In the book O’Neil preaches to invest only during market uptrends in companies whose sales and earnings are accelerating sharply. They should have something “new” about them to drive the stock – a product or service that breaks new ground and makes the company’s stock a “must own” for growth oriented institutional investors. It is this money that drives share price appreciation that we seek to have work for us.
Amazon.com’s performance after earnings Thursday evening reminds us of the rationale behind O’Neil’s method. The idea isn’t to buy anything breaking out of a cup with handle base, which has become the all too simplistic interpretation by the general public. Rather it is to figure out what are the institutional MUST OWNS and position yourself in them prior to their big moves.
Two months ago an O’Neil trader told us Google (GOOG) was a must own again because of new initiatives they had that would only bolster their dominance in search. Sure enough, when GOOG “beat the street” recently the stock flew. Institutions simply had to own it.
AAPL continues to innovate and deploy a steady stream of new products the public falls in love with. The stock has been in an uptrend since the market began rising in March and also gapped up big on earnings last week. Another institutional must have.
And AMZN, with its ground breaking Kindle reader and hammer lock as the go to destination for online purchases is similar. In the last two quarters there was a huge jump in the number of mutual funds owning AMZN’s shares. Notice the gap up on the chart in September on huge volume as institutions forced their way into the stock. Thursday night’s report lit the match.
Figuring out the institutional must owns during market uptrends is the secret to How to Make Money in Stocks. These days innovating Big Caps are back in style with institutional investors and their volume footprints have been the clues to entry.
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