Technical Analysis: The Complete Resource for Financial Market Technicians, Second Edition

Charles D. Kirkpatrick II, CMT

Julie Dahlquist Ph.D., CMT

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Printed in the United States of America

First Printing November 2010

ISBN-10: 0-13-705944-2

ISBN-13: 978-0-13-705944-7

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Library of Congress Cataloging-in-Publication Data

Kirkpatrick, Charles D.
 Technical analysis : the complete resource for financial market technicians / Charles D. Kirkpatrick and Julie
Dahlquist. — 2nd ed.
     p. cm.
 Includes bibliographical references and index.
 ISBN 978-0-13-705944-7 (hbk. : alk. paper)
 1. Technical analysis (Investment analysis) 2. Investment analysis. I. Dahlquist, Julie R., 1962- II. Title.
 HG4529.K564 2011
 332.63'2042—dc22
                                     2010032991

This book is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services or advice by publishing this book. Each individual situation is unique. Thus, if legal or financial advice or other expert assistance is required in a specific situation, the services of a competent professional should be sought to ensure that the situation has been evaluated carefully and appropriately. The author and the publisher disclaim any liability, loss, or risk resulting directly or indirectly, from the use or application of any of the contents of this book.

Dedication

To Ellie—my precious wife, long-term love and companion, and best friend.

—Charlie

To Richard, Katherine, and Sepp.

—Julie

Acknowledgments

To Richard D. Kirkpatrick, my father, and ex-portfolio manager for Fidelity beginning in the 1950s. He introduced me to technical analysis the age of 14 by asking me to update his charts. In the year of his retirement, 1968, he managed the best-performing mutual fund in the world.

To the Market Technicians Association, through which I have met many of the best innovators and practitioners of technical analysis, and especially to staff members Cassandra Townes and Marie Penza for their support and assistance in making available the MTA library.

To Skip Cave, past dean of the Fort Lewis College School of Business Administration, for allowing me to assist him in teaching a course in technical analysis, for getting this project going by introducing me to other textbook authors, such as the Assistant Dean Roy Cook, and for providing office space during the initial writing and researching for this book.

To Thomas Harrington, past dean of the Fort Lewis College School of Business Administration, for allowing me to maintain an office at the college, for allowing me special privileges at the college library, and for asking me to continue teaching a course in technical analysis.

To my students in class BA317 at Fort Lewis College School of Business Administration, for being my teaching guinea pigs and for keeping me on my toes with questions and observations.

To my friends and colleagues at the Philadelphia Stock Exchange, specifically Vinnie Casella, past president, who taught me from the inside how markets really work.

To the dedicated people at Pearson Education, specifically Jim Boyd, executive editor; Pamela Boland, editorial assistant; Betsy Harris, production editor; Karen Annett, copy editor; and all the others behind the scenes who I have not known directly.

To Phil Roth and Bruce Kamich, both past presidents of the Market Technicians Association, professional technical analysts, and adjunct professors teaching courses in technical analysis at universities in the New York area, for editing the material in this book and keeping me in line.

To Julie Dahlquist, my coauthor, and her husband, Richard Bauer, both professors steeped in the ways of academia, for bringing that perspective to this book.

To my wife, Ellie, who has had to put up with me for 48 years and has always done so pleasantly and with love.

To my children, Abby, Andy, Bear, and Bradlee, for their love and support.

And to my grandchildren, India and Mila, who didn’t do anything for the book but who pleaded to be mentioned.

I thank you and all the many others from my lifetime of work in technical analysis for your support, friendship, and willingness to impart your knowledge of trading markets.

Charles Kirkpatrick

Kittery, Maine

The assistance and support of many people contributed to turning the dream of this book into a reality. Fred Meissner was the one who initially introduced me to my coauthor, Charlie, at a Market Technicians Association chapter meeting. After I worked with Charlie on several projects and we served together on the Market Technicians Association Educational Foundation Board, he bravely agreed to a partnership in writing this book. Charlie has been the ideal coauthor—positive, patient, and persistent. It has been an honor to work with someone so knowledgeable and an incredible experience to work with someone so willing to share his knowledge.

The faculty and staff in the Department of Finance at the University of Texas at San Antonio College of Business have been a pleasure to work with over the past couple of years while this book has been in process. Keith Fairchild, Lula Misra, and Robert Lengel have been especially supportive.

The expertise of the dedicated team at Pearson Education has been invaluable in helping Charlie and me get our ideas into this final format. Thanks to Jim Boyd, Pamela Boland, Betsy Harris, Karen Annett, and the entire Pearson Education team for their gentle prodding, their continued encouragement, and their tireless commitment to this project.

My husband, Richard Bauer, assisted in more ways than can ever be counted. He graciously wrote the Basic Statistics appendix for this book. He served as a sounding board for many of the ideas in this book. He read drafts and made many helpful suggestions to the manuscript. However, his support goes far beyond his professional expertise. Richard untiringly took care of many household tasks as I spent time working on this project. His help made it easy for me to travel to meet with Charlie and work on this project. I am blessed to receive his unwavering emotional support and encouragement.

My two children have also been a source of blessing and inspiration. They demonstrated extreme patience through this entire process. They also reminded me of the need for fun, laughter, and a good hug whenever I was tempted to work too hard. Discussing stock charts with my eleven-year-old son, Sepp, made this project much more interesting than it would have otherwise been. Writing next to my fourteen-year-old daughter and budding author, Katherine, made the countless hours of tedious work much more enjoyable.

Julie Dahlquist

San Antonio, TX

About the Authors

Charles D. Kirkpatrick II, CMT, is

President, Kirkpatrick & Company, Inc., Kittery, Maine—a private firm specializing in technical research; editor and publisher of the Market Strategist newsletter.

Adjunct Professor of Finance, Brandeis University International School of Business.

Director and Vice President, Market Technicians Association Educational Foundation, Cambridge Massachusetts—a charitable foundation dedicated to encouraging and providing educational courses in technical analysis at the college and university level.

Past editor, Journal of Technical Analysis, New York, New York—the official journal of technical analysis research.

Past director, Market Technicians Association, New York, New York—an association of professional technical analysts.

In his life in the stock and options markets, Mr. Kirkpatrick has been a hedge fund manager, investment advisor, advisor to floor and desk traders and portfolio managers, institutional stock broker, options trader, desk and large-block trader, lecturer and speaker on aspects of technical analysis to profesional and academic groups, expert legal witness on the stock market, owner of several small businesses, owner of an institutional brokerage firm, and part owner of a CBOE options trading firm. His research has been published in Barron’s and elsewhere. In 1993 and 2001, he won the Charles H. Dow Award for excellence in technical research, and in 2009, he won the MTA award for his contributions to technical analysis. Educated at Phillips Exeter Academy, Harvard College (A.B.) and the Wharton School of the University of Pennsylvania (M.B.A.), he was also a decorated combat officer with the 1st Cavalry Division in Vietnam. He currently resides in Maine with his wife, Ellie, and their various domestic animals.

Julie R. Dahlquist, Ph.D., received her B.B.A. in economics from University of Louisiana at Monroe, her M.A. in Theology from St. Mary’s University, and her Ph.D. in economics from Texas A&M University. Currently, she is a senior lecturer, Department of Finance, at the University of Texas at San Antonio College of Business. Dr. Dahlquist is a frequent presenter at national and international conferences. She is the coauthor (with Richard Bauer) of Technical Market Indicators: Analysis and Performance (John Wiley & Sons). Her research has appeared in Financial Analysts Journal, Journal of Technical Analysis, Managerial Finance, Applied Economics, Working Money, Financial Practices and Education, Active Trader, and in the Journal of Financial Education. She serves on the Board of the Market Technicians Association Educational Foundation, on the editorial board of the Southwestern Business Administration Journal, and as a reviewer for a number of journals, including the Journal of Technical Analysis. She resides in San Antonio with her husband, Richard Bauer, and their two children, Katherine and Sepp.