How To Find & Own America’s Greatest Opportunities By William O'Neil Chrysler was my first big {back in 1962. It was a classic cup with handle. The Dow had aterri- “ble break in early ’62 caused by Dow Jones tid’ the government announcing the 490 first investigation of the mutual 10 fund industry since the Depres- Fotontrough "Geena tng ORS, without further price progress 100 i i \ up was the top of the stack 90 Lo Follow-through id and time to start selling a H 5 aan Second selling sign heavy \ n \ volume with price \ we retracing prior two weeks 7 \ % 4 «6 Sell: Stock doubled from "Buy back 2 $15 to $34 and now heavy volume without YX: \ » % Rather patee proaress op ff, 8 1.-” Some volume cistribution a fon way up at +20% ($42) 2 Buy, coe rom ast buy point 2 ‘without 24 ‘ handle 2 6-week Buy flat base Ad 16 weeks v wpinarow CHRYSLER 5 Weekly Chart 2 closes mid-range and + 2 2 virtually unchanged on " huge volume support 0 36-week cup ° wth handle Heavy volume without further price progress up 8 Up weeks on higher volume, this } a ) Heavy volume stalling 7 is accumulation y Voune j ~ ~I Py 41,300,000 Hy 1 100,000 So a 30,000 | coon 29% —|+67% | +67% | +5% 450% [425% [445% | +176% |+5% 748% [442% |-50% | +42% EPs%cng Decer [Mars |xun62 [Sep 62 _|Dec62 |war63 |sune2 | Sepes |Deces |war6e |xunea |Sep64 |Dec6s vat» Along the bottom of the World War III affected the mar- «TheBattle for Investment Surviv- Chrysler cup, note how big-vol- ket and caused a shakeout in the aj,” that I had bought Chrysler, he ume buying showed up almost Chryslerhandle, which closed al- gid he also bought at that same every other week when the stock most unchanged for the week Joint It'snice toknow you're buy. closed up. Later, itwas known the (support). pre with sod: e ing with good company. Love brotherswereaccumulating Once an t was made Eee hired a well abigpost Position Thevolumepicked and the Soviet ships turned back, ry! desi a th asitadvanced six the market had a follow-through ;HGW) MEW sesiener an’ Mey Weck site boron T bought a day. Chrysler broke out at $58.50, bad new models. Tt was a turn, litdleat that time but sold asit cor- the pivoi-point price at that time 20und with two quarters o! rected tocreatethehandlearea. (chart is adjusted for two 2-for-1_ Strong earnings. So the next time During this time, a US. spy plane had taken pictures of Soviet missile bases under construction inCuba. Thatcreated a confronta- tion where Soviet ships loaded with missiles were to meet a U.S. Navy blockade. Fear of a possible splits), which is where I bought. A few weeks later Jerry Tsai of Fi- delity told me he had bought Chrysler at that same time. He saidhe liked to buy whenthere’sa lot of volume. When I mentioned. later to Gerald Loeb, author of you find aclassic cup with handle with signs of big volume accumu- lation, good earnings, with a breakout on huge volume on a new market follow-through, rec- ognize that it’s probably not the publicbuying.How To Find & Own America’s Greatest Opportunities By Willam O'Neil Follow-through anigig6 Follow-through “' Follow-through “} Sell: 1 week straight down to 10-weak line and 1 week up with —=p.- next week at new high Is not a base and is at a very extended point PeopleSoft Weekly Chart Up 20% in 3 weeks, must hold for 8 ful weeks then reappraise, Stock came out of first correction, 60 hold longer Ny Tight closes ‘Add on rebound above 10-week line on volume << —_____ (price week closed below @-weok cup win 10-week Ine on low volume) si... handle and . K base on base A i 5 ‘Add os i 4 a2 38 34 20-week cup 2o-week cup with angle with hanale Volume increases Volume on down weeks up Heavy A volume Volume declines on Suppo +70% +75% we pullback Sell: closes below *10-week line on huge increase in average weekly volume with handle base labeled C at the left hand side of the chart that shows an overall price increase of 10 times. 47 ‘The first base is wrong and fails, the second one is 1% wrong and fails, the third 13 one is precisely right and -12 goes up 10 times. You can 11 andmust learn to recognize 460% | +56% +100% |+83% | +75% | +67% |+80% | +83% | +86% EPS % Chg War 8 [ana [Sep 04 [dace [wares [aun 35 [Sep 95 [Dec 95 [Mars6 [une |Sep96 [beeae [ware ate PeopleSoft was the leader in soft- on making anew high as the S&P thedifference, ware for human resourcemanage- ment. Itcame public in November 1992 at $17 and closed the week at $28, Eleven weeks later it hit$40 duringan uptrending general mar- ket. The next three weeks it dropped 40% and began a 17-month whipsaw period where it built three bases. ‘The first two were faulty and failed. The first base, labeled A in the insert at the lower right ofthe chart, was wide and loose, caus- ing failure when it broke out. The second, at B, had a handle in the lower half of the base and failed 500 had started a market corree- tion. ‘The reason I'm showing bases ‘A.Band Cin the insertis I want ev- eryone to recognize a phenome- non that I’ve seen happen several times. It clearly explains why you need to become agood chart read- er who can tell the difference be- tween a faulty pattern that will fail and the same stock that later on will suddenly form a classic cup with handle that, in some cases, can go up 10 or 20 times. ‘The base labeled C in thein- sert is the same correct cup Qualcomm did the exact same thing four years later from Febru- ary 1997 to January 2000. Two faulty bases failed, and the third base was a classic cup with handle that soared 20 times from the first quarter of 1999 to its peak the first week of 2000. At the initial proper buy point, PeopleSoft had 163% prior annual eamings growth rate, last two quarters of earnings were up 56% and 60%, sales were up 100% and 87%, pre-tax margin was 23.5%, and research and development was 14% of sales.How To Find & Own America’s Greatest Opportunities By William O'Neil Base is not right on this follow-through A\,, 7019174 Se Follow-through ae Base is now right to buy Base is not right on this follow-through 10/8/75 Sy 576 \ Prices are adjusted for stock splis...the actual price at the buy point was $32, not $13 Peak of handle does not get, on this follow-through ha ieee S&P 500 PS NOON Sell: heavy volume 60 without further price ———>, progress up compared to 0 2. prior week's big increase a 2 3 u 30 7" Add when back over 10-week through heavy overhead port ty © not close below ~~ Volume support 18 supply from $10 to $12 (faulty) ey ys Sneak Ins io BEBRANEEGE sar Do not buy Nyt Go not sell a NX Overhead supply “ Voume 2 N VY decline on sth lr fb 1st pullback 10 / c ° / S.veek correct cup . ae weske ‘without handle : 8 i 6 Faully cup with handle Cotiedis over 22% ! (handles normally é correct 8-12%) ts i a2 Wide and loose straight up Houston Oil iat from bottom, bad base Weekly Chart a4 30 ah 8s ah_ Distribution Red volume up from Volume dries Volume por week should not Heavier volume _ ip on pulbacks 2000000 — happen in handle on up weeks | ‘on a 00,000 thy 300000 \ +750% |+800% |+67% |-45% |-12% |-22% | +320% |+250% |+113% |+150% |+48% |+114% EPS% Chg war7a [an74 [Sepia [Dec [Marrs [an75 /Se75 |Dec75 [ware [Jun73 |Sep7e [De=76 |WaTT Date Houston Oil was newly listed on the American Stock Exchange in Octo- ber 1972 as a young company incor- porated in 1966. It explored for and produced oil and natural gas mainly in Texas. From November 1972 to Novem- ber 1973 it increased 10 times in price. Notbad for anew wildcat drill- er strong in developing geologically complex properties. The November 1973 top was a cli- max top and your chartbegins at the far left with that peak in red tipping at $14 on asplit-adjusted basis in the second plotted week. It then drops 65% in the devastating 1974 bear market, which resulted in the very wide and loose chart base labeled “A.” That first straight up from the bottom, wide and loose base failed. Next, Houston Oil forms a second bad base “B.” The left side of this base corrects 25 weeks with many red weeks onincreased volume (nor- mally the left sides 5 to 7 weeks and ina few-ases 13 weeks, not 25). The handle’s peak price up from the low of the base should get above over- head supply area. It did not in this case and the handle’s correction was toodeep (22%). ‘The third base at “C” is much tighter and is a correct 9-week cup without handle. The third time's a charm and is the sound base to buyas the stock goes from $13to $60. Once again wesee abig winning stock has a huge run up, tops materially, goes nowhere for 2-1/2 years, fooling people with long sloppy bases that fail and fi- nally, in one week, pops up com- pletinga sound cup and the exact righttimefor you to buy. ‘Think about this. You had 111 wrong weeks to buy when your odds of losing were high and just one week where the correct cup appears and you can buy at the right time and make over 300%. Investing isn’t easy. You must have charts to tell you the differ- ence between the many faulty stocks and the few potentially phe- nomenal stocks. You can learn to do this if you're really motivated and nevergiveup. When you've made some mis- takes and the market's in a de- cline, the worst thing you can do is give up on investing, cancel your IBD subscription and chart service, and here's why! Eighty- six percent of all great stocks of thelast27 market cycles (over100 years) built their classic chart bases during general market cor- rections. You absolutely have to be on the job every week doing your homework to be certain you're there when the market ‘turns up and the next new leaders complete their bases and it’s the exact time for you to buy. Since early 2004, Apple formed 10 clas- sic bases during its 5,577% ad- vance before it finally topped. ‘Nine were built and completed during general market correc- tions. ARE YOU LOO}