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

2.8. 2002 TO PRESENT—CHOPPY, SIDEWAYS MARKETS AND THE BIRTH OF THE POCKET PIVOT

The year 2002 was also uneventful, and I stayed mostly in cash. I remember many funds closing their doors. While 2001 was a massacre, 2002 was equally brutal. Few were left standing. Once the NASDAQ Composite was off more than 70 percent, the market seemed to be excessively oversold. So I decided to take a small position in the QQQQs for a long-term play. I reasoned that the market could go lower but historically, had always resumed a strong rally after being so oversold. This was true after the panic of 1907, after the Great Depression when the market lost almost 90 percent of its value, and after other serious market setbacks dating back to the nineteenth century.

So 2002 was profitable by a hair due to this one trade, which reversed my small losses. My losses had been small because I remained mostly on the sidelines, safely in cash. That said, I would have been nicely profitable had I shorted indices on any sell signals issued by my timing model. This was also true in other years. Thus, this bias I had toward staying in cash during bear markets was replaced starting in 2009 with the action of shorting major indices on sell signals; 2008 was a wake-up call to start shorting the major indices as 2008 was a good year for my timing model, as shown in Figure 2.15, due to the collapse in the general markets. The return of +31.1 percent is good, but under the model's long-term average annualized returns ...