William ONeil Helps Investors Take on Wall StreetHis LifeIn 1958 William ONeil becomes a stockbroker with Hayden, Stone & Company. After a while it became clear to O’Neil that research was his thing. He noticed that one of the best performing funds at the time was the Dreyfus Fund. He studied the fund's purchases over the past few years and discovered something interestingThis became a foundation to William ONeil’s famous CAN SLIM strategy. Mr. ONeil went on to start Investors Business Daily and author several well known books, including the great bestseller “How to Make Money in Stocks”. I’ve read a few criticisms which say his books are just promotions for his newspaper, IBD. Let me just say this: You can spend hours upon hours researching financial statements, calculating earnings and analyzing stock charts. Or, you can subscibe to IBD and find the best stocks within minutes. Oh, one more thing, I am not related to William ONeil.
His LessonsWilliam ONeil is a student of classic traders such as Jesse Livermore, Gerald Loeb and Nicolas Darvas. Some of his ideas are similar. However, he adds fundamental analysis to the mix. That just maximizes the power of his CAN SLIM formula.As you read about his stock chart patterns such as Cup With Handle or Flat Base, keep in mind these are not exact cookie cutter models. These are good guidelines in what to look for in a chart. Charting requires the study of many successful stocks…and getting a feel for the pattern that developed just before take-off. What happened before will happen again. Or something really close to it. CAN SLIM Current Quarterly Earnings: Earnings growth is the largest factor that determines when a stock’s price will ‘bust a move.’ Look for growth of at least 20% when comparing the current quarter to the same quarter last year. Professional money managers use earnings to find their next best stock. You should too. Annual Earnings Look for annual earnings growth of 20% or more over at least the past three years. To confirm the quality of the earnings growth, check to see a Return On Equity ratio of at least 17%. (ROE = Net Income / Shareholders Equity). Or save yourself the trouble and check his paper. New! These include: New Products, New Services, New or Good Management, New Price Highs. New products (like an iPhone) add to the excitement that enhances stock price. Stocks on a New High Price List tend to go higher. If institutional investor demand put a stock on this list, there’s no reason it won’t keep going. Supply and Demand Look for stocks that close near their high of the day on increased volume. Good indication of Wall Street demand. If a stock closes down for the day on low volume, selling pressure was minimal. Bottom line: If a stock moves up on large increased volume, the sign is positive it's got more ways to go.
Leader and Laggard 37% of a stock’s price move is attributed to the industry group of which it’s associated. Lesson? Focus on the top 10 industries and choose the top stocks from each group. Most of the great traders have said this before. Which may be, why they’re great. Institutional Sponsorship You want stocks with increasing institutional ownership. Money managers move the stock price quicker and further than you or I. Get on board with their stocks, and let them drive. Market So important, yet so ignored. It’s critical to understand exactly what the market is doing by watching it every day. 75% of all stocks follow the general market trend. If the markets have been in an upward trend and the early morning news says (guesses) stocks will be up today, you have a good day to buy. The CAN SLIM acronym seems to involve a lot of research. If you’ve read Investors Business Daily, then you know their proprietary tools neatly lay all these facts out for you. In addition, IBD provides the financial benchmarks that you should look for. Professional money managers all over the world use this information. Now you can too. Cup With Handle This is William ONeil's most popular bullish stock chart pattern. The cup-and-handle pattern is preceded by an upward move, which stalls and sells off. The sell-off is what forms the initial part of this pattern. After the sell-off, the stock will trade sideways for weeks or months. The next part of the pattern is the upward move back towards the peak of the preceding upward move. The last part of the pattern, known as the handle, is a smaller downward move before the security moves higher and continues it's upward move. I think we’re all better off if I pull out a diagram…
Flat Base This pattern can occur after the Cup With Handle finishes its trajectory into hopefully was the stratosphere. The stock now consolidates and travels sideways for what can be about 5 weeks. The stock will fluctuate slightly between its support & resistance. Volume levels are not an issue. Until the breakout. On increasing volume the stock says “Goodbye” to this tight range and breaks through resistance. The famous Pivot Point has arrived. This is the most opportune time to purchase this stock. Which brings us to, what is The Pivot Point?
Pivot Point This is the point at which the stock breaks from its consolidation pattern on increased volume of at least 50% over the daily trading volume. Try to purchase at this exact point and not more than 5% above. I know it’s not easy. Many times these are best judgment calls. The reason William ONeil suggests not to chase the stock over 5% of the Pivot Point is it is possible this is just a 10% price correction. Hey! Why wait till the Pivot Point. Why not buy before and maximize profits? Because “man plans and God laughs.” You don’t want to buy at the cheapest price and find your stock crashing. You want to buy at the ‘best chance’ price to make money. Sell, sell, sell If you can't watch the market from 9:30am to 4pm, set up a stop loss order to sell at 8% below your purhcase price. If your stock rises at least 20% within 2 weeks, hang on. This could be a rocket with more money to be made. 40% of all stocks drop back to their Pivot Point. Don't get shaken out and sell. As long as it doesn't go below your 8% sell out level, this is a normal correction.
Relative Strength Index Many finance sites provide this important indicator. IBD uses a propriety formula that calculates the price performance of a stock over the past 12 months against other stocks. An RSI rating of under 70 is a laggard. Other sites may calculate RSI differently. Buying stocks with a RSI above 70 is what Bill recommends. Here is another stock that incorporates many of the things William ONeil likes to look for:
Investors.com has great educational articles and insight. The charts and screening tools are top notch & it's similar to the data he sells to the institutional traders. I always use the Top Rated Stocks Below $10 screener. Excuse my commercial break. It's worth it:
The editorial content definitely skews towards the right side of the political spectrum. But who cares. I’m here to make money. I'm sure any democrat or republican can agree on that.
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