Pocket Pivots


Occasionally the Sector Trends blog will make reference to a "pocket pivot". This concept was originally articulated by Chris Kacher and Gil Morales in their book Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market. It was the product of research conducted in 2005 designed to find an edge to trading sideways markets where traditional O'Neil style pivot points frequently failed. It was also an effort to identify lower priced buy points for institutions who, according to the authors, do not like buying breakouts to new highs.

Kacher and Morales describe pocket pivots as having the following characteristics:
  • a pocket pivot has volume higher than the largest down volume day in the previous 10 days.
  • ideally volume dries up in days prior to the pivot, and surges on the pivot day.
  • except for extreme market circumstances, pocket pivots should only be bought when they occur above the 50 day moving average.
  • choices should be limited to pocket pivots occurring in quality names holding up as well as, or better than, the overall market.
  • pocket pivots occurring above the 10 day moving average are extended and should be avoided. However, when the 10 day has been acting as support and a pocket pivot occurs in tandem with the stock pulling back to this support, this is deemed a "continuation" pocket pivot and can be bought.
  • avoid pocket pivots which occur after questionable chart formations, such as "V" bottoms or wedging action.
  • never buy a pocket pivot occurring within an overall downtrend.

Although some sections of Trade Like an O'Neil Disciple reflect an effort to attract clients to the author's investment advisory service, it's still an interesting book for CANSLIM investors.  In addition to the discussion on pocket pivots, the authors devote a 58 page chapter describing what it was like to trade with Bill O'Neil (worth the price of the book alone for the context it offers), a chapter on the key investment rules (or "commandments" as they call them) learned from working with Bill O'Neil, and each author devotes part of a chapter to dissecting losing trades each made and lessons learned from the experience.

Clicking the link below will take you to the book's Amazon page:

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