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Graham & Dodd meet Edwards & Magee
MTA Education Seminar
May 20th 2005
Larry M. Berman CFA, CMT
Combining Fundamental & Technical Analysis
to Maximize Portfolio Returns
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Graham & Dodd meet Edwards & Magee
• Goal beat Mr. Market• Screen fund & quant.• Trade technically
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Beat Mr. Market
• Understand bogey• Timeframe• Investor/Trader• Develop toolbox
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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
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Characteristics of Stock
• BETA• 50-25-25 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
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Growth Characteristics & Tools
• Momentum• Trend• Relative strength
• Multiple expansion• PEG• GARP
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Value Characteristics & Tools
• Sentiment• Chart patterns
(bottoms & bases)• Oversold
• Under owned• Market to book value• Extremeness
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Market Cycle
• Seasonal patterns• Business cycle
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Characteristics of Market:Trend
Timeframe
38.2-61.8%
Higher highs?
Higher lows?
Support holding?
Res. breaking?
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Characteristics of Market:Momentum
Timeframe
Quantify OS/OB
m/m 5%
q/q 10%
Divergence
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Characteristics of Market:Volume
10-Day Arms
55-Day Arms
Imbalances
Relative
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Characteristics of Market:Volume
Imbalances
Accumulation
Distribution
Intensity
Relative
Extreme
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Characteristics of Market:Breadth
Adv-Dec Line
Trend
Momentum
Extreme
Relative
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Characteristics of Market:Breadth
% > 200-day avg
Trend
Momentum
Extreme 20-80%
Relative
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Characteristics of Market:Breadth
Net 52W Hi-Lo
Trend
Momentum
Extreme 2Sig
–400+800
Relative
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Characteristics of Market:Breadth
Index specific
%MC Adv/Dec
Wkly 52W Hi-Lo
Wkly Accumulation
Wkly Distribution
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Characteristics of Market:Breadth
%MC > 50-Day Avg
%MC > 200-Day Avg
%MC < RSI 30%MC > RSI 70
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Characteristics of Market:Sentiment
VIX-VXN
Trend
Momentum
Relative
Extremes
Characteristics
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Characteristics of Market:Sentiment
Put/Call volume
Trend
Momentum
Relative
Extremes
Characteristics
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Characteristics of Market:Sentiment
AAII
Cons, II, MV
Relative
Extremes
Characteristics
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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
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Growth Characteristics & Tools
• Momentum• Trend• Relative strength
• Multiple expansion• PEG• GARP
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Growth Tools: Momentum
• ROC• MACD• Relative strength
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Growth Tools: Momentum
• ROC• MACD• Relative strength
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Growth Tools: Momentum
• ROC• MACD• Relative strength
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Growth Tools: Trend
Sup/Res holds?
Higher/highs
Lower/lows
Time frame
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Value Characteristics & Tools
• Sentiment• Chart patterns
(bottoms & bases)• Oversold
• Under owned• Market to book value• Extremeness
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Value Tools: Bottom Patterns (Bases)
Double bottom
Ascending
H & S bottom
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Value Tools: Sentiment
Insiders
IPO/Buyback
% Inst Own
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Value Tools: OB/OS
Buy 13Wk OS
OB poor entry
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Trading Cycles
• Price movements are a series of cycles.
• Accumulation phase• Distribution phase
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Trading Cycles
ACCUMULATION
DISTRIBUTION
BEAR BASE
BULL CONS
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Trading Cycles
ACCUMULATION
DISTRIBUTION
BEAR BASE
BULL CONS
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Trading Cycles
OVERBOUGHT
OVERSOLD OVERSOLD
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Trading Cycles
Quantify
Extremes
Accumulation
Distribution
Relative rank
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Trading Cycles: S&P 500 Financials
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Trading Cycles: S&P 500 Technology
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Value: Basing
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MSFT breaking out of base pattern
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Growth: Momentum
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Growth: Momentum
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GLW strong momentum, but OB
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Graham & Dodd meet Edwards & Magee
• Goal beat Mr. Market• Screen fund & quant.• Trade technically• Timeframe• Investor/Trader• Develop toolbox
![Page 44: Graham & Dodd meet Edwards & Magee MTA Education Seminar May 20 th 2005 Larry M. Berman CFA, CMT Combining Fundamental & Technical Analysis to Maximize](https://reader036.vdocument.in/reader036/viewer/2022062804/56649ec15503460f94bccc15/html5/thumbnails/44.jpg)
Roll The Dice