Successful Stock Signals for Traders and Portfolio Managers: Integrating Technical Analysis with Fundamentals to Improve Performance, + Website

CHAPTER 8

Blow-Off Top, Trend Line Reversal, Channel Breakout, and Fan Lines, with Green Mountain Coffee Exhibits

WHY STUDY STOCKS THAT BLOW UP?

In the case of Herbalife (HLF) in Chapter 4, Green Mountain Coffee (GMCR) in this chapter, and Netflix (NFLX) in the next chapter, you will notice we are spending an inordinate amount of time on identifying sell signals for stocks that blow up. That is because these are negative surprises. One of the foremost reasons that professional portfolio managers fail to beat the index is the negative surprise that destroys their portfolio performance. Portfolio managers would give their right arm for technical signals that could help them see disasters like this forming. There are usually no confirmed sell signals, but there are sell signals to set the warning bells off because the market usually knows bad news before it is announced in the media. Traders front run the news, and it shows up on the chart as buy signals or sell signals.

Those professionals with illegal inside information or legal, very insightful information will trade, and technical analysis will spot those trades, especially if done by institutions in large trading volume. “First calls” by Wall Street brokerage analysts to institutional clients will usually appear on the chart as institutional portfolio managers start transacting in size. This is the demand that turns sell signals into buy signals. If you are not on the first-call list because you don't pay enough for research, ...