Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market

5.3. DEFINITION OF A POCKET PIVOT BUY POINT

Pocket pivot points in fundamentally strong stocks are preferable, and in particular one should constantly monitor the "big stock" leaders in any bull cycle for potential pocket pivot points. The Internet stocks in 1999, Apple and Google in 2004, and solar stocks in 2007 would have been areas to focus on for monitoring pocket pivots during those particular bull market years and cycles.

The idea behind a pocket pivot is that one is buying the stock "in the pocket," as a less-obvious but valid and reliable buy point within the stock's base. While many different buy points in a stock's chart can meet the definition of a pocket pivot, some can be improper, as we will see later in some of the examples.

Similar to what you would want to see in a proper base formation, a stock should be showing constructive price/volume action preceding the pocket pivot. Just prior to the pocket pivot, as the stock is moving within its overall base structure, tighter price formations, that is, less volatility should be evident in the stock's price/volume action as viewed on its chart. The stock should have been "respecting" or "obeying" the 50-day moving average during the price run that occurred prior to the time the stock began building its current base. This indicates that the stock's character is such that it can be expected to continue to do so. Therefore you can use the 50-day moving average in such a case as a sell guide if the stock begins to violate ...