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

CHAPTER 14

Technical Signals for Your Buy and Sell Discipline, from Stochastics to the 200-Day Moving Average, with Chipotle Mexican Grill Exhibits

We already know that many investors use reliable signals such as the 200-day moving average and relative strength to trigger a buy or sell discipline in conjunction with fundamentals. Can we improve upon those signals for the small investor and the portfolio manager? The small investor may be using a simplistic sell discipline, such as, selling when price drops 10 to 15 percent below the most recent high. The domino effect of technical analysis signals provides a much more sophisticated approach than simply using one signal. Some refer to it as the weight of evidence. We will move through all the signals for your buy and sell discipline, from stochastics to the 200-day moving average, as the weight of evidence tips the scale from positive to negative, using Chipotle Mexican Grill (CMG) as the case study.

Investors and portfolio managers are not too concerned about buy signals. Every portfolio manager usually has developed some strategy for buying that is fundamentally driven. The two extremes are bottom ­fishing and momentum investing. Sell-side analysts are constantly issuing buy recommendations so there is never any shortage of buy candidates. Therefore, portfolio managers are more interested in a sell discipline that may improve all the money they leave on the table as a result of premature selling of a stock that is “overvalued” ...