my photo stream/external hd

Will my photo stream work with iPhoto on a external hd? I recently purchased a new iMac moved iPhoto to a external hd and seemed to lose the option. When I go to preferences to activate it as I did on my last Mac instead of giving me options it tells me " iCloud features for photo are only available in the system photo library". My old set up I did not use iCloud for iPhoto the library was on my Imac hd and my iPhone would automatically upload new pics to the library on the iMac. Did I also lose the option of random iPhoto pics for my desk top background. I the option in settings is greyed out. I am currently using a external hd hooked through usb for my new iPhoto destination.