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

1.14. THE O'NEIL APPROACH: TECHNO-FUNDAMENTALISM

O'Neil is often chided for being a "technician," but anyone who truly understands the O'Neil methodology understands that it is in reality a "techno-fundamental" approach that combines the use of technical analysis to determine when a stock is under accumulation within a chart pattern and where the proper pivot buy point is on the one hand with essential fundamental characteristics of historically big, winning stocks on the other hand. Nicholas Darvas coined the term "techno-fundamental" to describe his system for investing in stocks, which combined monitoring the price action of a stock to determine that it was acting correctly within its "boxes" as well as to define buy points as a stock emerged from the top of a "box" with earnings growth as Darvas describes, "I saw that it is true that stocks are the slaves of earning power. Consequently I decided that while there may be many reasons behind any stock movement, I would look only for one: improving earnings power or anticipation of it. To do that, I would marry my technical approach to the fundamental one. I would select stocks on their technical action in the market, but I would only buy them when I could give improving earnings power as my fundamental reason for doing so" (How I Made $2 Million in the Stock Market [New York: Carol Publishing Group, 1998], 79).

O'Neil doesn't just buy a stock just because it has a pretty chart—it must also exhibit the proper fundamental characteristics ...