Craig W. Johnson, CFA, CMT Piper Jaffray Technical Research 612

Report
P I P E R
J A F F R A Y
T E C H N I C A L
The Blending of Disciplines
MTA Charlotte Regional Conference
January 31, 2011
Craig W. Johnson, CFA, CMT
Principal
612 303-6428
[email protected]
R E S E A R C H
Piper Jaffray Technical Research – Charlotte MTA Regional Conference
Disclosures for Universe of: Craig Johnson, CFA, CMT/Technical Research
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I or a household member have a financial interest in the securities of the following companies: none
I or a household member is an officer, director, or advisory board member of the following companies: none
I have received compensation within the past 12 months from the following companies: none
Piper Jaffray or its affiliates beneficially own 1% or more of any class of common equities of the following companies: none
The following companies have been investment banking clients of Piper Jaffray during the past 12 months: ACI
Piper Jaffray expects to have the following companies as investment banking clients within the next three months: none
Other material conflicts of interest for Craig Johnson or Piper Jaffray regarding companies in my universe for which I am aware include: none
Piper Jaffray received non-investment banking securities-related compensation from the following companies during the past 12 months: HITT, RVBD
Piper Jaffray makes a market in the securities of the following companies, and will buy and sell the securities of these companies on a principal basis: ALTR,
AMZN, CIEN, CWTR, FITB, HITT, JOYG, MRVL, NVDA, RBVD, SHPGY, TEVA, ZION
Piper Jaffray usually provides bids and offers for the securities of the following companies and will, from time to time, buy and sell the securities of these
companies on a principal basis: AA, ABX, ACI, AXP, CAG, CBE, CMG, CY, EP, FTI, HPY, ICO, LVS, MHS, MI, MOS, NLC, PG, PLD, RF, STI, SUN,
TCB, TEX, UA, XEL
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TOPICS
• FUNDAMENTALIST VS. TECHNICIAN
• PIPER JAFFRAY MICROGROUP PROJECT
• PORTFOLIO ANALYSIS
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FUNDAMENTALIST
VS.
TECHNICIAN
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TECHNICAL VS. FUNDAMENTAL ANALYSIS
Technical Analysts Approach
Can analyze a large number of stocks. . .
P = $€¥£
E
Fundamental Analysts Approach
Typically follow 20-30 Stocks. . .
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TECHNICAL VS. FUNDAMENTAL ANALYSIS
Technical
Fundamental
• “What” and “Why”
• Analyze the company
• Cause
• Identifying the best
time to execute a
fundamental strategy
• “When” and “How”
• “There are plenty of
bad times to buy
good stocks.”
• Effect
• Analyze the stock
Source: David Keller, Head of Technical Research, Fidelity Investments
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TECHNICAL VS. FUNDAMENTAL ANALYSIS
Business Cycle Psychology
Broad Market Performance vs. EPS
Technical analysis
is most helpful
Denial
Period
Percent of Research Effort
25%
EPS
Broad
Market
50%
Fundamental and
Technical analysis
working together
25%
Technical analysis
is most helpful
Zone of
Disbelief
Typical Business Cycle
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MICROGROUP PROJECT
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PIPER JAFFRAY’S APPROACH
MI CRO GROUP \ ‘MI-KRO- ‘GRÜP \N (1970):
A collection of companies having similar characteristics in terms of operations and sources of
revenue; the stock prices of such companies tend to move together in a like direction and
magnitude.
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PIPER JAFFRAY’S APPROACH
• Group/Sector Database
– 5000+ Stocks, 500+ Groups, 12 Sectors
– Time-tested Product: History back to 1969 thru various market cycles
– Differentiated and proprietary product for Piper Jaffray
• Relative-strength Based Product/Major Trend Analysis
– Group Ratings based on normal distribution: Weekly Review/Rebalance
• 30% Positive
• 40% Neutral
• 30% Negative
THE MOST DEFINITIVE GROUP WORK ON WALL STREET
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PIPER JAFFRAY’S APPROACH
• Portfolio Manager’s Tool
– Technical Research-based product
– Identify secular themes/trends
– Increasingly used by quantitative analysts
– Group inflection points “Buy” and “Sell”
– Risk management tool
• Relative-strength Based Product/Major Trend Analysis
– TechniGrade
– M.A.C.E
– 40- Week Technique
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TREND ANALYSIS TOOLS
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TREND ANALYSIS TOOLS | TECHNIGRADE
The “TechniGrade” concept is simply a numerical way of looking at the relative (comparative)Performance of each Sector,
MicroGroup, and issue over time. With this concept, the performance of each MicroGroup is compared to the performance of the
MicroGroup universe of nearly 5,000+ stocks, known as the “MicroGroup Index.” This process is then repeated until a ratio has
been calculated over the last six-month period that supplies a heavier weighting to the most recent weeks. Based on these
computer calculations, a TechniGrade rating from 1 (top 5% of performers) to 20 (bottom 5% of performers) is automatically
assigned to each MicroGroup on an ongoing basis.
Techn igr ade
An n ual ized Total Retur n
19 70-2010
25%
22%
13%
15%
6%
7%
5%
2%
-5%
-8%
-15%
A
B
C
MGI
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D
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TREND ANALYSIS TOOLS | TECHNIGRADE
Weekly data: Read from right to left
Look for trend change
1 = Strongest and 20 = Weakest
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TREND ANALYSIS TOOLS | COLOR TECHNIGRADE
Colorized deciles make it easier to see & interpret trend changes
1 = Strongest and 20 = Weakest
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TREND ANALYSIS TOOLS | M A C E
U1
U2*
U3*
D1
D2
D3
Possible uptrend (L > S > M)
Confirmed uptrend (S > L > M)
Well-defined uptrend (S > M > L)
Possible downtrend (M > L > S)
Confirmed downtrend (M > L > S)
Well-defined downtrend (L > M > S)
* Historically best performance
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TREND ANALYSIS TOOLS | M A C E
U1, U2, U3 = Uptrend / D1, D2, D3 = Downtrend
& Number of Weeks in that trend
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TREND ANALYSIS TOOLS | 40-WEEK TECHNIQUE
Definitions
Price Avg. Explanation
+ + Price is above a rising 40-week Moving Average*
+ - Price is above a falling 40-week Moving Average*
- + Price is below a rising 40-week Moving Average
- - Price is below a falling 40-week Moving Average
* Historically best performance
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TREND ANALYSIS TOOLS | 40-WEEK TECHNIQUE
+ + = Above rising 40-week MA
- - = Below falling 40-week MA
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PIPER JAFFRAY’S APPROACH – 2010 GROUP RATINGS
Relative & Absolute Ratings
UNWEIGHTED RELATIVE RATING*
End of Year 2010
All of the numerical data contained in this
publication is computer-generated, e.g.,
MACE, TechniGrade, etc., with the
exception of the MicroGroup and Sector
Rating System. Here, each Group and
Sector is subjectively rated on both a
relative and absolute basis, relying on a
multitude of inputs including fundamental
and technical data. While the allowable
relative ratings will be skewed to represent
a bell-shaped curve (i.e., 30% outperform,
40% neutral, 30%underperform) the
absolute ratings can in theory, and may in
practice, be highly skewed toward a
decidedly bullish or bearish position.
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PORTFOLIO ANALYSIS
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THANK YOU
Craig W. Johnson, CFA, CMT
Piper Jaffray Technical Research
612 303-6428
[email protected]
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Analyst Certification – Craig W. Johnson, CFA, CMT, Technical Analyst
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or indirectly related to the specific recommendations or views contained in this report.
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