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

2.4. 1998—DEMORALIZATION SETS IN JUST BEFORE THE MARKET TAKES OFF

While the first quarter of 1998 was highly profitable, the months from July through early October were some of the most challenging. Shortly after the market peaked in mid-July, my stocks hit their sell alerts so I ended up back in cash just several days after the peak. The market then staged a feeble rally in September. Very few high-quality stocks were breaking out of sound bases; thus there was little to buy that month. I remember, however, many investors buying that month eager to assume the rally was continuing. But when October came around, the markets sold off very hard, absolutely demoralizing many investors. Many had year-to-date losses by that point. Figure 2.7 shows the big market bounce on October 8 that led a few days later to my timing model issuing a buy signal on October 14. I also noticed a few high-quality stocks breaking out of sound bases in the ensuing days such as eBay Inc. (EBAY). EBAY was a most interesting IPO. It had one of the best business models and had first-mover advantage in its space much like Yahoo! Inc. (YHOO) for search engines and Amazon.com (AMZN) for online retail. EBAY came public on September 24, but despite its brilliant business model proceeded to lose more than half of its value due to the nasty bear market that caused the NASDAQ to lose −33.1 percent. So even though EBAY had one of the strongest business models, it sold off hard with the rest of the market, thus neatly ...