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

9.1. 1997–1998

Late 1997 was a difficult time to make any money in the market, and by early 1998 the market was pushing into new high ground following the sharp market break and correction that culminated in a 554.26-point sell-off in the Dow Jones Industrials, the largest point drop in its history at the time, on October 27, 1997. In late February, Bill O'Neil observed that leadership in the rally to new highs was being shared by growth stocks and larger-cap, consistent earnings-generating, established companies. As he would advise at the time, "This is a two-pronged market today—stick to companies with earnings consistency—this is what institutions are likely to buy." Larger-cap stocks of established companies with steady, reliable earnings growth of 10–15 percent and a long-term record of profitability, while not attractive as classic high-growth CAN SLIM type stocks, do have periods where they come into favor by institutions, and in this sense O'Neil was relying on his understanding of what we have come to call The Big Stock Principle, as he concluded what institutions were likely to buy in the market environment of 1998. In his observations, O'Neil emphasized that the simplest, most reliable way to identify leading groups in any market cycle is to pay close attention to the new high list and note which groups are consistently making the list. There is no need to create industry group "velocity" charts, no special color-coding of industry group movements, and no reliance on ...