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

3.5. PATIENCE AND A WATCHFUL EYE

Because Oracle had originally broken out in early September 1999, well before the market had bottomed and turned to the upside again in late October, it was too early to buy the stock on that first breakout, and so it ended up backing and filling for another six weeks as it formed another consolidation or base on top of the prior handle from which it broke out in early September. I considered this lack of upside thrust as confirmation of my earlier assessment that the stock just wasn't showing the kind of earnings acceleration that I considered optimal at the time. Nevertheless, I kept the stock on my watch list as it built this second six-week base on top of the prior handle consolidation, essentially forming a very powerful base-on-base formation.

A base-on-base formation is often a powerful formation because it is visually showing you a stock that has broken out and really wants to move higher, but because the general market environment is not ready yet, for instance, is not in an up-trending bull phase, the stock simply goes about its business setting up in another consolidation or base just above the prior breakout point, as you can see in Figure 3.9, as it "coils" in anticipation of springing higher once the weight of the general market lifts. Oracle also flashed a volume clue in this second base as it pulled back sharply right after breaking out of the first base in early September. As I've labeled on the chart, you can see that this sharp ...