it was a 58-page report. Remember I was telling you about the old-timers in technical analysis, and when we started the organisation, I did mention a man by the name of Ken Ward. He was of the elk of Ralph Rotnem, and all those, John Schultz. John Schultz was author of technical article on “Forbes Magazine” for years and years. Those were the senior citizens that were around when we started the organisation.

For me, the first evening meeting of the organisation we had a dinner meeting, and I’m sitting next to Ken Ward, it’s like me sitting next to Mickey Mantle, and I was just honoured to be next to the guy. And this is 1970, Ken is 80 years old, so that meant he lived through every bull and bear market in the 20th century up to that evening and wrote about it. So I said to him, I said, “Mr. Ward, what was most difficult market you ever had to work with or write about?” I said, “I’m sorry, Mr. Ward, that’s a stupid question’ it had to be the crash at ’29.” And with a gravelly voice he leans over and says to me, “No, young man, that wasn’t the toughest market.”

I said, “Excuse me.” He says, “Oh, don’t get me wrong, a lot of us lost money, but we were able to get out, because of the second leg down, we were able to duck.” And he said, “The toughest market was the early 60s.” I said, “Mr. Ward, it went up.” He said, “It sure did, it rolled over every one of us. We kept saying was overboard, overboard, you go look in the newspapers you’ll see me and Rotnem and all these guys, we were all wrong because we said the market should correct and it never did, it just kept going higher and higher and it pulled back. And people we were getting out and we should have gotten in.”

I never forgot that, I’ve never forgot that. And in 1995, I was…coming out of ’94 little bottom, the market went up 900 points. That was the cover of my report, the Dow going up 900 points without a significant correction. And I said in the report, have we ever seen this before? And I literally… You’re gonna laugh when I tell you this. I literally went to the New York Public Library and spent a month going through old newspapers, today kids get online and get all that research you want. I had to literally cough and take in all the dust reading all the newspapers. I read every day at Wall Street, every day from 1960 to 1966.

I wanted to find out what Rotnem was talking about. And that was the theme of my report, the 58-page report. And what I found out then that we had in the old days and the period when I was writing this report, because we had low inflation, low-interest rates. And I found a fundamental reason for this strong technical strength, and that was the theme of my letter. And I said that I think the Dow could get to 7000 in three years. I was wrong, it did in two years.

And the wonderful thing about the firm was so excited and the CEO of the company…because everybody thought I was crazy when I wrote the report, and they allowed me to write the report. It was real controversial, but it worked. And I was so excited, and everybody was so excited Dow hit 7000. And the CEO of the firm, we have a wonderful guy by name of Wick Simmons says, “Well, that was wonderful, you and your team, you did a great job. You put us on the map,” this and that. And I was so excited I said, “Hey, you’re gonna take good care of your guys.”

I was saying I wanted more money. And he’s, “Oh, shut up.” He says, “We’ll take good care of you.” And then he said, “I wanted to get you a gift,” and I said, “Oh, Wick, I’ve been wanting this gift all my life.” He said, “What’s that?” I said, “1962 Roman red Corvette.” And he said, “Okay. Let’s see.” It was a joke. A month later, that car was sitting in the lobby of the building and it had licence plates, it said Dow 7000. That was a gift to me, that was the best I ever had.

Meb: Ralph, that’s awesome. I love it.

Ralph: I’ll send you a picture of the car.

Meb: Yeah, seriously. My old man had a midnight blue late ’60s Corvette, must be ’67 with a split window. But I tell you, I’ve been lusting after that vintage for most of my life, but a beautiful, beautiful car. What else are you up to these days in the wilds of Minnesota?

Ralph: I don’t think you know this. I created the largest hand-painted chart of the Dow Jones Industrial Average in history.

Meb: I don’t know that. Is it on a… Wait, I think I’ve seen a picture of you…

Ralph: Exactly. It was on the “Wall Street Journal,” that’s right.

Meb: Is it a barn?

Ralph: That’s right. I have all sorts of memorabilia, Wall Street memorabilia and stuff. My wall charts on my original chart room, it’s 8 feet high, 22 feet long. I went back… When we moved out here, about eight years ago, I went up into the attic and we were moving stuff and I found a box I hadn’t looked at in 30 years, and inside was my wall room. And I had four wall charts that size, that’s how big the wall room was. I had the original wall room on Wall Street. And you’ll get a kick out of this, one of the wall charts, I called my buddies, I say, “Hey, the wall room is alive.” One guy yells out and he says, “Do you still have the wall chart with the three Dow averages daily plotted every day?” I had like 15 years of history every day with notations and moving averages.

I said, “Yeah.” He says, “You gotta bring it down to the Finance Museum in Wall Street, they’re doing an exhibit on Charles Dow.” This is like about 10 years ago. So I bring it down, I’m laying it out and showing the lady, she’s, “Well, can I cut it?” I said, “I’ll kill you, you can’t cut my chart.” So she’s, “No, no okay.” She says, “I’ll use it as a backdrop for the exhibit,” and she did that. And then six months later, she calls me up, and she says, “Mr. Acampora,” she said, “The exhibit is over, we’re taking things down.” She said, “Your chart is one of the most unique possessions we have, would you donate it?” I said, “Of course, yeah, I’d love to.” And then she says to me, she says, “I wanna tell you that this little museum is part of the Smithsonian Institute.” So we get a chart in the Smithsonian Institute, buddy.

Meb: I love that.

Ralph: Isn’t that cool?

Meb: That’s awesome.

Ralph: Yeah, it is. So it’s hanging somewhere in the United States.

Meb: Very cool.

Ralph: And I hope she didn’t cut it.

Meb: That’s a perfect way to wind it down, Ralph. If people wanted to follow you, if they were interested in your thoughts, and what you’re thinking about the world, or to extent…

Ralph: Sure. I’m on Twitter. I have a Twitter account.

Meb: We’ll link to the handle on the show notes. Ralph, it’s been a blessing to have you today. Thanks so much for taking the time.

Ralph: Thanks for having me, Meb. Thank you.

Meb: Listeners, we’ll add this to the show notes. Everything else at mebfaber.com/podcast. We’ll link to everything as well as you can find the archives and everything else at mebfaber.com/podcast, and also on iTunes, all the other apps. Thanks for listening, friends, and good investing.

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