Graham & Dodd meet Edwards & Magee MTA Education Seminar May 20 th 2005 Larry M. Berman CFA, CMT Combining Fundamental & Technical Analysis to Maximize.

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Presentation transcript:

Graham & Dodd meet Edwards & Magee MTA Education Seminar May 20 th 2005 Larry M. Berman CFA, CMT Combining Fundamental & Technical Analysis to Maximize Portfolio Returns

Graham & Dodd meet Edwards & Magee Goal beat Mr. Market Screen fund & quant. Trade technically

Beat Mr. Market Understand bogey Timeframe Investor/Trader Develop toolbox

Characteristics of Market P/E high low? Earnings momentum Economy Inflation/Interest rates Geopolitical Monetary/fiscal policy Bull or Bear? Oversold/Overbought Seasonality Sentiment Accumulation Distribution Breadth

Characteristics of Stock BETA rule S&P 500 (60%) of stocks have beta above 0.9 S&P 400 (66%) of stocks have beta above 0.9 S&P 600 (83%) of stocks have beta above 0.9 V or U tops-bottoms Volatility Normal vs. today False breakouts Support/resistance Volume patterns

Growth Characteristics & Tools Momentum Trend Relative strength Multiple expansion PEG GARP

Value Characteristics & Tools Sentiment Chart patterns (bottoms & bases) Oversold Under owned Market to book value Extremeness

Market Cycle Seasonal patterns Business cycle

Characteristics of Market:Trend Timeframe % Higher highs? Higher lows? Support holding? Res. breaking?

Characteristics of Market:Momentum Timeframe Quantify OS/OB m/m 5% q/q 10% Divergence

Characteristics of Market:Volume 10-Day Arms 55-Day Arms Imbalances Relative

Characteristics of Market:Volume Imbalances Accumulation Distribution Intensity Relative Extreme

Characteristics of Market:Breadth Adv-Dec Line Trend Momentum Extreme Relative

Characteristics of Market:Breadth % > 200-day avg Trend Momentum Extreme 20-80% Relative

Characteristics of Market:Breadth Net 52W Hi-Lo Trend Momentum Extreme 2Sig – Relative

Characteristics of Market:Breadth Index specific %MC Adv/Dec Wkly 52W Hi-Lo Wkly Accumulation Wkly Distribution

Characteristics of Market:Breadth %MC > 50-Day Avg %MC > 200-Day Avg %MC < RSI 30 %MC > RSI 70

Characteristics of Market:Sentiment VIX-VXN Trend Momentum Relative Extremes Characteristics

Characteristics of Market:Sentiment Put/Call volume Trend Momentum Relative Extremes Characteristics

Characteristics of Market:Sentiment AAII Cons, II, MV Relative Extremes Characteristics

Characteristics of Market: Summary P/E = modestly high Fwd earn mom. <10% Economy = softer Inflation = rising Interest rates = rising Geopolitical = neg Fiscal policy = neg Late stage bull/early bear Oversold Seasonality = pos Sentiment = pos Accumulation = weak Distribution = strong Breadth = weak Volume = weak

Growth Characteristics & Tools Momentum Trend Relative strength Multiple expansion PEG GARP

Growth Tools: Momentum ROC MACD Relative strength

Growth Tools: Momentum ROC MACD Relative strength

Growth Tools: Momentum ROC MACD Relative strength

Growth Tools: Trend Sup/Res holds? Higher/highs Lower/lows Time frame

Value Characteristics & Tools Sentiment Chart patterns (bottoms & bases) Oversold Under owned Market to book value Extremeness

Value Tools: Bottom Patterns (Bases) Double bottom Ascending H & S bottom

Value Tools: Sentiment Insiders IPO/Buyback % Inst Own

Value Tools: OB/OS Buy 13Wk OS OB poor entry

Trading Cycles Price movements are a series of cycles. Accumulation phase Distribution phase

Trading Cycles ACCUMULATION DISTRIBUTION BEARBASE BULLCONS

Trading Cycles ACCUMULATION DISTRIBUTION BEARBASE BULL CONS

Trading Cycles OVERBOUGHT OVERSOLD

Trading Cycles Quantify Extremes Accumulation Distribution Relative rank

Trading Cycles: S&P 500 Financials

Trading Cycles: S&P 500 Technology

Value: Basing

MSFT breaking out of base pattern

Growth: Momentum

GLW strong momentum, but OB

Graham & Dodd meet Edwards & Magee Goal beat Mr. Market Screen fund & quant. Trade technically Timeframe Investor/Trader Develop toolbox

Roll The Dice