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Market Lab Report
My question is in relation to the O'Neil rules of selling at 20-25% profit from a breakout buy point.

Q: I purchased ARUN on 8/26, after your Pocket Pivot email alert. The stock has acted very well and I am currently up 27% from my Pocket Pivot buy. My question is in relation to the ONeil rules of selling at 20-25% profit from a breakout buy point unless it makes the gains within 3 weeks then hold it for at least 8 weeks. How do you apply this rule if you purchase in a pocket pivot prior to the breakout? The stock was up 20-25% in just over 3 weeks but that is from the pocket pivot point not B/O buy point.


A: The 20-25% profit rule of O'Neil's is designed to help one lock in gains on a stock that isnt the fastest moving stock in the bunch, and makes a move, then stalls. While this rule worked well during the sideways grinding markets of 2004-2005, Gil has never found a need for the rule based on the way he trades, and I have only used the rule during those years, a rather unusual time for the markets. You could continue to apply the rule to O'Neil breakouts, but I would not apply it to pocket pivots. I find the 10dma/50dma sell rules work better. And of course, one might sell before those rules are broken if general market conditions dictate. Thus, I use the market direction model (MDM) as a guide.

First published: 21 Sep 2010
Last updated: 21 Sep 2010