Monday, July 29, 2013

Lloyd, Successful Stock Signals for Traders and Portfolio Managers

In this comprehensive recently released book, part of the Wiley Trading Series, Thomas K. Lloyd Sr. draws on 25 years of experience teaching portfolio managers how to use technical analysis. Although the book’s subtitle is Integrating Technical Analysis with Fundamentals to Improve Performance and although the book pays lip service to fundamental analysis, it focuses on the most frequently used technical indicators, chart patterns, and techniques to offer Successful Stock Signals for Traders and Portfolio Managers.

What sets this book apart from most of its competitors is its extensive analysis of case studies. Here and there Lloyd relies on posts he contributed to, but for the most part his analyses appear for the first time in this book. He looks primarily at stocks that for better or worse have captured the imagination of the trading public and that have well-known stories—stocks such as GMCR, FB, HLF, LNKD, CMG, JCP, CRM, SBUX, PCLN, AAPL, NFLX, and LULU in addition to such stalwarts as HD and WMT.

Two chapters study stocks that have blown up after negative earnings surprises or after publicly shared research by short sellers (think, e.g., of the dramatic drop in Green Mountain Coffee Roasters after David Einhorn delivered a presentation exposing its weaknesses). The question the author asks is whether there were sell signals before the fall. His answer, not unexpectedly, is “yes.” In the case of Green Mountain, “the technical sell signals triggered before Einhorn’s October 17 presentation were: price breaks below the 50-day moving average, price forms a double top, the 20-day breaks the 50-day moving average in a downtrend, the CMF goes into the red below the line, plus D1 in green and minus D1 in red do a negative crossover on directional movement, “ ADX trends up as price drops, “the Keltner channel reverses from uptrend to downtrend, price violates the mean dotted line of the Keltner channel,” and “performance relative strength reverses to a downtrend underperformer.” (pp. 127-28) One might say “wow”, but as Lloyd writes in more expansive prose, “The weight of evidence in these technical signals was overwhelming and indicated that something was happening to Green Mountain before October 17 that was not good.” (p. 128)

Another thorny question that this book addresses is when you should buy on weakness. In addition to other weapons in his arsenal, Lloyd brings out a traditional 3 box reversal point and figure chart, which he uses throughout the book in addition to candlestick charts, to study the case of LNKD.

There’s a wealth of information in Successful Stock Signals for Traders and Portfolio Managers that goes far beyond the usual technical analysis texts. Moreover, Lloyd’s analyses clearly illustrate that technical analysis is not a rote method but rather an art that requires skill and experience to use well.

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