O’Neil Article – Home Depot

Today was the first article in a new weekly series written by Bill O’Neil himself. His plan is to review one of the biggest stocks in history each week. This week he began the article by spending the first half of it discussing what a wonderful country of opportunity we live in. Probably not many people arguing that. He then goes on to list the three things that do not change in the market over time which are supply and demand, human nature, and innovation. He then spent a few paragraphs discussing Home Depot’s 1,600% rise in 1 year and 8 months. Here are some thoughts I took away from the article:

  • I was not aware that his rules permitted buying an IPO after only three weeks even if it has established a 3 Weeks Tight pattern. I was under the impression that you had to wait for an actual base as a 3 Week Tight is supposed to be an add-on pattern. It was interesting that he noted that the Google IPO had the same pattern. I will be looking for that in the future.
  • One of his notes said that since he was up 47% after his mandatory 8 week hold period that he could then hold until it closed a week below the 10 Week Moving Average on volume or had a climax top. I’m thinking this indicates that I’ve been falling victim to shortsighted selling based on my viewing daily charts. Perhaps I should put more emphasis on weekly charts.
  • I noticed that $HD never really got too far extended from its 10 Week Moving Average on the way up until the very top. I’ve spent the past month or so seriously analyzing my handling of $PCLN and I’m still not sure whether I made the right move. I documented at the time that I wanted to stick to the standard IBD sell rules dictated by the 50 Day Moving Average, but I couldn’t handle giving back that much profit as $PCLN was very far extended from that average.
  • I think it is going to be very helpful to have an example of a climax top like this that I can refer back to next time I’m holding a big winner. I intend to start a new binder containing ¬†each of these articles. I am thinking they will make great references in the future.