This is the first installment in a two part series in which FRA Co-founder
Gordon T. Long delineates the foundations for Momentum Structural Analysis
with Michael Oliver, Founder of Momentum Structural Analysis (MSA).
Michael Oliver entered the financial services industry in 1975 on the
Futures side, joining E.F. Hutton's International Commodity Division,
headquartered in New York City's Battery Park. He studied under David
Johnston, head of Hutton's Commodity Division and Chairman of the COMEX. In
the 1980's Oliver began to develop his own momentum-based method of technical
analysis. He learned early on that orthodox "price chart technical
analysis" left many unanswered questions and too often deceived those
who trusted in price chart "breakouts," support/resistance etc.
In 1987 Oliver, along with his futures client accounts (Oliver had trading
POA) technically anticipated and captured the Crash. At that point Oliver
began to realize that his emergent momentum-structural-based tools should be
further developed into a full analytic methodology. In 1992 he was asked by
the Financial VP and head of Wachovia Bank's Trust Department, then
headquartered in Winston-Salem, NC, to provide soft dollar research to
Wachovia. Within a year Oliver shifted from brokerage to full-time technical
research. Oliver is the author of The New Libertarianism: Anarcho-Capitalism
and has lead MSA in providing its proprietary technical research services to
financial and asset management clients continually since 1992.
"Everybody thinks they have a handle on what momentum means. If
you're a momentum trader that means you chase ups and downs, and this is not
what I do. Price in many aspects is delusional, so I de-trend price and look
at price through its momentum action; I create momentum charts and analyze
that, then reference price secondarily."
Momentum Structural Analysis
The core of technical analysis is very much outdated for it being based on
price chart analysis. It is about time for a change, while it is better than
fundamental analysis in some respects there is still many deficiencies
embedded in price chart analysis which are overcome through momentum
structural analysis.
"It is important to realize that Austrian economists are the key
bulwark against central banks. They are very important, and have good
analysis which I always agree with, however their timing is lacking and
that's where I come in. It is one thing to be right, and another to be right
in a timely manner."
One concept which I adhere to which is pre-politics and pre-economics, is
that man is a conceptual being. Man formulates concepts, ideas, circumstances
etc. with an underlying basis of some sort of measurement. But there is
always a unit of measurement which man needs to build concepts around so that
these concepts have consistent validity overtime.
It is essential to have a unit of measurement which remains stable; from
this stability you begin to measure and form concepts. The problem with the
financial world is that we all use measurements in dollars and it is by no
means a stable measurement. Additionally the growth in dollars within the
economy is not distributed uniformly everywhere, investors have preferences
which tend to shift. Because of this, this unit of measure, the dollar, has
to be views with extreme skepticism; you cannot introduce meager metrics like
the CPI to compensate.
A well-known orthodox technician, Bob Farrell had 10 rules of investing
and #1 was 'markets always return to the mean.' This is a widely accepted
assumption and a widely overlooked one by trend followers.
"Markets breathe, and failure to acknowledge this is
suicide."
What we do is we measure means; we do not just lay a moving average on a
price chart which doesn't help at all. One of the great things that momentum
analysis does is it finds repetitive market action which can be seen better
compared to looking at a price chart. MSA is always focused on the different
trends a market might have because markets never have one trend. They may
have long term trends which within them consist of countercyclical sub-trends
which if you're are not cognisant of can really hurt you.
What we try to do with momentum is, since we cannot totally ignore price
because it is nonetheless part of the momentum measuring process, we measure
price bars in relation to averages of our choice. We oscillate monthly bars
in relation to the averages and we get a visual construct of the market once
we create the momentum chart which often reveals alarming data.
"You get a totally different view of the trend reality in the
market when you see it through a momentum chart versus a price chart."
Where momentum plays its greatest role and it is also where most money is
lost or made is at the market peaks and bottoms. This is where you experience
great swings to your benefit or to your loss.
Abstract written by, Karan Singh
Video Editor: Sarah Tung
