IBD America Greatest Opportunity

By William O'Neil Cheysles was my frst big winner back in 1962. It was a classic cup with handle. The Dow had aterri- How To Find & Own America’s Greatest Opportunities ‘ble break in early '62 caused by Dow Jones Ind. 135 the government announcing the io first investigation of the mutual 120 | fund industry since the Depres- aio: m Fobow stout? Heavy volume stalling i. = GEOR. i without further price progress 100 Vey Raaetetpernactan SNE Follow-through } and time to start selling i 10/2962 ‘Second selling sign heavy \ 7 i. volume with price retracing prior two weeks a # «6 Sell Stock doubled from “Buy back fo : $15 to $34 and now i heavy volume without GEO NG ie ® further price progress up tse nt 7 4 (7 Some volume distribution fon way up at +20% ($42) 2 Buy cup fom|ast buy point a ‘without 24 handle 2 6-week 8 af flat base 16 weeks we up in a row CHRYSLER 16 “4 Weekly Chart % closes mid-range and $ 2 virtually unchanged on u huge volume support 10 26-week cup 8 with handle Heavy volume without further price progress up 8 Up weeks on @) = higher volume, this 2 { t 24 Heavy yoluma.staling 7 is accumulation FP 1 \ Volume { " 1,300,000, iy 800,000 tes Tt = 00,000 | oe -29% |+67% |+67% |+5% | +50% |+25% |+45% |+176% |+5% |+40% |+42% |-50% [442% cPS cng Decei [Mara |xn62 _|Sep62 |Dece2 |war63 |sne3 |Sepes |Deces |mar6e |xnes |Sep64 |Dec6s vate Along the bottom of the Chrysler cup, note how big-volume buying showed up almost every other week when the stock closed up. Later, it was known the Love brothers were accumulating abig position. The volume picke: up siguilicantly a it advanced six weeks off the bottom. I bought a little at that time but sold as it corrected to create the handle area. During this time, a US. spy plane had taken pictures of Soviet missile bases under construction inCuba. That created a confronta- tion where Soviet ships loaded with missiles were to meet a U.S. Navy blockade. Fear of a possible World War III affected the market and caused a shakeout in the Chrysler handle, which closed almost unchanged for the week (Gupport). Once an agreement was made and the Soviet ships turned back, the market had a follow-through day. Chrysler broke out at $58.50, the pivot-point price at that time (chart is adjusted for two 2-for-1 splits), which is where Tbought. A few weeks later Jerry Tsai of Fi- delity told me he had bought Chrysler at that same time. He saidhe liked to buy whenthere’s a lot of volume. When I mentioned later to Gerald Loeb, author of “The Battle for Investment Surviv- al,” that [had bought Chrysler, he said he also bought at that same point. It’snice toknow you're buying with good company. Chrysler had hired a_well- known new designer and they had new models. It was a turnaround with two quarters of strong earnings. So the next time you find aclassic cup with handle with signs of big volume accumulation, good earnings, with a breakout on huge volume on a new market follow-through, recognize that it’s probably not the publicbuying.How To Find & Own America’s Greatest Opportunities By William O'Neil Follow-through “)Follow-through 7113104 12it4I94 Aa ae Sell: 1 week straight down to 10-weak line and 1 week Up with —=p- next week at new high is not a base and is at a very extended point PeopleSoft Weekly Chart Up 20% in 3 weeks, must hold for 8 full weeks then reappraise Stock came out of first cottection, 0 hold longer Follow-through 1996 Tight closes ‘Add on rebound above 10-week line on volume (Price week closed below 10-week line on low volume) Sell, closes below ‘10-week line on huge increase in average weekly volume with handle base labeled C at the left hand side of the chart that shows an overall price increase of 10 times. ‘The first base is wrong and fails, the second one is wrong and fails, the third one is precisely right and goes up 10 times, You can and must learn to recognize ‘ware for human resource management, Itcame public in November 1992 at $17 and closed the week at $28. Eleven weeks later it hit $40 duringanuptrending general market. The next three weeks it dropped 40% and began a 17-month whipsaw period where itbuilt three bases. ‘The first two were faulty and failed. The first base, labeled A in the insert at the lower right ofthe chart, was wide and loose, caus- ing failure when it broke out. The second, at B, had a handle in the lower half of the base and failed cee handle and.___| é base on base ‘Add! | a : | 82 > 4 20-week cup | 20-week cup with handle | with handle aes vac es . : a voume I aoctnes én support { pullback ’ : TS, +70% |+60% |+56% |+75% |+100% |+83% |+75% |+67% | +80% | +83% | +86% EPS % Chg Fr ae ee re | ae ae ae ee ae ne PeopleSoft was the leader in soft- on making anew high as the S&P _thedifference. 500 had started a market corree- tion. ‘The reason I'm showing bases A, Band Cin the insertis I want everyone to recognize a phenome- non that I’ve seen happen several times It clearly explains why you need to become a good chart read- er who can tell the difference between a faulty pattern that will fail and the same stock that later on will suddenly form a classic cup with handle that, in some cases, can go up 10 or 20 times. The base labeled C inthein- sert is the same correct cup ‘Qualcomm did the exact same thing four years later from Febru- ary 1997 to January 2000. Two faulty bases failed, and the third base was a classic cup with handle that soared 20 times from the first quarter of 1999 to its peak the first week of 2000. At the initial proper buy point, PeopleSoft had 163% prior annual earnings growth rate, last two quarters of earnings were up 56% and 60%, sales were up 100% and 87%, pre-tax margin was 23.5%, and research and development was 14% of sales.How To Find & Own America’s Greatest Opportunities By William O'Neil Base is now right to buy Base is not right on this es ene S&P 500 Base is not right on this follow-through follow-through 10/8/75 Whar; 1019174 Sell: heavy volume 60 Follow-through without further price ——t, yoni progress up compared to a «prior week's big increase * 2 pA a a“ Prices are agjusted for stock . splits...the actual price at the "Add when back buy point was $32, not $13 / Byer {Oak a fine on volume 24 Peak of handle does not get fod eae Serene 2 hrough heavy overhead Ww volun pac frongiotssi2 (Cauityy D9 ot ba close below Volume support 19 / 10-weekline, after shakeout 17 Do not buy Je fort sal < Wverhead su “ Nc Overhead supply “ Volume 2 {+4 daatine on " ‘ist pullback 0 f: 2 / / @weektoiecicup : | weeks ‘without handle : Coviecls over 25% . + | (handles normally . correct 8-12%) I A 4s e 42 Wide and loose straight up Houston Oil et from bottom, bad base Weekly Chart a4 30 zn si an_Distribution Red volume up from Volume dries | ‘Volume prior week should not Heavier volume back : Sa happen in handle on up weeks WP On Pulbacks pst ad KE nN 1,100,000 200000 “ty 300,000 +750% |+800% |+67% |-45% |-12% |-22% | +320% |+250% |+119% |+150% |+48% |+114% EPS% Chg warr4[anrs [Sep74 [ec ra [wars |an7s[Se07s [Dee75 [war7e [unre [Sapte [Dec7e _|WarTT Dao Houston Oil was newlylistedon the _The third base at “C” is much thelast27market cycles (over100 American Stock Exchange in Octo- ber 1972 as a young company incorporated in 1966. It explored for and produced oil and natural gas mainly in Texas. From November 1972 to Novem- ber 1973 it increased 10 times in price. Notbad for anew wildeat drill- er strong in developing geologically complex properties. ‘The November 1973 top was a climax top and your chartbegins at the far left with that peak in red tipping at $14 on asplit-adjusted basis in the second plotted week. It then drops 65% in the devastating 1974 bear market, which resulted in the very wide and loose chart base labeled “A.” That first straight up from the bottom, wide and loose base failed. Next, Houston Oil forms a second bad base “B.” The left side of this base corrects 25 weeks with many red weeks on increased volume (normally the left sideis 5 to 7 weeks and ina fewcases 13 weeks, not 25). The handle’s peak price up from the low of the base should get above overhead supply area. It did not in this case and the handle’s correction was toodeep (22%). tighter and is a correct 9-week cup without handle. The third time's a charm and is the sound base to buyas the stock goes from $13 to $60. Once again wesee abig winning stock has a huge run up, tops materially, goes nowhere for 2-1/2 years, fooling people with long sloppy bases that fail and finally, in one week, pops up com- pletinga sound cup and the exact righttimeforyou to buy. Think about this. You had 111 wrong weeks to buy when your odds of losing were high and just years) built their classic chart bases during general market corrections. You absolutely have to be on the job every week doing your homework to be certain you're there when the market ‘turns up and the next new leaders complete their bases and it’s the exact time for you to buy. Since early 2004, Apple formed 10 classic bases during its 5,577% advance before it finally topped. Nine were built and completed during general market corrections. one week where the correct cup appears and you can buy at the right time and make over 300%. Investing isn’t easy. You must have charts to tell you the difference between the many faulty stocks and the few potentially phenomenal stocks. You can learn to do this if you're really motivated and nevergiveup. When you've made some mistakes and the market's in a decline, the worst thing you can do is give up on investing, cancel your IBD subscription and chart service, and here's why! Eighty- six percent of all great stocks of ARE YOU LOO}How To Rind & Owi Aveviede \ First huge volume i FEA on close below Greatest Opportunities ‘oaekiim By William O'Neil Follow:through ~---- S&P.500 2 i 911/95 8 N % Follow-hrough 2 week new highs 2 taiiare4 on loner value, ae \ timo to cell a =p 2 ~—— Buy: High Aas iphtfag bli offering 40 at $27 7 6 “ % 2 "2 weeks closein 44 upper half for week 49 ‘on volume increase 9 Accustaff 8 Weekly Chart 7 ‘Support volume off 1D.week ine 6 5 To-week moving o average of prices 42 38 Add . Ky Do not sell: closes 3.0 “7S below 10-week line a on fow volume ze SB weeks tight 22 tt ‘ closes I 19 Tight closes 47 ; Excessive 1B-week cup Patock sal Ii stock split 15 with handle short period of time 14 43 @) now ns ‘Volume: low volume Voume ¢ support 8,000,000 Volume dries up. Low volume: 5,000,000 before breakout ‘ Big EPS and many quarters 3,000,000 of accelerating sales growth can help justify holding 1,800,000 wa [wa [+0% +133% |+75% _|+167% EPS%.Chg sop [Dees [waroe [nee [separ [Decsa [mares [anos [Sep |Decos |waro6 [ns Da AccuStaff provided temporary _ Managementowned 26% ofthe yoy want to observe how Ac- staffing personnel tobusiness and government customers with 63 company-owned branch offices in 18states. ‘The IPO was in August 1994. Ac- cuStaff quarterly sales accelerated in 11 out of 13 quarters from March1993 until March 1996. Quarterly sales were up 164% near the stock’s peak price shown on the weekly chart, The company made many acquisitions and its P-E ratio expanded from 26 to 141 atthe peak. company’s stock and Robert Baird was its investment banker. Note that the stock corrected during the S&P 500 decline from ‘August 1994 until the market follow-through day on Dee. 14, 1994. The stock then quickly rallied, built a tighthandle and broke out to new highs on volume. That began an increase of more than 1,300% injust over one year. Here’sa rule: Most big potential bases are built during market de- dines — so stay on the job if you want to find the next big winners. cuStaff was a new issue that corrected during a market correction and after a follow-through day, completed. perfect cup with han- dleand then rode its 200-day moving average price line until, after its enormous run-up, it finally closed the week below the 10-week line on a big volume increase. Maybe reading charts and following buy and sell rules on companies showing big earnings and sales are better guides than going onopinions.How To Find & Own America’s Greatest Opportuniti ies | " By Wiliam O'Neil Sell: huge volume reversal and stock spits SEP 500 199 140 19 120 Follow-through to 10/26/88 a Sell: climax top olen Soup) ‘on big volume 4 10/14/98 {The JDSU cup with handle was built as a result of the +- SBP 500's 22% correction | hare adionin after climax top, which is unusual ee and recovery | and led to 3 more JDS Uniphase” built a classic 7 \ weeks in the move 50 22-week cup-with-handle base in i 2 the last half of 1998 due to a 22% Still OK, closes tignt 42 correction in the S&P 00. The Buy Se ee isd o index had a follow-through day JDS UNIPHASE (JDSU) aff sirtowechine ‘on Oct. 14 as JDSU then complet- Weekly Chart ie * 20 ed its 6-week handle and broke L iiss Add ait Oss 2 out at $7 (split-adjusted) and ; mong ater te 2 soared to $152. It never closed a e week below its 10-week-moving- Tight closes average line until after its $152 ee 0 peakinalittle overa year. Y 10-week moving 7 Now, howdoyou findsuch anin- erie Meee 15 credible stock? You lean how to \ " spot a cup-with-handle chart pat- a e tern, the most common pattern of "1 big winners that has been repeat- ‘Gloves bs opaer hal it ed dozens of times during every for the week : 9 TAA Add off 10.week 8 moving average line Sel: huge : Normal pullback to buy point, souls ddunan crosses backover (saan 8 ‘{Deweek moving average line Volume hi Zaweck cup on-pulbeck less than a year increase during wrth hans ‘ica 2 whole move ‘Volume dry up just before \ ‘Volume up. ‘ake big move up begins \ £0,020000 0.000.000 30,000,000 rN +100% | +200% | +50% N/A +100% |+33% [467% | +700% |+100% |+125% |+100% EPS % Chg Sep07 [ee 07 |warde[iun98 |Sepoe _|Decoe [Mara0 | unge _|Sop00 [Dees [Margo [no Dae bullmarketinthelast50 years. eamings and sales up a large top. So you act, buying the stock Once you learn to recognize this basie pattern, all you have to do is make sure you look at your charts every week so you won't miss it when it finally appears. Eighty- five percentofsound bases arecre- ated during market corrections that end with a follow-through day signalinganew uptrend. So, now you know the market is in a confirmed uptrend and you've spotted a classic cup with handle. The third vital thing you must do is check the stock's critical key fundamentals: Are the amount? Is thereturn on equityro- bust? Is the pretax margin strong? Have you read an archived IBD story on the company and its products? Lastly, does the stock have an increasing number of funds owningit? The quarterly earnings were up 100% when JDSU broke out to newhighs, sales wereup 40%, pretax margin was 23.7% and the number of funds owning JDSU increased for each of the prior six quarters and continued to increase all the way to the stock’s and adding to it in smaller amounts during some of the add points Thave marked on the chart But wait a minute, there is one last thing you must always do. Do you know what it is? You must always have a set of sell rules! Cut your loss if a stock drops 8% below the price youpaid. Ifyou're ahead and it is one of your better performers, youcan hold ituntil it either closes a week below its 10-week-moving-average line in bigvolume or hasaclimax top.. - a? x How To Find & Own America's iret toh Greatest Opportunities Falow trough \ eh 1112198 By William O'Neil Fatewsivoigh YY 9685 Ne 100 Follow-through a 12/14/94 Sell | " Q 60 JLG Industries manufactured spe- JLG is up 20% in 3 weeks / cialized hydraulic machinery, in- from $30 buy point 0 you 0 cluding minberials hanidlicyexotir: i can hald for another 8 weeks a ment and elevating work plat- Do not sel: loses \ 2 forms. Return on equity was below 1-neek ine i * 22.4% for the fiscal year that on very low volume Q i Buy over ~~ 34 ended in July 1994, long before Q re the first buy in 1995. The invest. Alter 8 weeks, stock is up 33%. With 0 ment banker was Raymond _ _ is cushion you can hold through 4 2 ‘ oF 2 pullbacks to the 10-week line or ly wot Jamesand Associates, Soa Ok ern, Ex 4— support 4 ig winners 2 By the end of November 1995, are seldom done until they Ve gone ‘Add: second pullback to your stock is up from your first ___ through one 20% correction 10-week moving 19 buyat $11 t0 $28 (both prices split- average line; volume 4 adjusted). You're way ahead "Up 20% in 3 weeks s0 7 ‘comes in as stock goes since | you added smaller __mustnolstorulweats x back upthrough ine 18 —_ ye kept your ee Buy. Vs o¢4 Add: first pullback 3 cost relatively low so you can af- No 7 weeks '0 10-week moving 2 ford to give your stock more A/S teas average line " room, especially. since the last io 10 two carnings and sales quarters i ° JLG INDUSTRIES 8 Cup-nith-handle base moved straight Weekly Chart 7 up from bottom and wedging up : along lows to new highs ~ so became vulnerable to a sharper First 3 weeks of dectine pullback and shakeout that cleared are on very low volume, . the way for correct buy point 5 weeks. ! especially on the close ee later with a spiit-adjusted correct buy below 10-week line Breakout *2 at $10.75 on the way to over $60: volume “28 Big volume in prior i i Big volume Ve 34 uptrend to the base @ oe support 70? PG Volume increases vam Low \ si s Re : 590,000 :o00 | 1 aioe wa__|+200% |+300% |+213% |+160% |+200% |+238% |+72% |+96% |+100% |+115% |+95% eps %cng 'Sep93[Dees9 _[Wars4 [ains4 [Sep94 [Deco [wares |.n95 [Sep5 [Dees _[Mer5 _|Jun6 ete accelerated. The next week, the stock has its first 20% correction and shakeout that you sit through as JLG never closes the week below its 10-week moving average and rallies back to $28 and then $30. @Now it starts another correction. Here is where your chart reading skills keep you on track. You see the first three weeks of correction are on much less volume thanaverage. The volume on the first week to close below the 10-week line is more important than the volume in a few later weeks. The fourth week is on big volume with the week’s price clos- ingup. Soyou sitthrough the normal five-week correction. @ It only takes one big winner handled properly, followingtime- tested proven rules, to offset the numerous other normal mistakes. JLG rallies three weeks, giving you anew buy point when another big earnings report comes out, the third in a row that shows EPS and sales growth acceleration. Youadd toyour position over $30. @ At the end of eight weeks, JLG is now at $47 and you have the edge to decide to sell ifeithera correct climax top or upper channel-line rule violation happens. — Since the channel line has not beenasufficientnumber of weeks and a climax week must have the widest spread for the week since the original buy point, you don’t have a valid climax top yet. So sit tight for now and sell whenaprop- er climax shows up a few weeks later. This is all about correct money management and _ following sound rules rather than personal opinions, emotions or being lazy and not doing any homework but justhopingto getlucky.How To Find & Own America's Greatest Opportunities By William O'Neil YK Folow:through Big volume 0 B98 inctease 0 ‘Yahoo had its first public offering Stall wook closes in Ni rtshaten outon big 70 Buy April 12,1996, and more than doubled the first week, which is shown on the lower leftside of the chart. It then sharply corrected andbuilta big, prolonged 64-week cup with handle before you had a proven sound base to buy. The chart price shows $6, butall prices on the chart have been adjusted for stock splits, so the actu- alprice at the time was $36. It was the perfect buy point on the perfect chart base that increased in valuemore than 35 times in alittle over1-1/2years. The easiest way you could have spotted Yahoo and itsperfectbase Buy: 19-week classic ‘cup with handle that was. part of a big 64-week cup with handle bottom 19% of week's price spread from high to low Can sell here \a Siall week after big run up but closes in 8 upper half “4 Stalling price action BY butlower volume ee YAI Sell: Climax top Folwetheough SBP 500 ze 10/14/08 20 180 170 7 Breaks upper 180 channel ine ‘0 Follow-through Follow-through a 4122197 16/88 vo 17 Do not sell ,/. closes below 10-week line on fowor Ve a Tight closes Heavy volume without further price progress up. price stalls [volume seling, must 7 buy back on 10/14/98 follow-through day 6 50 46 a 8 6 Closes week in upper half is support /. |= ater puiback to buy f point in prior base Hold: volume on frstweek 26 TT Teloee below 10-week line is mere important than second week..also closes in upper half of week's price spread than HOO INC. (YHOO) Weekly Chart Excessive spit second in under ‘on 180% volume increase. nh ¥ Sell and can buy back 11 48 nt uy weeks later at $50 breakout Do not sell Close a2 Tight closes first week below 28 Kay: Bg volar Sos nee of ae lower volume support during Volume dries up 30 base creation before breakout \ Big 28 IPO @ | (Ga) yotume @ 24 64-week big Volume up Volume cup with handie on breakout Volume dries upping po IE wa _|NiA [NA |N/A [NIA _|+200% |+200% [WA [NIA |+0% _|+100% |+450% EPS u%cng un96 [Sep 96 _[Dec95 _[wers7 |uuns7_|Seps7_[becs7 [Maras _|.nno# |Sep98 [Dec 98 | war99 Date was if every weekend you were going over a number of weekly charts. It only takes one or two stocks like this to change your whole life. The handle area also replicated a smaller perfect cup with handle withinthe larger one, giving you two shots at recognizing the most common chart pattern in America. So is it worth your time in the future to spend an hour or two on the weekend to check out and develop your chart recognition skills? Yahoo was a new company incorporated in 1995 in anew industry, the Internet. Its sales increased an average of over 200% per quarter, compared with the same quarter a year earlier, from 1995 to the peak ofthe chart. The stock broke out of the cup with handle as soon as Yahoo started showinga profit. Now finding a new winner is your first giant step forward. The second step is to make sure the general market is in an uptrend, which happened with the S&P 500 follow-through on April 22, 1997. The third necessary step is toread andknow the stock’s story and check the fundamentals and mutual fund ownership. Yahoo fund owners increased every quarter from six in the beginning until itspeakprice. Now the fourth and absolutely critical final step isyou must have a set of clear, specific rules for when to sell and when to hold. Don’t leave this up to how you hope or feel. Read carefully all of the comments marked up on this week’s chart to help you handle the ups and downs of a potential leader once you've bought it. If you save each week's marked-up big winners you'll have a set of modelsand guides forthe future.By William O'Neil Follow-through 3/6158 Follow-through Nee \ Cala In 1958, Texas Instruments was the No. 1 company in the new semiconductor field. It jumped out ofa36-week cup-with-handle base and ran from $30 to $258, more than 750% in slightly over twoyears, Here's an undeviating principle that fewinvestors fully appreciate or understand, Eighty percent or more of all great new winning 4/18/58 and formed due to corrections in the general market averages, usually in three waves down. Once the market averages hit their low point and Buy bottom week 36-weok cup with handle buy point Volume dries up along Foliow-through chart base patterns are created BUY 7 og Huge volume on Volume up as stock ‘goes through precise 8/27/89 \ z Foliow-through ‘Sri 23/58 TEXAS INSTRUMENTS (TXN) Weekly Chart |. Buy, A jolume Can add to position the first 2 or 3 times stock pulls back to 10-week moving average line Key volume support closing at the “closes all near peaks eak price for the week Follow-through /Do net sel: volume only average on ‘st week closing below 10-neek line Again key volume support How To Find & Own America’s ‘otor-tcus Fatew-hrough Greatest Opportunities 10/18/59 ‘Dow Jones Industrials be" bya Ny Sell: stock tres to rally above 10-week line and then reverses on volume 219% above average = 300 280 260 40 220 190 170 150 40 130 120 0 100 0 0 When Dow Jones makes inital low at “A” stock makes its low. When Dow makes new low at "B stock holds above prior low B bases. Either way, in intermediate short-term or bear-market corrections, most investors have likely been kicked around a little and lost some money. The news is often not very good, and you're going to be unsure about the econ- ‘omy or market direction and are therefore more reluctant to act... at the very time enormous opportunities can instantly appear. My suggestion is, knowing these historical facts, you should create aregular schedule to reviewmany ” 6 [lows of handle - no further selling in the stock +55% +7% —_|+30% | +7% i? ~ +59% |+129% |+97% | +87% +71% Volume: 46000 3000 4000 2,000 +42% |+22% |+21% EPS% Chg eps? |s=s7 [arse | Jun 58 [Sep 69 sopst |Decs8 |Mars9 | Junéo Dee 60 [mere [un 60 |Sepéo Date have a follow-through day con- firming the new uptrend, opportunities abound. If the correction was only a short-term intermediate one of say 6% to 12%, one or two of the new winners will break out the very week of the follow- through in thegeneral marketand begin their super run. Not only that, the remaining 75% of the very best new big winners can move up and quickly complete the right side of their bases and break outin the next two, three or four weeks. That doesn't give you much time to act. You're either ready, knowing what to look for and on top of the situation, or you'rea little unsure and hesitate. ‘The market isn’t easy — it doesn’t wait until everyone is ready, prepared and certain. If, like in the Texas Instruments example, the correction was due toa bear market or prolonged re- cession that ended with a 20% market dive in the last three months, you might find many of the bases will be deeper and start moving up their right side over a larger number of weeks to complete deeper cup-with-handle stock charts every weekend, especially during ali market corrections, Changes in market direction can be sudden and offer life- changing opportunities to the well-prepared. Learn how to recognize all classic historical cup- with-handle patterns starting with those in 1958 along with ‘Texas Instruments. Zenith (new TV remote control) broke out at $25 on the way to $137, American Motors(new Rambler) went from $10 to $97, Brunswick flew from $4.6 (split adjusted) to $76, and Xerox from $13 to $171.Sell: goes above upper-channel line -- How To Find & Own America’s Greatest Opportunities By William O'Neil Lanett S&P-500. a9 Folow-through Follow-through 10/19/82 972192 Newbridge Networks wasaCana- dian company that designed and ae 2 ‘Stack doesn't close 72 % manufactured products used to below 10-weekline 36 manage communication net- for entie cit works on a worldwide basis. It Stock is up 20% in 19 managed digital links that trans- first 3 weeks, must ks Padma off ported voice, facsimile, data and Boe ea eee fs nn videoamong information process- Boot ey Pel / 5 Saseks : At the end of 8 woeks, te tight closes Ps you're aeaitp ST%and " wy N have a large cushion, so you NEWBRIDGE NETWORKS Na at i evs » Weekly Chart . 5 maf "Add: 3 weeks tight closes, only 8 pulls back to top of base when 3 je SAP 500 undercuts ts low Newbridge doesnt make a new : 22-weex base Jow and rebounds off 10-week line 5 When Dec. 1992 shows EPS growth has * | accelerated to +650% and sales have also ” accelerated you could justify another smal 38 add on the announcement and still avoid 34 running up your average cost too much ae i 28 Allprices 26 Earnings and sales adjusted for 24 aren't strong enough Again Big volume 2/4 split 22 during this base volume: ‘on breakout a ig 19 Huge key dries up volume clue along: an wou Gi AZ / = Youre #,000,000 "f #000000 3,000,000 | +,900,000 424% —|414% [416% | +8% 47% 432% |N/A £350! 650% 14525%) (4357%) 0356" EPS % Chg Decso [Marsi [iunsi [Sepsi [Decsi |Mars2 |Juns2 |Seps2 [Decs2 |Mar93 |Jun93 |Sep93 [Dec9s Date ing equipment. Products were sold in 70 countries with 72% of sales in North and South America. Newbridge was incorporated in 1986 and had its IPO in 1989. At the first buy point emerging out of the 22-week base, Newbridge fi- nancials operated on an April fiscal year-end and had earned 28 cenis per share in the year ended April 1992 with next-year estimates of 80 cents, an increase of 186%. The P/E ratio was 41, which we never look at and say, “Oh, that's too high ... we can’t buy that.” In the stock market, a stock sells for what it’s worth at thetime. The law of supply and demand continuestodo its work. Also at the buy point, five of the better performing growth funds had recently acquired positions in the stock. Newbridge spent 4.7% of sales on research and development and had low betaof1.16. Overall sales were at $196 million with the last quarter up 36%; the last quarter's earnings were up 350% and the Relative Strength Rating was 95 at the breakout point. ‘Theweek after breakout, theup/ down volume had jumped from 1.3 to 3.0, reflecting the huge volume of the breakout week, which tells you it wasn't your cousin Jo- sephine doing the buying. The stock also broke out of a giant 33-month-long cup-with- handle base that began in the De- cember quarter of 1989 (not shown on this weekly chart). So it pays to check out a long-term monthly chart as well as your basic weekly and/or daily chart. You'rein the business of checking all the key facts — no guessing or hottips.How To Find & Own America’s Greatest Opportunities By William O'Neil Follow-through 73194 eT TN sey Ascend Communications manufactured WAN access products that let users build videoconfer- encingand voice/video/data inte- grated networks. The company, ‘was incorporated in 1989 and had its IPO in May 1994, a difficult market year. Morgan Stanley was the investment banker. Ascend had 700 customers in early 1994 and had installed more than 4,500 products. They faced competition from companies such as Promp- tus, 3Com, Cisco and Newbridge. Its produets were instrumental for dial-up Intemet service provid- ers such as AOL and EarthLink, and Ascend grew as the Internet got into more homes. Sales increased more than 100% in 1992 ‘i 3 weeks fight closes \ Buy: 10 weeks after IPO, Accumulation! Distribution Rating is A GW» Follow-through eres \ Sell. 2 weeks down to 10-week line then up 2 weeks to new high 2 possitle channel lines could {be drawn: A, B and C or B,D, and E which could have led to an earlier sell at $31 Add: 3 weeks tight closes Buy: base- back above on-base /-4--10-week line on if huge volume if ‘Add: rebound © off 10-neek ine Four weeks of tight \acoumulation all along 10-week moving average S&P 500 ,, 0 70 0 ‘Shakeout below 10-week line 6 1994 due to the S&P 500 correct- ing sharply and making new lows. ButAscend only had anormal pullback to its 10-week moving average line and the top of its prior base. It came nowhere close to making a new low below its prior base as the S&P 500 did. This showed huge counterstrength. As soon as the market started to move up, Ascend broke out at $4 (split-adjusted) and ranto $70 before it ever closed a week below its 10-week line. That's over a 1,600% increase! Now here comes an eye-opening zinger . .. Ten years later, in July 2004, the It built an eight-week base-on- f 6 (feaee base that pulled back to its Pa All prices are adjusted 3 splits in he * ie for 3 stock splits uncer 1 year 18 a . bid 14 i Zi Heavy volame eo vous without further price —_, decline is support \ 12,000,000 700,000 ASCEND (ASND) aaa Weekly Chart | 2,000,000, nl l NA NA +0% |+100% |+200% |+200% |+300% |+150% |+133% |+300% | +325% EPS % Chg Sep83 [Dec oa Maro4 | Jun94 | Sep 94 Dect4 |Mar95 |wun 95 |Sep95 |Dec95 |Mar96 | Jun96 | Sep 96 Date and 1993, Ascend became profit- age is much more important than 19.week moving average and the able in 1993 and more than doubled its profits in 1994 as well as its return on equity at 32.7% and pretax margins at 25.2%. Re- search and development spend- ing was 12% of sales. Beginning with the September quarter of 1994, sales accelerated for seven quarters and averaged over 100%. The P-E ratio at the firstbreakout in July 1994 was45. By January 1996 the P-E was146. There are many critical lessons tolearn from Ascend Communica- tions. 1, The EPS growth rate percent- the P-E ratioin most cases. 2. Recent LPOs with big earnings and sales increases can form what we call IPO chart bases. ‘They are worth researching. 3. Every market cycle is led by America’s entrepreneurial innovators with unique, valuable new products and services. It's up to you to keep your eyes open, get yourself prepared and don’t get sidetracked. 4, Learn to read charts well. If you missed the early first and sec- ‘ond buys, Ascend corrected and built a base-on-basein November top of a prior 6-week base while the S&P 500 collapsed to new lows. Apple was showing strong counterpower and, as soon as the market tumed up, Apple broke out at $17 and ran to $700! Both stocks had similar EPS growth when they broke out. Ascend was +200% and Apple was+233%. It's wake-up time. History con- stantly repeats stock patterns in the market. Maybe it’s time you get determined to always recognize and never miss another base- on-base or cup pattern in the future. Youcandoit.How To Find & Own America’s Greatest Opportunities By William O' Neil Follow-through SBP. 500 og aver sf z Fotlow-tnrough 87 20 cpt 10/18/65, Ey RAN Soli: Climax op « Buy 0 “« 1966 bear market 3 a2 Monogram Industries had new Buy: Ascending base rl 6 {has 2 pulltacks) management that cut costs and oa benefited from a period of rapid A =. growth inairline stocks when the | ey t 3 ny Cup with airlines moved from older propel- eae 2 ler planes to faster, quieter new 2 jet engines. Monogram, a Los An- geles-based company, produced Prarerin 18 closes and ” volume dries uo] 45, i i % ® i * ‘0 MONOGRAM INDUSTRIES a Weekly Chart y Add: rebound: off 105veek line i 7 6 5 Shakeout on volume ie and tumaround 42 38 a4 Volume increased ie B ‘rom prior week and 7 rice decline ends > 24 ht Volume up Big volume 22 on breakout \ @) as Voume Volume up ~ ‘ 120000 70000 40000 z0000 +60% —|+33% | +25% +150% |+120% | +20% +113% +67% | 453% EPS % Chg [unas [Sen@5_ [Decas [Maree [un60 [Seo00 _[Dex0 [Mac? |an07 |SepO7 [Dec 07 _|Nard@ Cate self-contained flushing toilets for airliners. Sometimes you can participate in an industry move by looking at suppliers, especially those that stand out in earnings andefficiency. Monogram’s stock made an 890% advance from the first marked-up base as soon as the market had a follow-through day on Oct. 18, 1966, until the stock was sold into a classic climax top. This all occurred in only one year and six weeks’ time. Notice that Monogram was one ofthe first stocks to break out and soar as soon as the 1966 bear market ended. The P-E ratio was 18 and expanded to 74 atthe stock's top. Every new bull market tends to discover 15 to 20 new big winning stocks, The more you carefully learn what past leaders looked like, including their fundamentals, the better your probability of recognizingand capitalizingon future big winners. You specifically want to know what the leaders looked like before they made their major price moves, but also study very carefully the way they moved up. Buying right is only part of the equation. You also need holding rules toavoid the pit- falls along the way that can shake youout of agoodstock andselling rules to get you out when the moveis over. Ifyou keep and save all of these examples given once a week, you will have your own model book of what dozens of outstanding, unique market winners did that made them so great.By William O'Neil ae through 3729108 Weekly Chart Note tiny spreads for 4 weeks, sound bases need a few weeks with small price variation. The very next week stock breaks ut 2 days after the 3/29/04 follow-through day in S8P 500, Cup with handle SOUTHWESTERN ENERGY (SWN) we Follow-through ok eet | Follow “ica Follow-through 5125104 arigioa Buy: big volume on gap up. Buy He : Naa: rebound off 10-week line ‘Supported 5 times at 10-week tine bull market began after a prolonged three-year bear market. It was also the start of agreat period for oil-related stocks such as ‘Schlumberger and Exxon-Mobil that lasted until the bull market How To Find & Own America’s Greatest Opportunities ‘S&P '500 off 10-week line OS sons i vam Closes mid-range for 19 week and above the 17 10-week line Pullback fils in gap area and then stock goes up 8 weeks in a row 8 5 4s 42 the S&P 500 rolled over and made new lows, but Southwestern did not. It diverged, building a flat base going sideways seven weeks and creating a base-on-base that was supported five times at the ended with the S&P 500’s top in © 10-week movit e line. All 2007. of this required a lot of patience, a7 15 : Big volume spike ‘Volume: Lipon pret upberd Volume up Zo ewvth nants < |, 20,000,600 4 \ me K 6,000,000 i li 3,000,000 #261% |+385% |+140% |+34% |+108% |+143% |+114% |+31% |+33% |+87% |+53% EPS % Cho Jun03 | Sep03 [Dees [Maroa [un 04 [805.04 [Dee04 [Mer 0s [Jun 05 | Sep05 _[Dec05 [Mars Date Southwestern Energy was a big market leader in 2004 and 2005, engaged in the exploration and production of oil and natural gas in Texas, Oklahoma, Arkansas, Louisiana and New Mexico. The Houston-based company alsodis- tributed natural gas through a 5,400-mile pipeline. Southwest- ernhad provenreserves of 8.5 million barrels of oil and 594 billion cubic feet of gas, plus it held 924,000 undeveloped acres and 247,000 developed acres. Its earnings turned up in the first quarter of 2003 when a new Southwestern Energy formed a perfect 13-week cup with handle in early 2004 when it corrected six weeks down to the top of a prior flatbase. On thatsixth week, volume continued above average but the price closed down much less than the prior week’s col- lapse. The stock also closed more than 40% above the week's low, a sign of institutional support. Tt then rallied to within 5% of the stock’s peak and created a tight handle with the last week under- cutting a two-week earlier low and the next week breaking out. It moved up just four weeks and however. The base-on-base is a super-powerful formation because the stock is holding up, making a new base at a higher level while the market keeps going lower. Southwestern diverged again in July 2004 and built still another base-on-base in March and April 2005. Keep these examples so you'll remember that base-on- bases are not stocks that can't seem to get anywhere but are stocks refusing to go down and just waiting to surge to new highs and race ahead as the general mar- ketstartstoturn up.How To Find & Own America’s Follow-through 718105 Folow-through jew high 10/19/05, Greatest Opportunities Fetow-trouan \ \ Jew voune fi 150 By William O'Neil iy ts 129 Wedging up i x (on low volume iB Follow-through S&P 500 Follow-through 8/16/04 Buy: 10-week 100 5/25/04 double botom NJ / 89 wl f/ “ Hild Sell close below ,, Intuitive Surgical develops an ad- Do not buy Buy H 10-we0k ino on vanced surgical system designed ite wage Upee big volume gy toimprove minimally invasive sur- Sell: breaks upper Do not sell: gery. The system translates a sur- channel ine low volume = geon's natural hand movements ° on a console into corresponding i micromovements of instruments bo positioned inside the patient Sweeks “ = Pe ight closes eheiyeagremall pomctury leita, We Buy back @ $26.35 the amount a Stalling action sold plus a litle more due to gap 6 Pup on 4242% big EPS report A oA Do not buy ‘and volume up over 366% aft 2 Do notboy above average dail voume —_/ 19 rds: comve uv of stock when closed a pack through Beow 10-week ine on v i 70-week line on Volume, must buy back Relative Strength Line 13 huge volume the next week vs. S&P 500 2 A op 1 Handle area of base wedging [VW 10 up along weekly lows is a AY 9 key fault of a stock that NV Corrected 46%, much worse rd INTUITIVE SURGICAL (ISRG) ° than the S&P 00 at the time Ma Weekly Chart 7 fh fh Rel: Str yth Lir ts high . a4 [ lative Strength Line gets new higt KN ground as S&P 500 is making lows Z re ON ey fod ll “ [Wal Ne a Largest weekly volume Volume Huge negative since stock's IPO in 2000 volume close o.oo 000.000 ‘3000000 +.gn0ccu arm l WA _ | +120% | +117% | +100% | +242% | +700% [+1150 +180% | +224 [+126% ePsscng Junos[Sepo3 [Decos |arca |Junos |Sepoa |Decoa _|tfaros | Junc5 |Sep05 [Dec os [Mar 06 Date ISRG had its initial public offering of stock in June 2000, just prior to the prolonged 33-month bear market. The IPO at $9 quick- lyjumpedinsevenweeks toahigh ‘of $38 and promptly nose-dived to $6, tracking the general market’s cave-in. It then moved back and forth, unable to make real progress from a proper base until June 2004. After several years of mediocre performance, it built three bases beginning in June 2003, The first ‘two failed and the third one broke out and advanced from $18.60 to $139. We'll point out the reasons the first two failed and the third worked, which are things you can learn to recognize as you get more serious about good chart reading. ‘The first cup-with-handle base (at Point A) was faulty and wide- and-loose (a 46% drop), and the handle area wedged up along its weekly lows. The second cup with handle (at point B) was nota base-on-base pattern because it did not stop and build a base on top of the prior base (at point A). More important, itbroke down on huge volume 400% above its weekly average and one day had a 1,700% increase above its daily average volume, giving the base more distribution than accumulation. Finally, the handle area did not drift down. When the firstand second base broke out to new highs, the Relative Strength line lagged and did not make a new high. ‘The third base (at point C) was tighter and proper, not as deep from peak to low of the base. For the first time ISRG’s Relative Strength line vs. the S&P 500 led into new high ground while the S&P 500 corrected to new lows in July 2004, akey signof'a powerful divergence. Volume dramatically increased aswell astheprice. Both history and human nature relentlessly repeat in the Ameri- can stock market. Microsoft had three long sideways bases from October 1987 to September 1989; the first two failed, the third advanced six times. PeopleSoft did the same thing from February 1993 to August 1994 and then advanced four times. Qualeomm moved sideways more than ayear with the first two bases failing The third took offin January 1999 and soared more than 20 times in one year. Could it be worth your time to study historical charts and human nature? Do you think some stock could be repeating history this year or next?How To Find & Own America’s Greatest Opportunities By Wiliam O'Neil Sell: stall on £.-{.--tihuge volume -j Sell, no demand as bode stock makes new high on tow volurne Follow-through Foliow-through 12/14/94 ee ” m31e4 a “do not sell here a distance from second 0 fo third plot point of ft channel Ine must be 0 i | more than 6 woeks “Ny 4, ‘Stock breaks out Break out ‘ 50 fustater flow fomnew A: poste SR ne earnings repor ew hi through in S&P 500... stock base. So" aeceenatg odes 2 eps and sales 8 QUINTILES gto : : ight closes | \; i _ Weekly Chart for? weeks. | i % i Q Hold closes in Up over 20% insta = BOOS ay pest Re hal of weet feat 2 weeks must hold for 8 nimary of" average line. Now you can scan full weeks then ay atS28 every week looking for these clas- re-evaluate provress ANY seek Ade: bounces sic patterns that have been repeat- tH base off 10-week ine ed every market cycle. base ‘ \very tt ‘Weeks 3 and 6 close up for the week with increase in volume Weeks 9 and 11 have heavier volume with no further price progress down, signs of institutional support J ie-week | area, sign of accumulation Chart prices are adjusted for 2/1 split. Therefore, fist buy was $19 at the time, not $9.50, and second buy was at $28, not $14, etc Once you spota few success patterns each week, check the key fundamentals:big increasing quarterly earnings and sales, high return on equity or pre-tax profit margins, what products they make orsell, the general marketin an uptrend. Once everything seems to check out and you believe you'reright, the chart's right and all the fundamentals are 44 on) Stall 40 5 Volume \ \ Voume 5 Vetvlignt Price and a 1840.00 EPS growtn at IY } volume up 50% and Sales 9 ‘apie growth at §1% Hae 580,000 before breakout : i008 \ i \| 200000 +14% (450%) |+43% | +10% |+38% | +44% |+50% |+55% | +739 EPS% Chg Mart [Jars4 [Sepa [Decs4 [Mares |iun95 [Sep95 [Oecd5 [Mars | Juns6 [Se096 | Dec 86 Date Quintiles provided pre-clinical research-and-development servie- es to the pharmaceutical and bio- technology industries. That in- cluded clinical trial management, clinical data management, bio- statistical analysis, centralized clinical trial laboratory services, study design, regulatory affairs services, pre-clinical testing and health economics consulting services. The company made many overseasacquisitions in 1995. For- eign operations accounted for 38% of sales. Quintiles had its IPO in June 1994, How do you learn to find and own America’s greatest stock opportunities and hold them until a proven sell rule tells you it’s time tosell? There are relentlessly dozens of these new great winners every market cycle! You need a system and a routine, a pre- scribed course of action you use and follow regularly every week. Here’s one way youcould do A) Save all of these historical models of big winners we've marked up. Save and file them in order of the date of the first marked-up buy point. This way you'll have all the classic greatest winning patterns at the start of their greatest move and in order ofdate ineach cycle. B) Get “How to Make Money in Stocks” and read it twice. Now you will have many models of exactly everything you're looking forevery week. C) Subscribe to a weekly chart service, any one as long as they have lots of price and volume weekly charts on a logarithmic price scaleanda10-week-moving- there, it’s decision time. Put amar- ketorderinwith yourbroker. If you buy 10 stocks over the course of ayear, you'll probably be right, if you've done your homework well, two out ofthree times. So you may be right six or seven times and wrong three or four times. The seeret is to cut your losses short so you never let yourself get hurt badly when you're wrong and make up for the small losses when you're right. One method isto learn to cutall losses when a stock is down 7% or 8% from what you paid and sell more of your stocks when they are up 15%, 20% or 25%. In a roaring bull market, maybe one of your 10 stocks might be able tomake 50% t0100%, but don’t getstarry-eyed, carried away or greedy. A bird in thehandis worthtwointhebush.How To Find & Own America’s Greatest Opportunities By William O'Neil 5/11/90 Follow-through 413190 low United States Surgical Corp. pio- neered the development of surgical staples in the U.S. These reduced patient time in the operating room, trauma and blood loss. ~ ‘These factors facilitated postoper- ~~ ative healing and shortened hospi- talstays. Inthe late’80s, doctors beganin- _. Sell: breaks upper 190 abeetivdicn Follow-through —Follow-through | channel ine as H 7 1118191 18001 SéP 500 |" Folow.tough \ 1 1m ‘20 MH 10 100 0 o Market makes new ih 0 but stock holes ¥ above its August ow > 0 TN sweets taht A weeks doses in handle bd tight area of cup 6 \ 2 Buy x8 \ Buy Add: bounce off oe sae ts 10-week line on above B average volume FS i : 2 ‘Ada: big volume off 10-week line 2 serting surgical instruments through disposable, tubelike de- Breakout week with 2 and base-on-base ‘Shakeout week: closes at peak with very little price change and increase in volume 12. weeks. up in a row of 3 prior weeks having big volume clues created (correction stopped at prior base's pivot buy point) UNITED STATES SURGICAL CORP. Weekly Chart is being Volume : OK Q 8 il | 4+23% [423% |+23% |+38% |+31% #69% | +67% | +76% |+87% |+78% EPS % Chg jaun89 [Sep 09 [Dec89 _[wereo_[avn90 ate De 90 [Maro1 [aunes | Sepe1 [Dest [Marae Dae vices that opened the door tolap- for $57.5 million. From the first one or two medical stocks thatbe- aroscopic surgery. U.S. Surgical’s “Endo Clip” was introduced in 1990 and enabled laparoscopic gall bladder removal. The laparoscopic proceduresrequired smaller incisions, were less invasive and also reduced hospital stays with faster healing. By 1992, half ofthecompany’sS1billion inreve- nuecamefrom sales of laparoscopic-related products. US. Surgical marketed its prod- uctsin the U.S. and 64 other countries. The company repurchased 4 million shares of common stock buy point coming out ofa19-week cup-with-handle base in April 1990, the stock increased 785% in 94weeks. Earningsand salesinthe most recent quarter, before the first buy, were both up 23% and accelerated for the next five quarters, The P/E ratio beganat 22 and endedat 79. The number of mutual funds owning the stock doubled in the two quarters prior to the initial buy and materially increased in six out of the eight next quarters. Every bull market typically has come new marketleadersthat last for 1-1/2 to two years. Most do not repeat in the next bull-market cycle. That's why it’s wise to use, and follow, proven sell rules to sell on the way up when you have a significant profit ... while you stillhaveit. It’s better to have rules than to go by how you feel. Jesse Liver- more said, “There are only two emotions in the stock market: hopeand fear. Theproblem is, you hope when you should fear and you fear when youshould hope.”By William O'Neil 277190 ‘American Power Conversion designed and manufactured uninter- ruptible power-supply products for use in personal computers, work stations, file servers, communications equipment and other electronic devices. In the case of power failure, its products provided a temporary and imme- diate source of power until backup or emergency systems could take over. This would safeguard Follow-through How To Find & Own America’s Greatest Opportunities Follow-through Follow-through | W180" 5/11/80 Follow-through 10/18/80 made its hugerun. Notice how a stock’s base pattern is formed because of the general market (the line above the stock's weekly prices is the S&P Do net buy: peer vouna 5 nit Cup with yan handle Buy. i “ Follow-through Follow-through 10/15/91 7/8/91 i of S&P 500 ‘Add: Goes back above 10.week line a Tech stocks tend to have more pullbacks and shakeouts making them harder to handle g Therefore, you must really tial damage and loss. APCC benefited from the rapid growth in the computer industry and government defense business. ‘At the first buy point, annual earnings had been nearly doubling for three years from 4 cents to7 to 16 to 30. Inthe two quarters before the buy point, earnings jumped 125% and 83%, whilesales ‘were up 120% and 86%. Annual pretax margins were at 26.9%, return on equity was 50.7%, and sales were up more than 100%. All of this happened before the stock tom and begins an uptrend, stocks will break out of sound bases. The depth of a stock's correction in most cases is affected by the degree of decline in the market index. The depth of the eight-week flat base that broke out in October 1991 was less than the decline in the first two base patterns in our example due to the greater de- clines in the S&P 500. Don’t ever get thoroughly discouraged with investing when the general market is in a correction, because Stock had its ie know the company well to sit IPO July 1988 r Pullbacks through the numeroustests. 4.5 Note the peak close by the po Pullback B end of the week /-- ped: bounce off corrected 26%, Tosestnamy moretiannemai that’s the process that creates aanieie handles bases forthenext big market leaders, So learn your general market ‘ ‘i ” rules and your individual stock amie A naeek Seat ree) buy and sell rules to be in phase tight closes with handle Weekly Ch ‘with what's happening, ._ feekly Chart The first18-weekcup-with-han- Big volume Prices adjusted 15 clue Big volume douand for stock splits a oi zn Volume : ms, X 1,680,000 F 980,000 180,000 40,000 200,000 407% |+125% |+83% |+40% |+80% |+4a% [430% |+aa% |+67% | +62% EPS % Chg “iin80[Seps9_[Oec89 [oar90|[aung0 [Sapo [Ose 90 [wars |.amgt _|Seps1__ [Dest [Mara Oate equipment and data from poten- 500) and once the S&P hits abot- dle base was classic. After round- ing out along the bottom of the cup, itran up five weeks in a row with volume and then pulled back two weeks on lower volume to form ahandle in the upper part of the whole base. The next week it broke out on March 7 with the day's volume 410% above its daily average. The stock then increased. more than 800%. P.S: The IBD stock tables show the daily volume % change for all of its stocks and boldfaces those that trade +50% or more for the day.By William O'Neil Mosaic was the No. 1 maker of phosphate fertilizers and it was No. 3 in potash fertilizers worldwide. It wasa turnaround stock in ahighly cyclical industry. To beahappy investor andmake asubstantial profit in a newly up- trending market, you must be quick on your feet to spot and buy exactly the rightstock at the right time — one that has outstanding fundamentals and an exceptional new productand story youunder- stand. As this stock continues to go up after your buy, be prepared at some point to hang on through two corrections of 15% to 20% in this stock that you will probably be holding over a period of five to six months, 12 months or in a few casesup to17 months. How To Find & Own America’s Greatest Opportunities Follow-through Fojoy-through Follow-through J} not buy a“ mun 22 280 areata Ee MS weeks of base Follonethrough art * were down uae Arahor SBP 500 breaks to new lows Do not 180 buy sale 10 Sell on 47th week since first s 120 buy: general market, ater 110 90 one leg down, rolls over and breaks to new lows Do not buy: new high on very low volume Buy: ascending base (A, B,C) 93 7 NOW ready to advance ‘Add: bounce off 10-week moving average line on volume increase Donot buy: less gy volume on new high than prior week and straight 79 up from the bottom B \ Add: bounce off *1O.week moving. average line on volume increase After 3 shakeouts at new lows, stock is Word to the wise: stock drops from $163 to $22, 141 points in 23 weeks! Learn when to sell and 19 NEBR BS EKSS ae you must sell all of the 1 earnest e Ma MOSAIC COMPANY (MOS) 16 Weekly Chart a Largest volume 2 3 weeks of big vise in base: ” volume buying were bad down 10 ‘support around weeks: @ 10-week line | \ | | Voume \ iasogen 3.000.000 Xe 4,000,000 2,000,000 +533% |N/A 73% —|-22% —|+15% | +120% | +067% |+386% |+440% |+1940%| EPS %Chg ects —[oaro8 [aun 06 [sep 08 [oe 08 [aror [ana —|Sep07 [oeca7 [wars [anos [Sepo8 Daw stock on the way up after it re- sumes and continues its advance. You will use your predetermined, historically proven sell rules to spot when your stock’s price action tells you it's now exactly the right time to sell based on one of your proven sell rules (not how you feel, what you think, want, hope for orareafraid of. It’snoteasy, it takes time, butyou can learn to do this if you have a strong desire and are determined. On the chart, note the three big volume clues in the nine-week base at the first buy. At point A, B and C, you had an ascending base that corrected three times with each low made at a higher point. After a stock has about doubled, three weeks is not a base, and a July 2007 new high on low volume is a do-not-buy sign. After three shakeouts to new lows, the stockbroke out again from aseven- week base in August 2007 for another move up. Along its move we had two add points where Mosaic pulled back to or around its 10-week movingaverage. Then, when you're as happy as larkand sure your stock will keep moving up, you get and act on a key sell signal. ‘The S&P 500, which had already gone througha sharp correction in October and November, rolled over after a weak rally at the end of Decem- ber. By the first week of January, there were seven distribution days and themarket broke tonew lows on accelerating volume. Late that year the stock ended up at $22, but you were out at close to $100 with a substantial gain. ‘You can’t go by opinions or how youfeel. Youneed to have and fol- lowsound, proven rules,How To Find & Own America’s Greatest Opportunities By William O'Neil ‘We live in the greatest country in the world. How did it evolve? The U.S. system, that’s how. It’s your freedom of speech, religion and press. You are free to own property and keep arms. Every citizen over 18 is free to vote inelections every two and four years, and replace weak or filed sede: You are free to work, learn, create, inno- vate and invent because of our wayoflife. Weare a nation of innovators because of these freedoms. Our GDP per person is larger than any other major country. That's why millions of people continue to come here to participate in our exceptional freedom and ‘opportunity. Nothing can hold you back except your own atti- tude or level of determination. Today, nearly 50% of Americans invest in our stock market, either in their 4010k)s, individual stocks, mutual funds or pension funds, However, whether still working or retired, most are not highly skilled investors, as this takes time, workand study. Up 20% in 4 week must hold 8 weeks and then reassess ~~ Se Buy point afer 3 tight weeks and volume” — Fa dry up on correction bly: portunities in the past. It’s wake- uptime. Reese oreex “this is by far the best way to improve your skill in finding the top innovative newer companies. These patterns and great fundamental numbers will be repeated again and again, and be priceless models to guide you in each new market cycle. ‘The stocks may all have newnames, but the highly successful facts and patterns willbe thesame. ‘Why did these super patterns and facts occur in all of our fe ‘on big volume or has a climax top issed these life-changing op-3 weeks tight closes, / t x ‘Add base only corrects 10% z Sell ~ climax top: 10 : 30 days up ina row, up =< 28 40% on 2nd spit in last 6 months You have to buy using rules, hold using new rules, and sell ~~7 based on selling rules...no opinions, emotion or ego 6 46 Add first pullback to 10-week 42 |_moving average line of prices 38 I Ada i 34 nah 3.0 = New buy point 28 [5 weeks tight closes aa x shows posifive accumulation a (Cup base aber heat ao: Home Depot (HD) End of Bth week from buy, HD now Weekly Chart ag up 47%, so can hold until closes pony el week below 10-week moving average 17 Huge volume \n 2004, Google IPO Tepeated the same pattern and buy point (demand) 4 Big volume a Low volume on decline SA Ht { Volume: +100% +100% NIA +50% +100% +350% NA +100% 450% EPS % Chg “nt Seat Dect waree | ame Sepe2 | ecee | wares | on63 Dae In every new market cycle for _ last27market cycles? market, they had a public offering more than 100 years, innovative _ With all the changes and prob- _0fHomeDepotstock. Here are the vital fundamentals companies continue to leap on to the scene and become outstanding new leaders. So you must learn how to, early on, recognize and capitalize on our never-ending parade of amazing opportunities. Each Wednesday, I'llcover inde- tailone of these remarkableentre- preneurial stocks whose price soared 5, 10, 20,50 or 100 times in the recent past so you can leam the key factors to look for in fu- turenewleaders. ‘Also, you'll learn why youproba- Jems in the world, three things do not change, especially inthe US. 1) The law of supply and demand. 2)Humannature. 3) The drive and unrelentingini- tiative of our innovators. Here is my first example of two creative entrepreneurs: Bernie Marcus and Arthur Blank had just been fired from a hardware chain sothey decided to starta new type hardware store named Home Depot. In 1981, in the middle of a bear available to everyone at that time: @ LastQurEPS +500% @ AvgSalesLast5 Qtrs +#180% @ After Tax Profit Margin 4% Returnon Equity 28% @ NextYrEPSEst — over 100% © P/ERatio 36 Home Depot soared 1,600% from the buy point to its climax top sell point in 1 year and 8 months. In the future, you should always check out any great new company where you {ike to shop. ,(How To Find & Own America’s Greatest Opportunities PRECISION CASTPARTS (PCP) By William O'Neil y Weekly Chart Follow-through 372107 Follow-through ‘S&P 500 i Brai08 Folow-through Lo! om Follow-through 8/18/06 pe WY en Follow-through 10/19/05 \ i Sell Stalling on 20 514l05 heavier volume and > breaking above 190 upper channel line 4 \ 3 : : ao : 130 Add: big earings to report, up 75% cee ip §2% | Add: 3 weeks ‘Add: bounces off 100 : : fun voure up «tight closes gfffi equip and prepare yourself to” spot and properly act on each market's new leaders with greater confidence, knowledge and skill. You can leam todoit. Itisn’teasy, butthe op- Pass ‘e+ Add rebounds off 10-week line Closes in upper-half for week and dlown less 60 50 46 42 38 u 30 28 26 4 2 19 7 3.weeks tight closes advance more than 15-week Na 79 Add huge volume double botiont weeks, Not so bad for N selling energy cio drinks. f ‘Add rebounds ‘The big question is... did you ever buy energy drinks st buy S f Pere AS iiteios nd SN than prior week's ia decline (support action) +4 8 weeks ina 8 row up (7 with 2 peak closes) 1 10 ° 2dovin ted weeks were support sg buying. 1st week closes at 48% of spread, 2nd week closes in 7 upper half of week 63% of price from low to high 6 10-week moving average line. Now, note when it built a later base from July to October 2005: It closed clearly below the 10-week line, but was either in low volume or closing in the mid or upper price range for the week, whichis positive action. This allowed you HANSEN’S (MN to stay with your increased posi- wa ke AM vst tion, which showed huge quarter- eekly Cha ly earnings and sales increases Excessive spit” 17 All prices adjusted 16 tortie? rk ots (Ga) Deaton Q ! Low volume \ Vejume +e.000.000 r 8,000,000 4900,000 Mar05 | Jun05 | Sop 05 Gaara | Hae Dees at a gym, supermarket or conve- nience store? Or, were you aware ‘of Hansen's product? Did you checkout thestock? Do youtakea chart service that you use every week to help you spot classic patterns like this that are repeated overandoveragainevery year? America leads the world with a relentless stream of fresh entrepreneurial innovators and inven- tors that continually create unique new products and companies every market cycle. Maybe you should get really serious, portunities are there. It’s all up to you. Every Wednesday, I'll show you thebestofthebest leaders historically and the common factors they all showed at the start of their move up. Now you will bet- terknowwhatto look forin the future, plus how to apply rules to help you handle these situations once you're in them. From the initial Hansen buy point in November 2004, notice how many times it met support when it pulled back around its until our climax top rule told you itwastimeto sell your wholeposition. Here are the key known facts at theinitial buy point: © Last 4 quartersearnings +20%, +40%, +130%, +129% eLast 4 quarters sales +23%, $32%, #42%, 162% ©2003 Return on Equity 18.7% © Latest quarter after-tax margins 1% * Number of funds owning wasup last 4 quarters Monster product gains market share vs. industryHow To Find & Own America’s Greatest Opportunities By William O'Neil Follow-through Follow-through ‘S&P 500 oni? Followthrough Syarag 3 t 18179, § Felowitrough Ny | (oe anor aS . \ i Sell 2-week " climax top with 0 2 40.days upina_ —e % FLIGHTSAFETY Fow gaining 32% 2 Weekly Chart Sel f stock. 2 : goes through Add: volume of Shannel ine, 19 10-week moving i ‘Add: bounce off 17 average line A0-week moving 4, Sail Fetook average line a 098 through : 13 channel line © : 3 weeks tight, 28-week cup 10 3.weeks tight / with handle ° Buy ‘2.week cup . with handle Note: when 28-week cup with 1 handle dropped on lett side of base, itundercut the low of the ‘ 6 earior small cup which is typical: i < 1... ae as ft and good for the new potential —? 5 23-week double ss base thatis going to be buitt 4s bottom with handle. average line after FlightSafety had just tripled 42 in price from $8.50 to $20 28 a4 30 i 28 26 Big volume on 2a breakout Volume on bounces Volume dry-up off 10-week line ae 7 / vai Volume increases ‘on breakout H y t \ +18% [+10% |+36% |+36% [431% [415% |+27% |+20% |+12% |+60% |+21% |+26% EPS %ON9 Dec 76 ‘Mar?7 | Jun77 | Sep 77 Dec77 |Mar78 |Jun78 | Sep78 |Dec78 |Mar7@ | vun79 |Sep7@ | Dec 70 Date FlightSafety operatestrainingcen- Pan American. This was in the jary that manufactured simula- ters around the country using state-of-the-art flight simulators and a team of pilot instructors so student pilots can spend hours of trainingon the ground replicating all the controls and environment they would havein actual flight. ‘The founder of the company, ALL. Ueltschi, was originally in- spired with the idea for his company when he was teaching aerobat- ic maneuvers and ended up out- side the airplane. Later in life, he was the personal pilot for Juan Trippe, the CEO and founder of early 1940s, when corporate aviation was just starting. He recognized that while the pilots in corporate aviation were well- trained, they often didn’thave opportunities for follow-up instruc- tion, which was becominginereas- ingly important as aviation technology quickly evolved. ‘The controlled environment on the ground provided a safe learning environment. It also saved time and money over actual flight time. FlightSafety also owned a subsid- tors. The simulatorsmadeled specific makes of planes and led to FlightSafety being named the fac- tory-authorized trainingprovider foranumberofairplane manufacturers, including Cessna, Gulf- stream, and Learjet. ‘The company was incorporated in 1951and went public in1968. By 1980 FlightSafety served more than 1,600 clients, At the time of the breakout, pretax profit margins were at 39% and return on equity was 25%.Follow-through How To Find & Own America’s Greatest Opportunities By William O'Neil Google, headquartered in Moun- tain View, Calif, was incorporated in 1998, Goldman Sachs, one of the top investment bankers of technology companies, brought Google public with an IPO on Aug. 19,2004, at$85 ashare. Itprompt- lyrrose to $113.48 in three days, up 33% on big volume. That showed + Follow-th-ough day day Do not buy - Faulty base uy at $200 with voure up 78% and next day gapsup on volume increase of 207% above | They are simply unsure and areaf- fected by the negative news around market low points. After the 33% quick jump, Google had a pullback phase. Itwas down. two weeks in less volume cach week and then crept up slowly a third week in even less volume (a good sign for pullbacks). This Followsthrough Sell, closes below 10-waek ~ fine on fiest week denn witht 64% increase over average ; weekly volume I Wedging up ~; along laws average daily volumie ‘4 weeks tight aM closes shows 2 biggest volume weeks inside base of cup base are down weeks High tat. fag buying at bottom “Selling on above “average volume _ GOOGLE (GOOG) Weekly Chart whocomesupwithastockthatean triple, as long as you get it and checkit thoroughly. It’s one thing to buy a stock, but another to handle iton the way up with sound rules. So payattention toall the marked-up great historical winners IBD runs inthis space every Wednesday. Learn to recognize the faulty bases to avoid and where you can and should add a smalleramountto build your posi - 1400 0 1200 1200 #100 41000 + Toa This is a weaker base that spent 8 months going nowhere. ~~ Apple on 10/20/08 was much stronger and a better choice 494% 6a0n000 anne amen 2a FRSA Chg Tune | Sep Date signs of leadership only a few days after a key follow-through day in the general market averages. Everyone had just suffered througha five-month-longcorrec- tion in the S&P 500. Ninety percent of all super winners build their bases during market corrections and breakout of one ofsever- al historically classic bases either on the follow-through day or in the next two or three weeks. That's why most investors miss the truly great winners. They're asleep at the switch and not paying close attention because of the priormonth’s poor marketaction. formed a perfect three-week high tight flag. At that point, I got the idea for Google from a longtime associate. He felt it formed a high-tight-flag chart base if we could stretch the prior uptrend from 85. After study- ingthechartand checkingthe huge earnings, sales, return on equity andpretaxmargins, [said it’sOK. Now here's a tip for you: You don’t have to come up with every big winner yourself. Join an IBD. Meetup clubin yourareaanddevel- op one or two friends who are also very serious about using the CAN SLIM system It doesn’t matter tion, but only when you're ahead and have a cushion. Also, you must learn when to sell a stock when it closes the week below it’s 10-week moving average and when to NOT sell just because it closesbelow thatline. Here are the key known facts at theinitial buy point: © Last 3 quarters earnings +87%, +112%, +123% Last 4 quarters sales +173%, +162%, +125% © 2003 Return on Equity 87.8% 2003 Pre-tax margins 39.3% The Google search engine was dominantinits spaceGreatest Opportu By William O'Neil How To Find & Own America’s nities Follow-through © 8/15/06 all: 1 week down to \ Si a an Pa week ine and 3 weeks straight up to new high Follow-hrough 3207 BANT | saP 600 : seh Lo, of 190 170 Follow-through 150 140 130 120 110 100 0 why it's best to sell oon the way up based on sell rules. ‘The concerns at the time cen- tered on the staying power of a product in such a specialized niche and the risks of the shoes being a fad whose popularity could fade quickly, The first two quarters after its IPO, eamings and sales were both growing at triple-digitrates. ‘Later in the year, the company fi- nalized a licensing deal with Dis- ney to put characters on its chil- dren’s shoes. pany that manufactured collect- ible accessories to clip on to the shoes. Croes also expanded its product line to offer a wider selection of models with avariety of uses. Its important to recognize when things get riskier for a stock. Asa stock becomes extended and forms more bases, the likelihood offailure also rises. In Croes’ case, the market had also experienced a huge run and after extended run Be 10 Buy: off 10-week moving average line 60 \ 12 weeks \ a \ 50 Spina gl : “ a Sell: largest red / 38 CROCS INC. volume since Buy if vanced cp “ be: of with handle Weekly Chart ginning of move Ny A i e Up 20% in first 3 i 6 weeks, so hold 8 Up over 20% in first week 24 weeks from breakout from breakout. Must hold 22 8 weeks from breakout fi Volume for week was 19 Ng 134% above average 47 : PR 6 New issue 4 6 weeks up a $10.50 ina row 13 - f 2 '4-weeks-tight closes on "1 small weekly price: - 10 spreads. Ths is a sign of ¢ 4-weaks-tight closes accumulation in the Crocs) mamufienires (fpotwear handle area of Crocs, just 8 using a proprietary resin materi- ppetore Rs\big advance: 1 al called Croslite. ‘ ‘The material is known for its lightweight, nonmarking, non- slip and odor-resistant proper- Sell largest _ Prices adjusted ae eA =n Big volume on breakout, "ed volume _ f0F 2/1 spit 40 Additionally, podiatristreports 167% above average, 35 | claim the shoes have ergonomic \ benefits, especially for those | \ our whoare ontheirfeet alot. y tS + ony ‘Thestock went public in Febru- pt ary 2006 at a time of rapid ili AgoOnLONR growth, with the shoes gaining TS 3000,000 inpopularity. 4,000,000 L 2,000,000 4400% |+900% |+1800% | +650% |4122% |+330% |#170% | +333% |+244% |+205% | +144% EPS % Chg [Mars [unos [Sep05 [Dec 0s [Mars [unos _|Sep06 _|[0ec06 _|Maro7 |. un 07 [Sep07 [Dee 07 ate Croesalso bought Jibbitz,acom- was due foracorrection. After an earnings report that met estimates, but hinted of a weaker future, the stock saw more thana 20% drop inone day. There were earlier sell signals that may have been ignored. This is when you typically start think- ing of all the money you could make if the trend continues, not the money you could lose if the trend is over. That is why using sell rules to sell onthe way upcan helpyou.By William O'Neil Have you ever been to Chipotle? If you liked it, found it to be always busy and unique, did you think to track CMG’s weekly chart and buy the stock when it formed aclassic cup-with-handle Add - 3 weeks tight closes 16-week cup with handle $237 from $92 buy How To Find & Own America’s Greatest Opportunities CHIPOLTE MEXICAN GRILL (CMG) Weekly Chart the right stock at a proper time, but it's also to learn how tomakea biggain when you're finallyright! ‘That takes time, probably six months to three years or more in some cases. a0 ee Eee 0 Fotmincigh || gap ispO 12/20/11 400, Follow-through ene cae w aN SA eo ‘ f “= 1. 420 Do rt at-botw’ Moi Ah poets Ne 2 ere . 1 Donat sel MG now a - s ee py ‘9-week cup 360 a \with handle A <= Yimes support at 10-week line a) Buy ‘Add - volume up on i rebound om 1-nee ine below SEPT in averogevoume” | Add vluro upon 0 rebound from 10-week line ae 120 Reasons to not sell at 237 price and volume reversal 0 41) You now have a big cushion up 145 points and 100 afford to give stock more patience 2) Typical cup with handle corrects § to 7 weeks and a: CAIG's prior two bases only corrected 19% and 17% 0 3) 13 weeks up after breakout at $154 is not long enough (18 weeks to be a crossing of @ proper channel in ora proper cimax top, which slso needs a move of 25-50% or more in 3 weeks or less at the 0 o top of the move) 50 +49% | +69% | +90% | +53% +33% 441% +12% Voune 4,000,900 1.600.900 800,000 400.000 200000 +23% 425% 435% EPS % Chg Jun09_[Sep0s [Decoa [Mar 10 an 70 Sep10 Deno [Marit [uni Dect Sept [Mar 12 Date weekly chart pattern in late 2009? Each new bull market will have 20 to 40 new market leaders with great new produets or services. (CMG had an IPO at $22 in Janu- ary 2006, late in the prior bull market, and ranto $154, provingitssu- perior bull-marketleadership. ‘Then CMG corrected sharply during the two-year major bear market of October 2007 to March 2009. Next it resumed its growth with three big quarters of EPS growth into new high ground and anew 16-week cup withhandle. Now, your job isn’t just to buy During that time you have to have rules and a sound system to avoid several normal corrections or base-building periods that can easily cause you to be shaken out ofa stock prematurely. CMG is now beginning its third year of price progress during which time there were 11 such pullbacks or new basing areas. T'll cite rules and principles that can help you avoid selling out during tricky corrections. Vital fundamental facts available and known at the time of the first CMG buy: © 6 weeks prior to buy point,company announces $100 million buyback of CMG stock © Last 3 years average annual EPS growth rate over 40% Last 3 quarters EPS accelerate +50%, +49% +83% © New highs in pretax margins at 13% * Mutual funds owning CMG in last 3 quarters up from 220 to 332 * Cash flow in prior 3 years average 80% more than EPS * Company was a spin-off of Mc- Donald’s, a well-managed lead- erintherestaurant industryHow To Find & Own America’s Greatest Opportunities 80 By William O'Neil Sap 500 7 Follow-through day Alb Follow-through day 12/21/97 713/94 a - 46 | : 8 VA egos a. 20 2 ALLIANCE SEMICONDUCTOR hbase und rally lacks Weekly Chart volume andsalson 22 2nd week up. Stock has 9 weeks up also just had its second 9 ina row 3/2 stock spltinjust7 17 months & Stock is up over 20% ie in first 3 weeks so you 3 must hold for 8 full 2 race tie broetite fi ‘Add: 3 weeks of tight +3 Buy after stock goes NS closes and bounces 10 through downtrend line as off 10-week line on 9 and surpasses majority - heavier volume , of overhead supply ‘ from $5 to $6.38 = '8-week hold rule helps 7 you survive shakeout A 5 40 42 38 34 New issue 23-week cup 25 withhandie 3 Nohine op of Volume dpson 36 — ‘2-week rebound rally 24 Volume up 10-week line = on breakout z 20 \ 2p Selling volume \ Volume dries up ‘sania 1,600,000 mt ‘800,000 400 000 200,000 +200% |+183% |+600% |+300% | +80% | +50% EPS%Cho ‘Beco2 [Mares |vunes [Sep93 [Decos [Marea |aunoa | Sep os Junes | Sep 98 Date Alliance Semiconductor was ber 1993. New issues bring fresh _ingreturn on equity. basedinSan Jose, Calif,andwasa ideas and great opportunities to But thechartwastellingadiffer- supplier of high-performance memory products to the PC, net- working and telecommunications industries. It offered static ran- dom access memory (SRAM) products with densities ranging from 64 kilobits to 1 megabit with access times as fast as 10 nanosec- onds. Productswere sold primari- ly to manufacturers of personal computers and PC system boards in Asia, North America, and Eu- rope. International sales were pri- marily in Asia, which accounted for 68% of the salesat the time. Alliance came public in Decem- the stock market. In this case, the company already had a record of profitability before its IPO and was showing multiple quarters of growth in both earnings and sales. ‘After the first buy point, those growth numbers just kept getting better. You will also notice that the sell signals came on technical action inthe stock. Ifyou were just using fundamentals to make your sell decisions, it would have been easy to focus on the triple-digit gains in earnings and sales growth, aswell as the ris- ent story. This is common among the best leaders: Their earnings and sales growth often look the best when the run is over. That is why we use both fundamental and technical analysis forourbuy decisions, but we rely mostly ontechni- cal action for our sell decisions. Learning to accurately read charts can directly lead to more success in the stock market. It takes time and study but, if done properly, can have life-changing effects on your financial future. Isn’t that worth it?By William O'Neil How To Find & Own America’s Greatest Opportu Follow-through Follow-through | /1V68 ‘S&P 500 ZBI r 50 6 = al evidence that quarterly earn- a ings have accelerated up to 2 800% and you could be two- aM thirds through on an as- Redman Industries manufac- cendingbase — sosit tight » tured mobile homes in a cyclical and see. A few weeks Da not buy - low a industry. 1966 was a bear market Jater the ascending volume breakout 2m and 1967 was the first year of a pase is uth stage base 4 new bull. Redman’s earnings turned up 200% and 800% in the 8 last two quarters of ’67, and a Sue. Neets 13h 7 13-week cup-with-handle chart Sytended point) af), Add volume is up pattem was created due to a cor- e off 10-week line 8 rection of the S&P 500 in the last is quarter of 1967. n ‘Market corrections create 90% Buy i " ofall new basesand these arereal- al / 10 ly the big ones you absolutely mustlearn how to catch. REDMAN INDUSTRIES 7 Redman's weekly chart was a Weekly Chart 8 powerful cup-with-handle be- : 7 cause itraced from the bottom of the cup to its peak (up 32%) in 8 just one week in December 1967 Ascending base - pulls beck fon huge volume. A. follow- neo, exch ine making 5 through day in the S&P 500 oc- higher lows and higher ae curred Dec. 27, and Redman highs during market sa quickly broke cut of a short, toes correction 38 well-contained handle on even cup-with-handle 34 30 28 26 nad 26 Sell- huge voiume 22 closes below toaweek line 19 ats Yolane ce 0000 40000 20000 -71% |-125% |-239% |0% | +200% | x800% | +288% | +325% |+256% |+179% | +140% |ra5% | EPS*Ow Sens [beces [Marar—|ane7|Seper [Decer [ares |aunsa [Sepa [bec es [Marea [.uné® | Date greater volume, The stock closed atits peak, up another 32%, Since it was up over 20% from the pivot buy point to its peak, IBD's rule ‘comes into play: You have to hold for a full eight weeks from the breakoutpoint, Redman had not yet closed below its 10-week moving average line after eight weeks. The very next week the line is tested and the stock closes above it. This is rapidly followed aweek laterby the stock bolting to a new high in still greater volume. Now after ‘two price pullbacks and two new highs you have valuable addition- completed and youadd to your position on the breakout in big volume. So now let's explain how you spotted a new big winner and ‘were able to get from $6 to $H, nearly 100% (prices are split-ad~ justed), in just 14 weeks. And you're still Kolding the stock until animportantsell rule occurs. Success rule No. 1: You spot this super winner by knowing your classic chart patterns and every week going through hundreds of charts looking for these classic patterns and then checking for big fundamentals, big carnings, sales, return onequity and asound, com- pelling story. You relentlessly do hist liether ype in Gr our of the market, otherwise you'll miss the big ones that come when you least expect or believe them. Success Rule No. 2: Knowing and following holdingrules. Some examples: When a stock goes up 20% from a correct buy in only one to three weeks, you must hold for afulleight weeks. When an ascending base looks to be occur- ring, you hold. Hold when a stock bounces off the 10-week moving average. Holding andselling rules are vital and more important than your hopes, opinions or fears.How To Find & Own America’s Greatest Opportunities ° William O'Neil “ Follow-through 203 Follow-through 9ti10 A 00 S&P 500 PN Follow-through 2/2011 700 600 420 460 440 420 400 380 260 40 20 300 ON at: nes a a TO-week moving 200 i average line ey Add. 3-weeks-tight 220 closes Flash crash closes in upper half of week's 200 toweeks <-~ , price spread and “0 dakiareu around the moving +0 d average line 70 10 \ Buy: bounces off 10-.vock ie \osecla //,__ tine twice and then ha “— breaks out ofa large cup ‘at pong with handle ai $145 APPLE INC (AAPL) +0 7 Weekly Chart i] '/ Buy at $92: stock goes down ts 1/ below near-term low of $86,50 40 HW, on ty cnr anc then recovers bd 44l-— by 6 points. A modified version of 3 | Livermore's Shakeout + 3 rule a ‘Stock holds above = prior low as market makes new ions Eamings growth = -70 decelerates | = Vouume Ws (thous a ~ 129,000 iil i. ih; LH za000 i 40,000 20,000 437%) 447%] +61% | +12% |+47% | +06%| +75%] +66%| +75%| +92%)-122%| +52% $1 16%) +92%(+20%)}+23% | EPS wcrg Dac 08] Mar09 | Jun'08] Sep 09] Dace] tar 10] aun 10] Sep 10] Dac 10 [wer ti] unt | Sap 11 [Decti[ Mar 12] TTT [Sep 12] Dae Apple originally appeared in this column over a year ago. The chart showed Apple’s move starting in March 2004 with a perfect cup with handle. Over the next nineyears, itadvanced froma split- adjusted $12 to $700. Constantin- novation in products and services led to a consistent record of earnings growth. But there were times when it looked like Apple's run was over — and it came roaring backa few monthslater, In our studies of hundreds of leading stocks, only one out of eightleaders came backto lead another market cycle after they topped. Apple is among those elite few. Our research also has shown the average decline of a leading stock from its peak is 72%. ‘That's not just looking at the 2000 tech bubble or the 2008 financial crisis. That is over the last centu- ry. This is why we don't buy, hold and hope for the best. Instead, we use sell rules to get out of a stock showing negative action. In cases like Apple, where the stock ultimately comes back, you can buy it back when it rights itself. Yes, you might end up buying itatasomewhathigher pricethan when you sold, but don’t let that bother you. Protecting yourself from huge losses is more important than missing out on a few points. Plus, in most cases the stock may form another base, which can last for months. You get the benefit of either protecting your profit during that basing period or using the money in something else. Being flexible can lead to profits.How To Find & Own America's Greatest Opportunities AMGEN (AMGN) : Weekly Chart By William O'Neil Follow-through 7/8/91 S&P 500 Follow-through \ 217/90 Follow-through iio \ 10/18/90 Sell-7 out of 8 days up, a x gap up on daily chart, cy largest day up has 390% tt + Volume increase “ f 0 Buy at $40.50, 3 points above low 4.weeks ago using same Amgen wasa drugcompany head- Livermore rule as tst buy 0 ‘quartered right in our own back- “6 yardin Thousand Oaks, Calif, just “ west of Los Angeles. From 8 Amgen’s classic double-bottom 4 base in February 1990 until it ulti- /! S woeke ti ’ ight closes mately topped in the summer of jn | 2000, itincreased over 50 times. } 28 This example shows its first of Rot 24 two huge moves from a split-ad- Buy at / 7 more weeks ina row up 2 justed $8 to almost $80 in January B-week cup ie 1902. It then corrected over 50% 17 Add on volumne off 10-week line * and underperformed for more Ses than two years and then had an- fH gf 7 weeks ina row un 6 other similarenormousadvance. Add Do not sell at 1st close below “ ‘Add us ome 10-week line. Volume is less than as Buy at $8.70 Z ; * prior week and below average 2 - Cra ‘Add on bounce from 10-week line on 4 % 92% greater volume than average m 4 weeks tight closes . * Use Livermore rule when . the 1st low of this double 7 ‘atom is broken and then y Low of $7.88 on Pt. eaaers 10% back above ¢ Big volume in prior B low, it's a buy point Volume dries up at uptrend to double bottom i * jaw of oan rr 4 X\ “Volume: 1.000000 7,000,000 4,000,000 NA | +0% NA EPS % Chg Marao_| Jan8® | Sepa _| Deo ar Sep 80 Becs0_| Marat] in Dace Date You spot a potential big leader by first recognizing a sound and classic chart base. Then you check the key fundamentals. The quarterly earnings in late 1989 were up 300% and 700%, These 100%- plusearningscontinued forsever- al years, which is why the stock had such great performance. I remember reading story on the company that really caught my attention once we saw the stock's chart action and big earnings. Amgen had developed anew drug to treat cancer patients suf- fering from the side effects of che- motherapy. Thedrughad immedi- ate results as it quickly rebuiltlow white-blood cell counts, The company also spentan unusuallylarge percentage of sales on research and development. The weekly chart shows you the first buy at $8.70 once the stock undercut its first bottom of $7.88 and then recoversback10% above the $7.88 low. After that we have marked other buy points on the way up until the stock formed an 8-week cup pattern inthe Decem- ber 1990 quarter which set off a fast extra 200% increase. Note that both of these bases formed during a correction in the general market averages and the stock broke out after follow-through days in the general market. Known facts at the time of the breakout: # Acceleration in quarterly eamings from 0% to +300% to +700% Quarterly sales acceleration from-46%, +46%, +84%, +207% * RED 30% © After-tax margins at 12.2% up from single digits in the last eight quarters © Marked increase in funds owning from 14 in September 1989 to 123 in September 1991By William O'Neil S&P 500 Stock price holds a \ up as market Follow-through makes new lows 3/12/08 ‘Add: earings acceleration reported \ Add. 2-weeks-tight closes 39-week cup with handle Add: volume on second week up as stock recovers above 10-week line How To Find & Own America’s Greatest Opportun (ose Sell: stock stalls with volume up, closes in lower half after breaking out of improper consolidation. Not a base! Railroad tracks 110 100 ; Stock doesn't » Follow-throush make new low as rs SeAy S&P 500 does 1” Sell: closes below moving a average line on over 3 *- Nada: volume millon shares of volume, Do not increase off the largest volume selling Sell_ buy: faully to-weekline 80 since the intial uy \ Vie Add 3wecks ight“ closes and bourices 4-weeks- Buy: volume up tight closes as stock crosses 10-weok line Do net sell: second quarter of big EPS acceleration and stock closes in upper half of price spread |. Add: bouncing off 10-week moving average line Buying support: heavy volume without further price progress down Weekly Sell: week closes | Prices adjusted for stock solits above 10-wesk ine on volume 30 8 25 ey 2 Buy: sounder, tighter -- cup with handle N This 8-week base is faulty: first 2.weeks are down on heaviest volume, 4-week rally is on lower volume, then 2 more down 15 weeks on increased volume. ‘The pattem is wide and loose and goes straight down and then straight up 19 1 8 2 " 10 GREEN MOUNTAIN COFFEE (GMCR) » z Chart 7 largest red-volume to date as stock ; 5 3s below 10-week line 46 paterdrdoench 42 Eamings 38 acceleration Earnings accelerate oa f Vous 20,000,000 41,000,000 16,000,000 3,000,000 EPS % Chg Sep08 | Dec 08 Date Green Mountain Coffee Roasters benefited from the trend of coffee drinkers cutting costs by brewing more of their coffee at home rather than buying it in coffee shops. Green Mountain offered conve- nience and variety with its single- cup Keurig coffee brewers and K-cups. Its products were bought for homes, offices and hotel rooms, and the company was rapidly expanding its distribution channels, After soundly beating earnings estimates for the March 2009 quarter, itannounced a pact to distribute brewers and K-cups in more than 3,000 Wal-Mart storesin time for Mother's Day. At the time of the first breakout in March 2009, Green Mountain had 13 straight quarters of reve- nue growth of 25% or better and a three-year annual carnings growth rate of 43%. Return on equity was 21%. You'll also notice that as the S&P 500 was making new lows and bottoming in March 2009, 57% off its peak, Green Mountain was within 10% of a new high, having formed a cup-with-handle pattern. Ninety percent of bases are formed during bear markets. Rather than getting discouraged in downturns, you should be ready for new opportunities. The first stocks to break out after a follow-through day are often some of your best prospects. Green Mountain broke out two days after the follow- through day. Buying at the right time only gets you halfway there. How yout handle the stock during its run makes the difference between great returns and mediocre returns. The chart above has alot of details on clues the stock gave on howit should be handled. It takes time to recognize these signals, but the rewards can be worth it.How To Find & Own America's Greatest Opportui By William O'Neil Computers evolved from afew ex- pensive giant mainframes (mainly sold by IBM) to minicomputers and then to microcomputers. At one point the head of a minicom- puter manufacturer said he couldn't see why anyone would ever want a computer in their home. Bill Gates and Paul Allen in 1975 Follow-through 71989 \ Sell price goes through a proper channel line \ MICROSOFT (MSFT) Weekly Chart Do not buy - weeks is rot a base Do eA any nities crosoft PowerPoint. Microsoft also offered Windows 3.0 on May 22,1990. Alongwith Windows3.1, announced in 1992, they sold 10 million copies in ‘the call the time utilization ofmoney. ‘The same opportunity occurred after the January 1992 channel line break sell point. It’s better to nail down significant profits ac- After the January 1992 sell sign, Microsoft went sideways for 27 months than ran up more than 10 times and finally really underperformed since the end of 1988 220 Do not auy -4 firsttwo years. : weeks isnot a Sall-price goes - 199 Microsoftbroke out of ~ $s Do not buy - 3 weeks is not a base. Stock is more than 45% extended from last sound base Follow-through 10/18/90 Add - bounces off 10-week line on volume handle base not sell - volume only 2% 2B-week cup-with= through a proper Follow-through , channe! line 718/91 170 150 140 130 129 no 109 90 20 \ ‘S&P 500 Buy double bottom base 0 60 bottom 50 46 2 38 4 Do not sell-bnly closes 3% below 10-week line cording to proven rules than to riskatwo-year-or-so underperfor- | mance period or a prolonged top- ping process that occurred in Mi- crosoft from December 1999 to August 2012. And you always stand sraay 80. later buy back if above average and when a classic buy pat Note how volume drys up in tight tern eventually is created, as 28-week cup-with- area just before major volume happened in April 1994 that handle base Wehae breakout. No more selling is led to the 1999top. Volume on = -aoteleration happening and few people are Here are the facts known at zn fn paying attention to the stock 82 10 first buy week \ 1 J Volume ae = 7m aoe = +9% | +50% |[+30% [445% [zim [+50% | +57% |+a5% | +so% | +72 | +60% [+a EPS XcK [mars [anes [sep00 [oecss [mero [.un90 [senso [Decso [warsi_|sme1 [sensi [Dect Date Kawthepotentalafthe fisemicee. 225-week cup-with-handle chart sheSeptember1989 buy point computer and revolutionized the base in early September 1989 at « EPSannual growth rate from ability of a nonspecialist to inter. *HOUt$20Gtthe time itwasactus jogs - 1930, 58% act with the personal computer, lly $60, but the chartis adjusted EPSRank95 ‘They created software for IBM's _ for all stock splits that occurred). Returnon Equity 40.3% microcomputer. They originally We note thereafter times not to « pretax profitmargin 31% developed and sold Basic (Begin- buy and why, as well as times to After tax profit margin 20.6% ner’s All-purpose Symbolic In- Rot get scared out and sell, plus « Latest quarter's EPS struction ods) language inter- timestomoresafelyaddandfinal- growth 48% preters for the Altair 8800. ly when a specific history-proven _« Latest quarter’s Microsoft's initial public offer- Tule saysit'stime to wisely sell. sales growth 29% ing was in 1986, about the time it launched MS-DOS (Microsoft disk operating system). During the time shown on this chart, it launched Microsoft. Office "in 1989, which bundled Microsoft Word, Microsoft Excel and Mi- The next base was a 25-week cup-with-handle. Note that once you sold Microsoft on the way up, you had the use of the money for 32 weeks to reinvest in another stock before Microsoft was again at a new sound buy point. This L Research and Development IL8% of sales * Annual % change in employees +54% @ Debt 096 * Investment Banker Goldman SachsHow To Find & Own America’s Greatest Opportunities S&P 500 ah: ‘i Follon-through By William O'Neil 7/80/63 240 \ 220 RIN , 180 f 170 ‘\ Follow-through " Sell: elmax top and ei 1or2e/e2 # @-month capital gains ~~ 180 \ 140 130 120 After 8 full weeks, v0 ‘Syntex made a move of 450% in: reevaluate the stock to 100 about six months and was one of: hold for 6 months from % my best winners. After several’... $52 buy point based on *0 years of making mistakes, and: /0' son of 44% coming up with rules to fix those” 5.34, oe roms my mistakes, Tfinally putall the piee-josr 945, hless & es together. This stock idea came: than 3 weeks, from a colleague. It’s OK to get: jnusi bold for 8 a 20 some ideas from other people, but. full weeks Shakeout finds Pr support at the always do your own research to sopeort at 2 make sure it has the fundamental Buy 8 characteristics you're looking for se plus a proper basing pattern. ie After buying out ofa sound high Bs / 2 / High tont tag: stock uns up SYNTEX 26 /- over 100% in 12 weeks to Weekly Chart 2 / make the “flag pole" then holds most of its gains 8 v 1 cary uy 45 “ 3 2 1 Prices adjusted for spit i i 10 Syntex was around ® $100 at time of breakout 3 Huge earnings due to new product “The Pil” 4 7 7 sit Vouune | 300,000 |... 160,000 80,000 49,000 20,000 +100% |+50% (+400: +64% _|+129% |+133% EPs n.chg War62 | un62 [Sap 82 Jun [Sop 64 [Doc 64 Date tight flag, the stock immediately had a 14% shakeout in the fourth week. I had leamed my lesson with CertainTeed a couple years earlier and came up with the rule that you must hold a stock for eight full weeks if it goes up 20% or more in the first three weeks of a breakout. [had been shaken out of CertainTeed, but I leamed my lesson and applied my newrule to Syntex. ‘After eight weeks, I now had a profit cushion of about 40%. At the time, the long-term capital- gains tax rate applied after six months. The tax rate for short- term capital gains was as high as 90%. So, given the cushion I had, I decided to hold the stock for six months and one day from my buy point. I don’t put as much weight ‘on the capital-gains selling now, with rates significantly lower, but you will often see profit-taking 12-months after the big-volume buying entered the stock. ‘There were some more pretty dramatic shakeouts, but having a good cushion allows you to give a stock more room and sit through them. The stock ended up going through aclimax top and was sold six months and one day after buying it. Having rules and following them made all the difference. ‘This marks the last installment for this column, We've covered 70 majorwinning stocks and the specific fundamental and technical factors that made them great. If you cut them out and refer to them in the future, you'll have many models and rules to handle situations you will face in your ‘own investing. For more analysis on these types of great-performing stocks, you may want to look into IBD’s Investing Workshops.How To Find & Own America’s Greatest Opportunities By William O'Neil It’s very important that you see and remember Charles Schwab formed a 12-week cup-with-handle base during a general market The big opportunities are there for anyone every new market cycle, because America’s freedom creates anever- five years before the stock soared in price from $28 (split adjusted) toover $150 in only six monthsbe- fore the climax-top sell rule was triggered. Known facts on the breakout week: © Relative Price Strength Rating 96, EPS Rating 91 Recent return onequity 29.4% e Followsthrough im correction. It broke out of the ending supply of out- an : saa peak price in its handle on the — standing innovators 440 S&P 500’s precise follow-through and entrepre- ca 4130 day. Corrections form the vastma- Market 120 jority of classic, great chart correction +10 bases. Mostinves- S&P 500 Sell climax top rule. ~~ 100 Ore (On top day, a big Wall 0 Street firm raised target a ptice by 50 points 70 Do not sell- this is not aclimaxtop. It's too 5 on soon, only 12 weeks 3 a CHARLES SCHWAB (SCHW) cut of a ‘st stage base 1 a Weekly Chart a Buy - stock breaks out y / Never touched = on fotow-throligh day i" 1O-week line unt after climax top ot 20 B Me 2 Very important, 2nd week 22 of handle closes at peak, 3 virtually unchanged, and s on heavier volume © Shakeout below low of 10. weeks ago, stock closes in 2 weeks, stock 7 down less than prior week on greater volume but closes mid-range (sign of support) ‘Te-week cup-with-handle_ in prior7 weeks’ decline 44 recovers the ground lost yy 43 2 ” Largest weekly 10 volume an downside Volume up but price 8 \ a \ ] / / / Youre LTT 200.000 7,000,900 4000,000 2.000.000 424% +47 Fs +113% EPS % Chg 3ep96 [ace _|Wers7 un 7 _[Seps7 _[Dec7 | Mar98 [nse |Sep86 [Decs0 _|Warse [Won caw miss these super winners because neurswhocreate ournewcompa- _* Pretax profit margin 19.5% they're unsure of the market due to its poor action for, in this case, the prior three months. It's all abouthuman natureand psycholo- ey. To overcome this “bein, human,” you must understan and follow history-proven buy rules, hold rules and sellrules that apply toboth stocks and the gener- al_market Gf you want to win). You can learn to be a bigger and better winner if you're determined and really work at it, learn from your mistakes and ‘never give up. niesand mostofournew jobs. It’s all in the numbers, the true facts and the true performance record, For example, Charles Schwab stock's actual performance in the prior five years showed over a 700% inciease. ‘That was more than the five-year record of another excellent entrepreneurial company, Microsoft, inthesame five-year period. So the facts and actual track record were there for anyone to see if they were paying attention. Schwab's return on equity averaged 32% a year for those prior * Last quarter earnings up 25% * Up/downvolume on breakout week moved from 0.8to 1.4 © Next two days volume up 149%. and 229% above average daily volume Company was the leader in the discount brokerage industry with 55% share of that market Incorporated in 1971 P/E Ratio was 37 (expanded to 152at peak) © Owned by 196 mutual funds and 154advisors # After-tax margin 13.9% #Shortinterestl.3 daysHow To Find & Own America's Greatest Opportunities By William O'Neil 00 Sell - Straight up from bottom, 240 See connisivouah ti suacbivectoant stalling 220 me ae X\ S&P 500 +90 : chee i wh i Foto through 0 3/18/08 yt : ue ny \ wl to "7 ‘00 Sweets Y = tight closes. ‘0 he 1" x 70 Add - support at 6 towaek ne Py ‘ Buy - large cup 42 with handle s upina row 4 Geeks bach ehgter nh 2 a ‘Add - support at FA “Omeek ine 2 \ BAIDU, INC. (BIDU) zs \ YN Weekly Chart aw \ \ YD ta weoks upin aw; ” AV / 710 ces at peak 8 : z % a Earnings begin to accelerate, in ” 2003, tock proved it could 2 tree nthe por bul markt A ‘ Big cup-with-handle Good chance it could co it again 40H = ages voLTe weet Th eure ‘ the base were down weeks: ‘Stall 780,000,000 | ANA toons é 40,000,000 zara +114% | +82% +133%| +112% | +109% | +174% |+129% | +106% EPS % Chg ‘Sep 08 | Decd8 | Mar0s | kng9 | Sep09 | Deco9 | Mar10 | Jun10 | Sep10 | Dect | Marit | wun tt Date, Baidu isChina's Googie. Theycop- that appeared later in the prior _ prior quarter ied what Google had created two bull market is it provided vital Last 2quarterly earnings years earlicr, in 1998. Baidu has proof that Baidwhad already pos- up 114% and 62% been the dominant stock in the sessed the ability tobe adynamic —« Last 2.quarterly sales up 103% Chinese market. market performer. As soon asthe — and6o% Not shown on this chartisan important period from July 2005 to a peak in November 2007, when Baidu formed a giant 65-week cup with handle where the handle part created its own. smaller 17-week perfect cup with handle that any investor capable of sound chart reading should have easily recognized. Baidu quickly tripled in price in just six months. The reason | am talking about this 2007 pattern prolonged 18-month bear market ended on March 18, 2009, Baidu moved up steadily :and. that prior ‘example ofa big move had a great chance of being repeated. The deep cup was nomal given the steep, long correction the S&P 300 experienced. Important facts knownat the time of the first buy: Baidu announceda3% stock buyback duringthe © Returnon Equity 43% © After-tax margin 34% « Institutional sponsors increas ing General market had justtued up witha follow-through day on March18,2009 # Baidumoves up 10 weeks ina row, with 8 weeks closing at their peaks, showing steady accumulation prior to firstbuyHow To Find & Own America’s Greatest Opportunities By William O'Neil Liz Claiborne designs and manu- 74 days from the follow-through 0 factures women’s clothing forde- day (63 were up days). It then ‘co partment and specialtystores. builtanother base plus anew buy 0 ‘The stock came public during a point and further increased your poss bear market that final- _profitinto atriple. 80 Ivendedwiththes&P500follow- This type of situation happens 70 shrogh day ‘on Aug. 17, 1982. It’s several dozen times in a typical uu recognize that al- bull market. So when are you ‘S&P.500 0 pana all classic chart bases are ing to get really serious and formed during either intermedi- feeder ‘price and vol- | Ak *0 ate-term (-8% to -12%) or bear- ume action, how to spot the out- Do net buy- 3rd stage 46 : base eae 2 a Follow-threugh : f\ Foe RO Fee ti re a | Be 0 i 2 / 2 Each low is higher. 4 ‘Handle area doesnt 22 :deift down along lows like in the first base x Prolonged market cortection results 7 from Carter years and rampant inflation ie LIZ CLAIBORNE (LIZ) a e i Weekly Chart ® ” a E ‘ é 10 The ta Py eo i cup-with-handle > jv RS line in new high New faeue: final KA groune before price and A Ae EY stock held above its prior | Vw base when S&P 500 : . broke down to new lows ak AL Ness Big volume appears rs , a a ah Vouume < 1 : 220,000 t an 10,000 I oom CA | = 40% | +43% | +143%| +48% | +43% | +27%| +29% | +30% | +40% | +39% | 450% =| 452% EPS % Chg Decsa | Marsi_| Junéi | Sepéi| becei | ware2| ama | Sepa? | beca2 |Narss | wnds |Seé3 |Decd? ae market corrections. Most of the standing fundamentals, and use _ tells you a new uptrend is start- very biggest winners will com- buyandsellrulesforboththegen- _ ing. plete their patterns and break out eral market and newstocks? Claiborne hasa perfect cup with of those patterns the very week of Think about what you coulddo handle that’s at a proven buy the market follow-through or within the next two or three weeks. Let's face it, that’s exactly when you and three out of four other in- Yestors hesitate to buy because the market or economic news has been sobad forso long. Notice that Liz Claiborne gapped up only three days after the Aug. 17 follow-through day. You had only three days to spot what was going on and act on it. The stock doubled in price in just inthe futureonce you learnto capitalize on the never-ending great ‘opportunities entrepreneurs create for you with their new compa- niesand produets. Here are the publicly known facts on Liz Claiborne at its buy point: Reagan had justbroken the back of therampant inflation (21% interest rates) of late 1979 and the early 1980s, and the general market follow-through buy signal point. 17 of 18 prior quarters showed big earnings per share increases. Inthe last four years, the annual earnings gr rate averaged 107% and the current P/E ratio was only 9. Relative Price Strength Rating was 88 and Up/Down Volume wasatl2. Return on Equity was 54%, Pre- tax Profit Margins at17.7%.(How To-Find & Own America's | Greatest Opportunities | By Willian O'Neil | In 1973, Franklin Resourees ac- | quired Winficld & Company, a San Mateo, Calif.-based. investment firm, and moved Frankin’s offices from New York to Cali- - lon Each base-on-base below holds above the prior base while the S&P 800 index breaks to new lows fornia. At that time, the com- | bined organization had roughly $250 million in assets under management and about 60 employees. | In1979, Franklin Money Fund had a major surge that made it Franklin’s first billion-dollar fund. This was the beginning of the company’s tremendous asset growth in the 1980s when Folowthrough Brisa Follow-through 1218/84 \ Stock sells down on New York-based financial paper saying stock was. over-valued. Ultimately, stock triples due to quarterly EPS & Sales acceleration over 3 consecutive quarters Buy, as i ae ; Ne ti . FRANKLIN RESOURCES (BEN) ae 90 80 ‘S&P 500 7° Follow-thraugh 10/16/85 cy 50 46 2 38 Sall- climax top 30 2 6 24 2 0 ” 8 4 8 2 20-week base Sy weeks tight closes Note how Franklin Resources, from the ‘0 beginning to its tap, gets 8 support at or around the : ‘O-week moving average line of the stock's price 7 New issue 42 Weekly Chart = hm i doses Second spt r S-week CUP ~~ tight closes in 10 months erscmiacouae Pe @ oh on hea Huge earnings growth in prior 4 quarters ¥33% |+67% +110% | +145% |+123% |+128% EPS Chg Mar [aun8 | Sap 83 Mar85|hin@s | Sep85 [Oeces |Mer66 Dae the company’s total as- general market averages. The key prior 3 years sales growth data sets under management doubled (ornearly doubled) every year for the next six years. By the end of the 1980s, Franklin was running | 73 funds with a specialization in | income and bond mutual funds. Franklin also stood out from other mutual fund companies by dramatically increasing its adver- tising directly tothe consumer. Notice how bases are formed during general market correc tions ... and ... the really big price moves occur and coincide (with follow-through days in the lesson here isthat correctionscre- ate big new leaders and you simply can’t get discouraged, quit or throw in the towel on investing. You must be on top of the market when corrections tun into follow- throughdays. Here are some of the vital facts known at the time of the firstbuy: Nine out of 12 quarters, Frank- lin’s earnings were up more than 100% Prior3 years annual EPS growth rate 97% Returnon Equity 86% +87%, +128%, +79% Annual pretax profit margin (23%, After-tax margin17% PEratio * Relative Price Strength 94 © Newissue in 1983 © Assets under management grow- ingrapidly * New leader in income and bond funds Shares outstanding 3.5 million, debt 2% Stock just breaking out of 8-week cup pattern as general market had afollow-through dayHow To Find & Own America’s Greatest Opportunities 56% to 64%, 58% and 83% Last quarter of sales up 49% © Quarterly after-tax profit mar- By William O'Neil EBay was incorporated in 1995, had its IPO in September 1998, and proceeded to skyrocket from a split-adjusted $6 to a peak of $230 in only 7-1/2 months. 1998 and 1999 represented aonce-in-a- lifetime wild market period EBay” then went back and forth sideways whileinvestors suffered for 3-1/2 years. In 2000, Follow-through 10115102 \ Follow-through 3703 gins at 21.7%, anew high Number of mutual funds own- ingeBay up 15 quarters inarow « Atleast five ofthe better-performing mutual funds owned eBay #P-E Ratio was 82; don't let this stop you from buying. Its high tunities like this if you don’t learn to read weekly charts and daily general market charts like the S&P 500 or Nasdaq. Ninety per- fs 2 had been 270 and its low was 58. cent of investors will never buy in situations like this because 6 they go by their personal opin- om ions about how bad all 240 the news is and how ~! Stock closes below 10-week 20 : line on volume increase ot oorthe pilor marie 7H above average and iat Sean 160 be sold according to sell rules 170 160 140 10 \ Buy as stock ia comes back above ee 110 10-week line Ve 100 Do not buy - Stock was not proper double bottom, did not undercut 0 cd EBAY (EBAY) 41st bottom plus less volume on breakout week, 2/1 split should 70 Weekly Chart comect before going up mihi i ‘correct 9-neek Boy rina Sits i double bottom a fiat base 4 only up 22% and 15% is 2 weeks tight, stock stil under" Mese weeKS i ~ accumulation even after up Big volume on 3rd week below 10-week , 50% ftom $30 to $45 (note line is not as important as tstweek 30 also how many peak closing ~~ closing below line. Do not sell-you 28 weeks on the way up have a big cushion from $30 up to $75, - and last 4 quarters eps acceleration qe.eek ‘Add first pulback. comes 2 Yocblebottom of 10-week line on ‘st time a winner splits. it may correct for some vaume Tis lesupeor 2. wane butane any lrmavea higher = Oe ee eee ae —~ ee +64% | 467% | +83% —|+100% |+100% |+60% |+64% |+71% |+72% |+81% |+56% EPS % Cra WMard2 1402 [Sep 02 [Dec 2 [orcs [un 03 [Sep 03 [Des 05 [Mar 04 Jun 04 [Se0.04 [Doce tae from eBay's peak to its low, it lost 80% (no one should ever sit through corrections like this). That's why you must have buy rules and sell rules and follow them. When nearly everyone was beat, battered and negative, a classic 16-week double bottom formed that a good chartist should have recognized. And the breakout day occurred with volume up 124% only three days after the Oct. 15, 2002, follow-through day appeared onthe S&P 500. ‘You will always miss big oppor- has been. You must learn not to go by how you feel but what the market is actually doing and telling you. Don't arguewith the market; learn to read it with skill and rules based on history. Here are some key facts known, atthe beginning buy point: *Buypointonaclassic double bottom ©The pattern was similar to Delta Airlines in November 1962 and Cisco in November 1990 Last 3 quarters of earnings per share were accelerating from ‘The best stocks typically com- mand higher P-Eratios. Annual EPS growth rate last 3 years +152% (that explains the higherP-E) 10% of sales spent on Research and Development *Only1%debt * Annual Sales Growth rate +78% Earnings estimates next quarter +92% © Up-Down Volume 1.3 and Accu- mulation-Distribution RatingB *BetaofL.03 * Management owned 28% of eBay y |By William O'Neil Limited Stores, headquar- How To Find & Own America’s Greatest Opportunities Sell into second 2/1 split in only 8 months as volume increases but weekdy price from May 7, 1982 to July 16 (11 weeks) occurred while the S&P 500 was going down and making new lows. This was very impor- spread retraces much buy point price at that time was $15.50, butthe chart pricesare adjusted for two 2-for-1 stock splits. The chart, therefore, shows the buy area at about $3.88. We men- tion this to make clear that we do not buy $3 stocks and you shouldn’teither. Limited increased more than 600% in 16 months. So maybe you need to work at your skill of reading the several most-often-repeated chart patterns that occur every year in the stock market. Howev- er, you never buy astock just be- tered in Columbus, Ohio, of same price area from $26-30 ~ SgP500 had over 500 retail stores ~ Where the big money is made, Y “ cateringto 20-to40-year- then most investors feel unsure 0 ‘and don't follow rules 8 old women. Their medi- 2 Follow-through er ythrough * alee an 2 ‘0 7 um-priced apparel se appealed to the Note: ifyou pyramid, keep your average cost ow, eal “ growingnumber of always buying fewer shares ai the higher prices. Do not Or es tent 73 women entering get top heavy with more dollars in at higher prices than @ciccos anastoce 2 the worlionce. amount purchased eariier at lower prices, Ths is @__competesan " Limited formed a 2Yeraaing ur rather than averaging down. But buy fewer O ascending base (3-10 be — shares when you average up. Watch your average cost pulbacks inpice of — g ‘ge 38-week cup- and total positon size closely Don't get excessive 10-20% with each iow. with-handle chart 7 point higher than the base on Feb. 19, Donat buy.= dette Previous) 1 1982, On Feb. 25, it st eslty ota gare 4 weeks broke pont oF its oe tight closes 8 Nees enale of “KX. Add as price comes 5 a 140% increase in back above 10-week 40 the stock's average moving average ine az on huge volume a ‘Do not sell closes $s ' ; week below 10k 30 About 50% of the time, : ne, but on below 28 afer the breakout, aveage volitie 20 3eaweek cup stock will pullback to 24 with handle pivot buy point 22 Vv s 19 THE LIMITED (LTD) L es 7 181% Volume spike alts are only Weekly Chart iE 5 aaron ateanee 8 months apart As. X ‘volume \ocay ete AY. sas 580,000 40.000 200,000 +200% | +80% |+83% |+50% |+193% | +44% | +36% | +33% [429% |+36% |+53% | +113% EPS Chg Sepen [Deceo [Maret |.unat [separ |oeces [warez [June2 |Sepe2 |Dece2 [wares [unas | Sep83 pete daily trading volume. The precise °@uSeofits chart. Youmustnext tant even though the stock broke runa checklist on the stock’s vital fundamentals and read an IBD story on the company. Limited's five-year annual rate of earnings-per-share growth was 36%, and in the last quarter it was up 44%, Quarterly sales were up 27%, annual return on equity was 24% and quarterly after-tax profit marginwas7%, anew high. Inven- tory turnover rate was 10.9 times, excellent for a retailer. Goldman Sachs was its investment banker. The somewhat flat, sideways area around the $5 price range ‘outprematurelyin low volume. ‘The factthat Limited held significantly above the cup-with-han- de base while the general market rolled over into new lows, showed tremendous counter power and strength, telling you this could be areally big leader once the general market tumed up with a follow through day. And that’s exactly what happened on the Aug. 17, 1982, follow-through day. This is how the big money is made . when most investors are unsure and fail to act.How To Find & Own America’s Greatest Opportuni By William O'Neil I saw my first Price Club in the summer of 1981 in San Diego. They only had two stores then, ‘but I was impressed. They had nine or 10 checkout stands, each with 10 to 15 people inline. Plus, every gondola was packed with eli Buy - using the old Jesse Livermore ‘Shakeout +3" rule. After shakeout at $14.50 stock retraces back above $14.50 by $1.50 to $16 (original rule was for a $30 stock). A second buy point ocours 10. weeks later out of a double bottom Thensuddenly, the general market had a follow-through day and 180 just a few wecks later Price Co. v0 completed a sound double-bot- a rea 150 : je2 Co Increased another 140 tom base with a shakeout anda Seyinmenea years a0 buy pointat$16 using Jesse Liver- sapson. more’s shakeout rule. That's how mr Gy hick ae Y a 400 I * Price Co buy happens just 2 ny few weeks after the market follow-through cay on 3/16182 ~ Follow-through 70 artzie2 « aa Add-Sweeks 59 : “tight closes ag : 2 / | 3tight weeks followed s aa 3 by 4 tight weeks tight ‘Add again Ne Ls Add-3 weeks 2 tight 7 ight close 2 4 Adal - pullback 2 27 weeks up ina row f) '36-week double et 2 er Shakeout below first low to 10-week line SC Handle area of double bottom PRICE CO. (PCLB) Weekly Chart " bottom bese 0 Huge volume i 8 Volume spike : 7 Volume sce) \ \ v uM LETTER e7% | +e0% | +71% | va6% | 191% | 155% | 142% | va5% | s90% | ve5% | +71% Koy Deca | waret | aunat | Sepat | Deca | Mars [one | Sens2 | Deca2 | waras_[ainas [Sep83 paw $100 to$200 or more of merchan- dise. Sol Price had just innovated a new type of cash-and-carry wholesale warehouse store. Incorporated in 1976, Price Co. initially traded in the San Diego market and there were no charts available, so we called a San Diego trader to get some past prices and started plotting our own internal chart. Surprisingly, after having doubled in the San Diego market, the stock declined for 31 weeks from $22 share down to $12 duringa bear market. a 12-fold advance began over the next3-" years. At the initial buy point, the prior three years annual earnings per share growth rate was 110% per year, sales were growing at 53% per year and return on equity was 55.4%, Sol much later told me that we were the first to discover his company. When he retired, he sold his entrepreneurial innova- tion that now flies under the Cost- coflag. In the third week of January 1983, a Los Angeles bank took a profit and sold its entire position, creating huge volume. We owned stock at that time, but did not sell any because Price Co. only had four stores in California and we es- timated they could eventually have at least 15 stores that could car $2. share. Using recent P/E ratios we calculated the stock price couldreach more than $100. It was still a young fast growing company with a 55% retum oneg- ity. So knowing your fundamentals onthe company is important.‘How To Find & Own America’s Ve pretine Greatest Opportunities bili) S8P 500 ,, By William O'Neil Sel, arn ine beak i Sapsoo anda wockspt Follow-through day oN Michael Dell began making com- B86 aay puters while he was in college in Texas. Dell was incorporated in 1984 and his company’s stock I 7 Sell-this time tst week closing below 10-week line closes. 42 in lower part for week 28 begantradingin 1988. res ‘ght and on 157% a It doubled in five months : eredenty svaGET from November 1990 and dou- i NEE a bled again from June 1992 to » November 1992. Then in 1993 = it declined over 70%. So there is a time to own a stock, and a time to sell and not own that \ (Add isttme PY Add - Volume up a8 price comes off 10.week Ine New high on 6 Do not sell closes in w Buy same stock, It's dangerous to if nes e c . per half of range for the 16 fall in love with your stocks. ee week= support. Close 4 Dells quarterly earnings below 10-week line was 18 fipned dow and se only on 20% increase from 12 was the. first average weekly volume 11 0 A. 2nd, 3rd and 4th weeks down shows 3 9 weeks closing tight. Since stock is 4 declining in price with volume up from prior week on its 3rd and 4th week down, 7 this is heavy volume without further price progress down. .supporting action 6 5 43 42 DELLINC. (DELL) Big volume demand _ Sell, second split in a Weekly Ch with peak close on less thana year eekly Chart 2nd week up New highon Volume support | i \ & lowvolume 99 2h 2h 2 5 a Volume 1+240% |+160% | +113% | 58% |+6% +105% |+178% | +157% |+103% EPS % Chg mer05 |Jun05 [Sep 05 [Dec 0s [Maras [in06 [Sep06_|[Dec0e [Marc7 [iuno7 [Sepo7 [Dec o7 bate 1995 before earnings fully recov- age line and two weeks straight week cup pattern formed and it ered and a sound chart base backup to new highs (four weeks broke out near $13 (on asplit-ad- formed with asafe and sound buy _ is nota base). The sale was made usted basis) point that allowed you to double right intoa 2-for-I split. A your money in the next six months. Recognize that from early in 1993 when Dell was sold, you had use of that money over nine quarters before the next real buy signal, based on disciplined rules. Rules also dictated you to sell it in October 1995. The stock had just doubled and was sold based ‘on two weeks straight down to or below the 10-week moving aver- Three weeks later, Dell's earnings showed a third consecutive quarter of deceleration in itsearn- ings growth rate. Dell wound up with a 53% drop Il weeks after its peak. To excel in the stock market, you have to stay on the job every week checking your charts and company earnings reports. ‘Thirty-nine weeks after the Dell sell, earnings re-accelerated back to new highs, a powerful cight- Dell skyrocketed to over ONE HUNDRED DOLLARS ashare over 6-1/2 times in just 15 months! Only in America, with its many freedoms and endless supply of newentrepreneurs, have opportunities like this occurred virtually every market cycle for the past 100 years. So you had better get ready and fully prepared for the next several cycles. It could just change your whole life.How To Find & Own America’s Greatest Opportunities By William O'Neil Follow-through 3/18/82 anes PULTE GROUP INC. (PHM) Weekly Chart Follow-through S&P 500 / Sell at $32ciose 47 (stock then goes down for 13 months) 18 Note how Pulte follows - 7 tee the 10-week moving average line all the way 8 Up unti itfinally closes below the line on 5 increased volume 46 a 38 “SN 4 weeks tight closes a average less than 1% : a0 change in price =H 26 24 ere ons Huge volume up 7 enol 357% above average 18 A+: Volume dries - weekly volume 1" upin handle fe ca on pullback GQ @ -31% |-20% |-67% |r0% |-64% |+21% [67% |-27% EPS % Chg Sep 80 [bect)|Marét [sunét [Seni [Deceit [Maree |vnaz [Sens2 [beca2 [Mares [Jun@3 Dato Before Pulte broke out of its derstand that duringa declining 55-week cup-with-handle base on July 23, 1982, it had increased in price more than 10 times since January 1976.So, Pulte was an outstanding growth tock in thenoto- riously cyclical homebuilding industry. It tried to break out after the S&P 500 follow-through on March 18, 1982. However, the S&P rolled over and made a new low that temporarily stopped Pulte’s progress. It’s very important that you learn to spot and un- general market where the S&P 500 at points A, B, and C makes new lows, Pulte’s price at A,B and C does not make new lows, but holds 20% higher each time. This is a tremendous sign of counterpower, and as soon as the general market finally turns up for real, thestock should be abigleader. This example also tells you: No. 1you need to develop your skill at chart reading, No. 2 don’t ever get discouraged and stop doing your market homework, and No. 3 ‘once you leam to buy real leaders at the right time, you must have and execute proven sell rules to keep you in for most of the big move up but get you out on the way up to nail down your big gain while you still have it. You don’t ‘want to wind up giving itall back. One rule that works well with many new big leaders is, once you buyrightandare ahead, hold until your winner closes for a week clearly belowits 10-week-movingaverage line in greater than average volume.How To Find & Own America’s Greatest Opportunities By William O' Neil Follovr-through 7N3I94 GARTNER INC. (IT) Weekly Chart Add once stock back over 10-week line Buy ‘Add off 10-eek moving average line gets bo 6 weeks flat base Follow-through 1214/94 Follow-through 971/96 goes through \ If shaken out of some stock, must buy back plus a little more Do not sell, 1st week to close below 10-week moving average line. You have a 100% cushion and last quarter earnings up 100% Potential shakeout to avoid. If you pyramided, you might have to sell last Sell all when stock 5 upper channel line oH ‘S&P 500 Do not sell, did nal clase week below \i0.week moving above line on volur shakeout of some buys 3 weeks bef Do not sell, low volume 47weeks tight closes hold gains of prior 3 weeks ‘ath week has potential >) 80 a oo 50 46 a 38 u 30 8 26 4 2 t aVeragé line (could add 19 as stock gets back 1? me) 15 1“ 8 2 fore ty 10 8 8 stock bought ft drops 8%. fs0, you 45 must buy itback when ttrecovers back | i ae t/ weeks over 10-weak line on volume increase a3 \ 18-week cup tight closes Note stock goes up over 800% a4 with Randle continually gets support on or ust Below 10-neek ine. Dont 6 an 10-week moving when stock goes below line, wait to, 26 average iine of prices see how it closes for the week on aA Stock spits what degree of volume 75 | Volume up 2 huge volume weeks up ia after possible and nearly peak closes ® shakeout 7 Value \ /\ Low volume | NA | +150% |+100% | +100% | +300% |+60% _+100% |+25% [450% +50% EPS % Cha Sepes [Derea [Naro# |uuno# |SepO4 |Deco# Wards |Junc5 |Sepe5 |[Daccs [Mars | Jun0d Dae Gartner Group provided subscription-based analysis of computer hardware and software, communi- cationand related technology. Ithighlighted industry develop- ments and reviewed new products and technologies. Its analysis was used by senior management ininformation technology depart- ments across corporations and government agencies. Clients gained the benefit of detailed research reports to help guide decision-making and manage costs while taking advantage of technology that was advancing rapidly. Gartner was incorporated in 1990 and had its IPO in late 1993. Morgan Stanley was the investment banker. At the time of its first buy point at a split-adjusted 5.70, the prior three quarters of earings were up 150%, 100%and 100%, sales were accelerating up 31%, 37% and 42%. Sponsorship by mutual funds had increased each quarter, The P/E ratioin the mostrecent quarter was ashigh as 39 and as low as 30. The P/E ratio atthe top expanded to 123. We don’tuse P/E ratios to deter- mine whether a stock is “overval- ued.” Instead, we use them as a gauge of astock’s potential. A look at the best performing stocks of each market cycle tells us that growth stocks tend to expand their P/E ratios by 130% in bull markets, With that knowledge, and the use of forward looking annual earnings estimates, you can calculatea price target for astock. It isn’t a tool we've used that much in the last decade. But in strong bull markets itcan beause- ful indicator to help you hold through normal cortections for even bigger gains in, the market leaders.How To Find & Own America’s Greatest Opportunities By William O'Neil Ceininan i Follow-through sepso0 © 5 general market ee i 0 Follow-through Followthrough c eee « 7119189 40/17/80 ie \ 2° Na 4 2 2 ES 24 Largest down volums day since 24 sient ha beginning of entre move. Three ieee millon shares traded in one day 4g Do not buy, late stage base Buy, ‘Gaps up at buy point on daily chart with 116% increase in volume fiat base Breakout volume thi +23% | +33% | +111%] +83% No 1 sel loses below 1o.neek ‘moving average line on 46% ~ increase in average volume = 431% 26-week cup ‘with handle Normal pullback to breakout buy point and 1D-week moving average line Costco Wholesale Corp (COST) Weekly Chart Largest weekly volume to date at 12,9 millon % XN +0% | +58%| +73%| +43% (GB Sel 2nd stint yee gain. I was asleep and didn’t 6 realize Costeo was a follow- , on stock to what Price had done. That's likeanyoneown- 5 ing AOL when it was a leader and failing to see Google was 5 the follow-on Internet lead- 46 er. 42 So I missed this giant ag 2-1/3-year cup with handle 5, with big broad symmetry that had just formed. It went 39 up 700% in the next 170 35 weeks, I've said before there 34 22 Vourne +138 +33%| +32% Mae 89 | dun 89 Daces_|marso Sep 89 [oan 90 Deco | Mar ot Sep angi Sep0i_| Decor Costco had cash-and-carry mem- bership warehouses. The earnings-per-share annual growth rate from 1985 to 1989 was 103% per year and the return on equity was 15.5%, The first nine-week flat weekly chart base we are showing you ‘was not really Costeo’s first base. Its first base was so big and long there was not enough space to show it, but it is important to dis- cuss, After almost doubling from its [PO in late1985,Costcocorrect- ed 70% over 74 weeks and hit bottom during the huge October 1987 general market break. Then for 21 weeks, it recovered in big volume into the upper part of its base and went sideways, building a 35-week handle. Volume dried up during the down periods. There were two periods of four weeks in arow closing tight. Isaw this at the time in late 1988, but didn’t believe it and had to come in many months later. Out- standing stocks do build bases on the way up so keep track; you may getanotherbaseopportunitylater. Another reason I didn't act on the first base was a prior bias. From 1982 [had owned Price Co., which was sold at a significant are small, medium and large cups with handles, but the overall shape has the same look. So learn torecognizeall sizes; they've been repeated in every cycle for many years. Historical precedentisamazing. Xerox in early 1963 created the same pattern after the bad market in 1962. Xerox's big18-month cup with handle with an identical handle went up 660% in 169 weeks compared with Costco’s 700% increase in 170 weeks. History keeps repeating itself. So you need to study historical patterns . « ifyou want to succeed. a(How To Find & Own America’s Greatest Opportunities By William O'Neil When you sell correctly on a no Follow-through Fellow-throush channal line o ciax top rule, its. ~---- 100 4/20/76 e776 generally better to sell your whole 0 Folowstvough \ pealon ino this eal opportunity, 8/28/75, : 2 S&P500_ 5, Follow-through pee | rei freaks upper channel a | Follow-through ling, stock doubled += 10/9174 ; he | from last base and a \ ‘ ; TUPTPT ETT! stalls on volume at top, SEA CONTAINERS LTD. (SCRB) a | (wr Weekly Chart ® 4 ‘Sea Containers leases marine con- ee = tainers, container ships and relat- Poaoskc rns 2 ed cranes on a worldwide basis. average tar 2 See texted amaze aro earnings. The annual earnings growth rate from 197101976 aver- | aged 56%. | Return on equity was 38%, pre- | tax margin was 29.6% and next | year’s earnings estimate was 53%. Before the first buy point, the prior four 4-weeks tight closes up over 20% in 3 Weeks of less 50 must hold for 8 weeks from buy point .sign of a likely big winner Low volume along lows (no weeks tight closes and volume dries up ‘on pullback to lows. at 102meek line cost of prior buys may be $15-17 and you have neatly a 100% profit cushion. So, you can afford to continue adding a reasonable number of shares, You're lversitying your purchases over time 6 14 13 ra " 10 ° 8 7 ares ig. sees big further selling) Chat prices adjusted s . cup with handle fora 2-for-1 split Big volume off 42 10-week line Heavy volume a5) | without much futher Big volume Breakout Breakout “price progress up 94 ue Low volume-- volume up GR) chsme up \ a0 Volume aries A} Vy wane up in handle : 0000 49.000 | 455% | +0% -38% —|+143% |+30% |+76% |+189% |-6% +45% [443% | +72% EPS% Chg Sep74 [Dee 74 [wars [un 75 _|Sep7 |Dac75 | war75 _[.un76 _[Sep75 [Dec 76 _|War?77_|Jun7 | Sop77 Da quarters of earnings-per-share growth were 143%, 39%, 76%, and the most recent quarter was 189%. Sales growth was at 12%, 0%, 10% and 10%. The most recent quarter had after-tax margins at 23.6%. The price-carnings ratio was below 10. At the time, Sea Containers was arelatively young company incorporated in 1965. Its initial public offering of stock occurred only six years prior to the buy point off of the 46-week big cup with handle we show youon the weekly chart. Remember, one of our buy rules for finding potential new big win- (_sersin thebeginning ofanew bull market is to look for stocks that had an IPO in the past eight years and show huge accelerating earnings. The two quarters before the breakout from the handle wereup 76% and 189%, However, the way you spot this winner is to recognize the classic cup-with-handle stock pattern. It is the combination of your learn- ingto recognize the cup with handle when you go through many weekly charts week after week and combine that with huge earnings increases and other powerful fundamentals such as a very high return on equity. The fact that all four weeks breaking out of the handle each close at the week’s peak price on accelerating big volume is ver} tpllsh, ‘tellfag fou the steick will probably go much higher given time. So be patient. No stock goes up forever. That’s why we always have a set of selling rules for when to take your worthwhile profits on the way up while the stock is still advancing. Two of these rules are: 1) sell into a climax top (the precise defini- tion is on page 263 of “How to Make Money in Stocks”) and 2) sell ifastock goes through aprop- SekeiamacamieHow To Find & Own America’s Greatest Opportunities By William O'Neil 7/30/63 f Follow-through 12/5163 A Big cup Closes in upper Pee with handle part of range, a Sign of Support Big yolume up from prior week’s volume and price stops decline is a sign of buying Follow-through ror2sv62 \ Note: if you sold at $108 on the way up you could buy it Do not buy, later sy back 36 weeks later using the Shakeout +6 rule fora "stage base and $100 stock (not shown on chart). You would make over ~ straight up from 170 100% plus you had the use of the money for 38 weeks bottom to new high 459 z Sell at $108 up \ 48 The Xerox story, as portrayed in 20% from last buy . oF the book “My Years with Xerox” Sali straight down ie i |, straigh bi +0 by John Dessauer, is phenomenal- to 10-week line and % ks ly greater than can be conveyed straight back up 2 NY th ‘on just one small chart. It’s a per- peeks be a bad fect example’ of how America’s eae % economic system_of wide-open +5 freedom and opportunity actually Big volume bounce off ‘works for anyone (regardless of 10-week line and stock 0 background) motivated to pursue fm Seek tahtbase FD. 2H below 7 a practical sew idea, work, learn average volume for 4 andnever give up. week closing below ed Do not buy needs: Buy Buy I 10-week line ‘6 OE "ada pullback to 3 ‘10-week moving % average line 3 weeks tight closes shows accumulation ‘Your job is to learn how to spot the next Xerox. XEROX CORP. (XRX) Weekly Chart Heavy volume with less of a move down in price and close in mid-range is a sign of support \ i den. Chet had to work hard to put himself through school. His mother died early on and his father was sick. Later, Chet spent seven years trying to perfect his idea ofa new photocopy machine. He used his kitchen as his laboratory and could only afford $10 a month for materials. RCA, IBM, General Electric, Eastman Kodak and oth- ers all turned down his first product, saying it would have no demand. His wife, seeing years of relentless failures, divorced him in 1945, Finally, the Battelle Insti- tute showed some interest and put up the grand sum of $3,000 for further research. Haloid — which started as a i2-person business that made ‘copy paper and would eventually become Xerox — learned of Carl- son's still unperfected system, became interested and put up $25,000 (all they could afford) to continue research and to obtain certain limited copying rights. No +108% |+76% |+74% |+0% |+50% |+60% | +36% |+125% EPS%Cho War | in82 [Sep 82 [Dec 82 [Mer 6S | 0n69 | Sop 62 [Doe | Mars¢ | in és | Sop 64 [Dass =] ChetCarlson’s family was poor, bigcompanies wereinterested Hisfatherwasabarberfromewe, 11947, Haloid’safter-taxprofit and 1962 to 1966, and created pone more than 50,000 jobs in the pro- was less than $150,000. It tooksev- eral extra years of R&D to improve the system, and a survey showed that “if” the system worked the company wouldn't be able tosell enough machinesto re- cover the research cost. Joe Wilson, Haloid’s CEO, kept on even when big companies said the product was too big and com- plicated and would take up too much space. They only wanted a small desktop product. With the introduction of the 914 Xerox —the world’s first fully au- tomated plain paper photocopier that didn’t require chemicals like America Photocopy's product, which could only make one wet copyata time — Xerox revolution ized the communications industry. Xerox went public in the mid-1950s and the stock skyrocketed 150 times from 1958 to 1972. It dramatically led two market and economic cycles, 1958 to 1961 cess. We live in the most successful country in the world. We have the largest GDP per capita of the major countries. In the last 150 years, every marketand economic eyele has been driven and led by new private-sector inventions like this or by newer innovative companies with novel products that improve every American's standard of living, increase jobs and slowly outmode older, less ef- fective products. In recent years, these stocks all wentup at least 10 times and several of them 100 times or more: Home Depot, Wal-Mart, Toys R Us, This Can't Be Yogurt, Mi- crosoft, Amgen, Cisco, ‘AOL, ‘Yahoo, Qualcomm, Intuitive Sur- gical, Priceline and Apple. From Edison and the Wright brothers totoday’snewest successful entrepreneurial innovators, you can Jearn how to spot the next cycle’s top new leaders if you get serious and do your homework. Few individuals bought Xerox because its P-E ratio wastoo high.How To Find & Own America’s Greatest Opportunities By William O'Neil am Simmonds Precision was a new high-tech leader. They created Follow-through Follaw-through 78165 7HI64 10-week line @ Addat2™ pullback to10-week Follow-through 3121168 SN S&P 500 Vay sei -ciimaxtop measurement, display and con- line at $21. Also can buy at a trol systems for the aerospace in- $24.50 breakout of what is a ] z dustry, precision metal products, now a classic 17-week ascend- i 26 and electronic components. This. __ ingbase i By wasduringthe Vietnam Warperi- @ Stockhasa3/1split,rapid = @ 2 od and business accelerated in ~ run-up that creates a 2 or 3 1965 for aerospace andelectronic week climax top after a long fe 7 systems, tL advancing period. Signs of | @ij,y ° i Simmonds Precision showed a a typical climax top in- NS Ascending base puis 1% classic 19-week cup with handle ude 8 out of 10 days ina back 3fimes witha 43 weeklychartpatternandanunbe- row up and one day higher low portion '3 lievable 7-fold price increase in year top gaps up on © Ato B10 C * only 29 weeks that ended withan ily chart A climax.» i easy to recognize climax top. can be up 25, 50 or Buy a ‘mae a @Extreme volume dry up on 2 THO, Ths ohawak NH 2 week pullback means no fur- ver 100% One of NPY tea : ther selling comes into the mar- g 7 ketat the lowsofthe pullback. @Note also same extreme vol- 6 ume dry up at low in pullback ee 2 weeks of siipoott volume ofhaiidle area: buying closing up and near peak 5 © trealoutfron cup withhandle Protaprene 7H oF each week at cotton of sth 46 : and 7th week doun inthe base 42 goed mp. over. 2% a feat Y i9-week cup... folowed by anextreme volume 5 sweeks's0\ our rule sto! a i handle dry up after the 7th week full 8 weeks from breakout a4 point and then reappraise if we t 20 should hold further or sell. 7 28 @simmondsclosesseveral Big volume clue eee es weeks unchanged with tiny | in prior uptrend Bor 4 spt 22 weekly spreads..highly posi- : Eee @ z volume Fi : vou SIMMONDS PRECISION PRODUCTS, INC. y \ Weekly Chart o dy e i 0000 1h J 50,000 Fl 20,000 18000 lu l ll +200% | +100%| +100% | +33%| +0% | +0% | +25% +160% [E260% 380%) crs x omg Sep63 [Dees |warée |Junés [Sapee [bace« [wares [mes |sop65 [0ec65 _|maras [uns |Sop66 Dat tive to happenafter abigmove up. @ End of 8 weeks holdruleso it’s time to reappraise as_men- tioned in @, Stock was. buy at $13 with volume up huge, a new quarterly earnings report up 175%, stock is now up 80% since 1* buy. You have a big gain and cushion so must hold longer until a very clear sell signal of closing a week below the 10-week moving average line with volume for week up over 30% or a textbook climax top occurs. Add at L*pullbackto the days up will be up more points than at any point since the beginning ofthe move.On a weekly chart one of the weeks in the climax top will usually show the widest spread from low to high for that week when compared to all previous weeks onthe way up. Ifyou save all the charts I’ve ex- plained and marked up, you'll have a fine set of models for what youwanttolook for every week in the future. Inthenext 20 years there willbe 200 stocks that will go up 5 times or more. Getting 2 or 3 could just change your whole life. How can you do this? Learn to read charts well and do it each week. Learn the individual stock buy and sell rules and follow them, Lear the general market buy and sell rules and don’t argue with the general market. Don't be lazy, believe in yourself and the rules. Develop a few motivated friends who also seriously study the CAN SLIMrules and are looking for the best stocks. Who cares who comes up with a big winner as longas yougetthe idea?How To Find & Own America’s Greatest Opportunities By William O'Neil SURGICAL CARE AFFILIATES Weekly Chart Fellow-through S&P 500 5/11/90 | Jiea Follow-through AN784 ty Do not buy’ too much cistribution in base Price stalls on fame Follow-through 413190 N Follow-through 10/18/90 a 38 4 30 ae 2 naa s beaeee a Sell: volime comes in on “28 Never get discouraged Ps clung market eamections ye; break eke Osteo ¥ That's when mostrew Tight closes Moving average line chart bases are formed ; 10 ” : 5 4 week : “ close eround ae 8 10-week line 2 5 weeks ! i wy. arow : 8 "Add: breaks below 8 eects BUY, \ 10-week moving ight closes ? Sweeks NE average ine, Buy Up in a row when stock comes ‘ \ bback above line Shakeout: week closes on big vokiie 5 ‘on big volume in upper- 48 half of week's price range, More support! 43 sign of support around 10-week line aa HA 4 weeks pede 94 / aunt in way line peas shows average 30 7S 10 weeks up na row vith : weehy volume 22 big acceleration in volume 2 8 weeks of volume SRE 4 Heavy volume without up from prior week aa further price progress down ing ag & | és i ae { 1 { { {a het { Met secon -- { { it | | FE 1,480,000, “ ys 780,000 420,000 720,000 +67% |+67% |+25% |+50% |+60% |+80% |+100% |~aa% |+75% |+67% EPS Chg iuna9 [Sep 90 [Decaa [Maro [sung |Sep90 [Deseo |maroi_|.uno1 |Sepo1_[Dec01 [ware ate Surgical Care Affiliateswasincor- mutual funds owning the stock October 18, 1990, follow-through porated in 1982, when hospital costs were mounting. The company developed, owned and operated outpatient surgical centers in many states. In 1990, their outpatient centers performed 109,500 surgical procedures. Once profit- able in 1986, its earnings pershare went from 2 cents to 4 cents in 1987,12 cents in 1988 and 19 cents in 1989. Annual EPS growth rate was around 100%, sales were growing more than 50% per year and return on equity in 1989 was more than 20%. The number of increased each year during the period shown on the chart. Chart prices are adjusted for stock splits. We never want to buy $6 stocks for low-quality reasons, Notice that the buy off the double bottom with short handle occurred at the time of the follow- through day on April 3, 1990. Many big leaders begin this way ...Sostay alert as you wait and be ready to actat the right time. Again, notice how the Novem- ber 1990 sound key buy opportuni- tyhappened very shortly after the day following a sharp correction inthe S&P 500. Know whatyou’re looking for, do your homework and beprepared. During Surgical Care’s first base, the stock's P-E ratio went from 28 to 36. It expanded along the way up toa peak P-E ratio of 92 times earnings. The company’s product, sales and earnings growth rates are typically more important than its P-E. So don’t miss a new leader because you argue with the P-E. Remember, you can’t buy a Mercedes for the price of aChevrolet.e = 8 How To Find & Own America's Greatest Opportunities ie By William O'Neil 100 90 to : zt ts 70 CB RICHARD ELLIS (CBG) 2 Weekly Chart Felow-through 60 Follow-traugh 19/1006 SEP B00 as ‘5/4/05 Ww 42 Follow-through \ \ Chie art6i04 FA Sell: breaks upper ‘0 channel line se Note how bases were all butt durng corto n = the S&P 500, As scon as the market follows-through, aay 2 breakouts happen soon after va 19 You must have both buy 7 and sellrules and follow 45 ‘them. Later in the 2007, 14 + and 2008 real estate 13 © eollapse the stock retraced 12 5 weeks up 4 allof its previous move up 11 inarow 3 : 10 9 Bu 8 \ Add: off 10-week line on volume a \ increase ; Recent |PO Tight closes ina flat base 5 46 42 a8 Low volume . Prices adjusted 34 and tiny price eat © for 3/1 stock spit 5, spreads positive action: 819 volume Big volume a N Volume ~J12.000 000 7,000,000 4000000 2.000 000 #25% |N/A +900%)+109% +43% _|+113% | +48% EPS‘ cng Dec03 [Mara [unde |Sepo« [Deco [Mars |Jino5 |Sep05° [Devos [warce [noe |Sen05 bate CBRichard Ellis wasaglobalcom- in February 2001. Clients includ- by up weeks in black on greater mercial real estate services frm ed pension plans, investment volume. Also note, the S&P 500 that offereda full-range of servie- funds, insurance companies and was busy making new lows as CB es to occupiers, owners, lenders other organizations. Competitors Richard Ellis held tight, refusing and investors in office, retail, in- Were companies like Cushman & t0sell off. That was a major diver- dustrial, multifamily and other Wakefield gence. commercial real estate assets. "rhe first chart base was a tene THiS was an IPO. A newer com- ‘They focused on several service pany that at the bottom of the ; c¢ week flat base that occurred by PanY competencies, such as strategic . eae td ¥ chart showed huge quarterly earn- advice and execution assistance Moving straight si jeways im @ ings per share just before each of for property leasing and sales, Very fight pattern where every the three key chart bases took off forecasting, valuations, ori weekhad atiny price spread from }ik-e a rocket. It ended with more tion and servicing of commercial high to low for the week. A good than a 350% profit in just a little mortgage loans, facilities and chartistcouldhardlymissthisfor- over one and ahalfyears. But, you project management and real es- mation. Notice the extreme vol- had tohaveand followboth sound tateinvestmentmanagement. ume dry up on price pullbacks in proven buyand sell rules. You can ‘The company was incorporated the fifth and 12th week followed _learnhow todo this.How To Find & Own America’s LEVITZ FURNITURE (LEV) Greatest Opportunities Wediichee By William O'Neil ai 2 Follow-through S&P 500 gy \ Follow-through starts \ a nevr bull market WAN 75170 Levitz specialized as theearly pio- neer in the warehouse furniture discount sales business. It was incorporated in 1965 and had its 1P0 in late 1968, the beginning of a bear market that dropped 36% over 18 months. It was a trying period for the country and the market. From 1966 to 1982 the Dow Jones industrials made it to the 1,000 area five times and rapidly {Cll into nee beak markets, Cowen between 25% and 45% over 18 Follow-through 41/3070 Buy: High tight flag Buy: Ascending base cup Sweeks tight closes. Wd > Add: second and 1 SSN third puttoack to boefed 10 Buy 10-week line 4 Add’ first pullback to 10-week line on volume increase e-week Big volume selling gq increased volume without further price decline is 18 positive support Prices adjusted for stock splits; second split 7 over 10 months and 3 for 1 is excessive 6 46 | Heavy voiume without further Big volume selling i 42 4o.week wrth hardie oR price progress a8 Volume up down 4. @) a4 | ‘Youre ti | \ ss ie e000 +100%| +50% |+50% |+33% |+67% |+67% |+33% |+36% |+60% |+100% |+8% _|+100% EPS% Ch juno [Sep 60 ]Decs9 |Nar70 an 70 [Sep 70 Dec 70 |wer?1 [wun 71 |8ep71 | De071__[Mer72 [aun Date months orso. back and forth period ultimately advanced 5, 10, or 50 It was the Vietnam era that began when President Kennedy sent military advisers to Vietnam in the early 1960s and continued under Presidents Johnson and Nixon until the Vietnam 1973 peace accords. But then came NNixon’s Watergate, resignation and the Ford and Carter years. Under Carter, the prime interest rate set a record high of 212 and inflation was12%,. Welostnumer- ous countries to Soviet Union ex- ansionism and Iran tothe Ayatol- Fah Khomeini, whose radicals seized our U.S. Embassy, taking hostages in 1979. Finally this pro- lon, ended in 1982 with Reagan's largest tax cuts in U.S. history — 25% over three years — to set off a 17-year advance from 1,000 in the Dow to 11,750 in 2000. Inflation dropped to 1% from 12%. While the Dow seemed to have its limits, the many two-year rallies that happened after 1966 found stocks just like Levitz that had huge increases that all started with a market follow-through da ending the market decline. Digital Equipment, McDonald’s, Sea Containers, Flight Safety, Pic ‘N’ Save, Humana, Wal-Mart and Home Depot were examples that times or more. Every cycle was Ted by America’s innovators. So get prepared for the future leaders. Levitz built a classic 40-week cup-with-handle weekly chart base and gave you many points to add to your position on the way up when the stock bounced off its 10-week moving average line —all the way up until the upside channel line told you it was time to sell, ‘You must learn all the individual stock buyand sell rules and pay attention fo the general market buy and sell rules, not personal opinions.How To Find:& Own America’s Greatest Opportunities profits are available (from $11 to $72split-adjusted prices), Be disciplined and scan charts every week so you don't miss \\M By William O'Neil stocks that finally complete their Thiokol Chemical Dow Jones Ind. Moekiyi Chait Follow-through 80 Follow-through TaA08. Su ane Follow-through \ 10/3057 Follow-through \ \ Te Sell: Climax ‘op 6 From 1954 to 1957, acrospacé " \ es was a leading sector with the Buyit as ralltany sir hoor, (The NTA a huge follow-on group in the Weekiy prices are INY/ - next market cycle was the new adjusted for stock splits /: missile sector. Thiokol Chemi- 0 cal was a leader with fuel'and Fa motors forthe new rocket era. Do not sell: first week closing below 2 Originally, Thiokol was creat- TO.week moving average Ine was 2 ed by accident. Attempting to only on average volume. The first make anti-freeze, two chem- week is, in most cases, more key Buy Stash ists. made a synthetic rubber than the second week's volume. he pina row. “0 that clogged their sink, They BE : were unable to remove’ the te cA; Add: pulbackto %§ clog with any solvents andreal- i § ‘0-week line 8 ized that -solvent-resistanee- 2 could be a useful property of Note: 3 weeks tight closes 11 sheaiibetanes, Ere ite Cossile along bottom of pattern. This 10 shakeout, isa sign of accumulation 3 UN. that appears over and over 6 weeks Volume dry up on price Suakrisihig winners. upinarow pullbacks Is positive 7 6 Volume dry up on 5 price pullbacks Excessive 3for1 48 53-week cup: split with climax top — 42 with handle o yee 3B Big volume in volume increase on the 2 prior uptrend iy wae btesking out Volume up Volume up Extreme Volume up on big Volume up volume dry pace ween ee ‘ that the polymer made a very ef- fective solid fuel for rockets. This concept was brought straight to the military, Thiokol continued to focuson military applications, de- signing and manufacturing rocket ‘engines, especially for missiles. Prior to Thiokol’s 53-week cup- with-handle chart base, it had already proved itself in the market by coming out of a 15-week cup with handle in December 1955 and doubling in just 15 weeks. ‘These bases were all built during corrections inthe Dow Jones aver- $100%)|+48% |+43% [439% | +35% |-32% | +35% | +97% |+96% | +1393% EPS % Chg [sns6[Seps6 [becs6 [Mars7 |.uns7 _|Seps7 [Dec87 | Marsé _|Jun88 |Seps8 |Decs8 [Mars Date After World War II, the Jet Pro- _ ageandbroke outaround follow- base building. For the best pros- pulsion Laboratory discovered through daysin themarket index. pects, do a price and volume ‘Too many investors use their personal opinions rather than using rules for timing the general marketand individual stocks. The three quarters of earnings growth before the April 1957 breakout were 24%, 44% and 100% (all accelerating). If you miss the first base, pay attention. Leaders can build alater base and opportunity. The early December 1957 volume breakout was actual- lya first-stage base, since this was the very beginning of a new bull market. This is where the biggest check of each week within the stock's base to help you conclude ifthe stockis showing sound accumulation or too many price and volume defects. Next, doa fundamental analysis checking for excellent earnings, sales and return ‘on equity. Read an archived story ‘on Investors.com so you understand the company, and make sure the marketis inan uptrend. ‘Don't be intimidated — you can learn how to take advantage of the many innovative new leaders in ‘every new cycle.

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