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

2.6. 2000—THE BUBBLE BURSTS

Celera Genomics (CRA), shown in Figure 2.12, had made a critical announcement about their mapping of the human genome in late 1999, sending biotechnology stocks soaring. The group continued to make huge price advances in early 2000. As with the Internet sector, many of which had no earnings, market perception played an important role in the bio-techs, many of which not only had no earnings but also had no revenues. So, with none of the classic fundamental variables on which to measure the company, I applied to the biotechnology sector what I had learned about market perception with the Internet sector. If market perception was highly positive due to a belief held by institutional funds that the company had huge potential, this could be seen in the price/volume action of the stock, as it was the signature of significant, big money institutional buying. This was key to my making a triple-digit return in 2000 on the long side, a year when the market averages such as the NASDAQ Composite were down nearly −40 percent.

The biotechnology sector topped in late February, shortly before the general market topped. The general market then put in a top on March 10 as shown in Figure 2.13. I was quick to take my account off margin and move into cash as each one of my stocks hit its sell alert in the ensuing days. For the rest of the year, I did some infrequent, light buying, and so I was able to preserve most of the profits I had made that first quarter. It is critical ...