A few years ago I read a book written and published by Gil Morales and Dr. Chris Kacher with the title Trade Like An O’Neil Disciple. I’ve been a fan of
William J. O’Neil’s for several decades, so this one grabbed my attention. As I read through the text, I gave it super attention and made notes about the
methods that they used to generate more than 18,000% in the stock market. The best possibility was to be able to identify the Pocket Pivot setups and
prepare to trade that with success.
Put on your track-racing-uniform and get ready to GO! Once you learn the basis of this setup, and watch growth equities, you’ll be ready for the oncoming
PP BOs (pocket pivot breakouts). On Monday, June 16th, 2014, Tesla Motors Inc demonstrated a successful PP BO with a rise in price of about 9% on volume
that was more than double the average-daily-volume. The next day it continued to move bullishly, giving those who signed on for the ride MORE reward!
What are the criteria for these “early” breakouts?
1. As with base breakouts, proper pocket pivots should emerge within or out of constructive basing patterns.
2. The stock’s fundamentals should be strong, i.e., excellent earnings, sales, pretax margins, ROE (return on equity), strong leader in its space, etc.
3. The day’s volume should be larger than the highest down-volume day over the prior 10 days.
4. If the pocket pivot occurs in an uptrend after the stock has broken out, it should act constructively around its 10-DMA (daily moving average). It can
undercut its 10 DMA as long as it shows resilience by showing volume that is greater than the highest down-volume day over the prior 10 days.
5. Pocket pivots sometimes coincide with base breakouts or gap-ups. This can be thought of as added upside power should this occur.
6. Do not buy pocket pivots if the overall chart formation is in a multi-month downtrend (5 months or longer). It is best to wait for the rounding part of
the base to form before buying.
7. Do not buy pocket pivots if the stock is under a critical moving average such as the 50-DMA or 200-DMA. If well under its 50-DMA, and getting support
near the 200-DMA, it can be bought provided the base is constructive.
8. Do not buy pocket pivots if the stock formed a “V” where it sells off hard down through the 10-DMA or 50-DMA then shoots straight back up in a “V”
formation. Such formations are failure prone.
9. Avoid buying pocket pivots that occur after wedging patterns.
10. Continuation Pockets: Some pocket pivots may occur after the stock is extended from the base. If the pivot occurs right near its 10-DMA, it can be
bought; otherwise it is extended and should be avoided. Give the 10-DMA the chance to catch up to the stock, where the stock would consolidate for a few
days, before buying such a pocket pivot.
What gave Tesla, the catapult needed for the break-out? NEWS! The Model S maker said that it will not collect any licensing fee from rivals that use its
technology. (However, Tesla would request to use the technologies of other automakers.) In addition, there was news that the Model X would start being
delivered next year. All of that, combined with a report that the executives of Tesla were in discussion with executives of BMW and Nissan to establish
car-charging standards, drove the price higher!
Does this movement in TSLA meet the criteria written out above? YES! The discipline book is a good book to read if you enjoy trading leading stocks!
Emilu Bailes
OptionsANIMAL Instructor
