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William J O’Neil was a famous growth investor known for his rules-based investing process called CAN SLIM. Over O’Neils long and illustrious career, he made a fortune investing in the hottest, most innovative growth stocks of the day, and more importantly, selling them near the top. Over his multi-decade career, O’Neil made millions in novel ideas and companies such as Price Company (which later became Costco, online marketplace Ebay, EV-pioneer Tesla.
It’s About What You Keep
Once a growth investor takes time-tested principles like growing earnings, a bullish chart pattern, and a growing industry into account, making money in the market becomes not only possible, but repeatable. However, buying winning stocks is not the issue for the majority of investors. After all, a baby can pick Scrabble letters out of a bag and potentially find a winner.
The hard part of investing is selling stocks; especially those that are moving in your favor rapidly. O’Neil was genius at doing this: He rode internet-related stocks like Qualcomm higher for months before selling them near the absolute top. How was O’Neil able to pull off such a feat? By studying hundreds of winning stocks and their topping patterns.
“The pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” ~ Jesse Livermore
The Climax Top
Though O’Neil had several sell signals, today we are going to focus on a sell signal that is relevant to today’s environment. Below is a blurb from O’Neil himself on Climax Tops:
“Many leading stocks top in an explosive fashion. They make climax runs – suddenly advancing at a much faster rate for one or two weeks after an advance of many months. In addition, they often end in exhaustion gaps – when a stock’s price opens up on a gap from the prior day’s close, on heavy volume.”
Key Rules of the Climax Top
1. Largest daily price run-up: A cautionary sign occurs when a stock that has rallied for months experiences its largest point increase in the move.
2. Heaviest daily volume: Extreme volume is a signal that trapped shorts have capitulated, while amateur longs chased the extended stock.
3. Exhaustion gap: If a stock gaps up (trades higher in after-hours trading) multiple times, the advance is on its last leg.
4. Climax top activity: “Sell if a stock’s advance gets so active that it has a rapid price run-up for two or three weeks on a weekly chart, or for seven of eight days in a row or eight of ten days on a daily chart.”
1999 QCOM Case Study
In 1999, no hotter stock existed than semi-conductor maker Qualcomm.As the internet craze went into a frenzy, QCOM ran from ~$6 to $200 in a year! Sure enough, the move came to an end in a classic climax top:
1. Largest point spread: On December 29, 1999 QCOM gained $39 points in a single session, marking its largest point spread to that point.
2. Heaviest daily volume: Though QCOM didn’t trade its highest volume ever, volume on 12/29 soared 142% versus the 50-day average and was the heaviest volume in weeks.
3. Exhaustion gap: After running for months, QCOM gapped up in price from an extended move. ***(It’s important to decipher a gap up from a base (healthy) from a gap up from an extended move (exhaustion))***
4. Climax top activity: From 12/13/1999 to 12/21/999 QCOM shares gained ground for seven straight sessions – a red flag.
Below is the 1999 QCOM example marked up. A good exercise is to look at each data point and match them up to the chart and the commentary.
After topping in January 2000, QCOM shares would not see their climax top highs for another twenty years!
Super Micro Computer:Shades of QCOM in 99’?
Like QCOM in 1999, SMCI is a clear leader in today’s market. Over the past fiver years SMCI is up nearly 5,000%. Year-to-date (keep in mind we are in February), the bull trend has accelerated, and shares are up a mind-blowing 250%! Instead of the internet, the new frenzy on Wall Street is AI.
After such a breathtaking move, its worth looking at SMCI as a potential Climax Top situation. The stock gapped higher for a second straight day from an extended move, saw its highest trading volume in history (25 million shares, 244% above average), saw its largest one-day point spread ($123), and has gained ground for nine straight sessions (climactic activity)
To give you an idea of SMCI’s strength, the stock opened 2024 at ~$275, and today, gained $123 points for the day!
Bottom Line
The stock market is notoriously hard to predict, especially calling tops. However, SMCI has all the ingredients to a classic Climax Top pattern.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: Costco, Ebay, Tesla, Qualcomm and Super Micro Computer
For Immediate Release
Chicago, IL – February 20, 2024 – Today, Zacks Investment Ideas feature highlights Costco (COST - Free Report) , Ebay (EBAY - Free Report) , Tesla (TSLA - Free Report) , Qualcomm (QCOM - Free Report) and Super Micro Computer (SMCI - Free Report) .
Super Micro Computer: Shades of 1999?
Who Was William O’Neil?
William J O’Neil was a famous growth investor known for his rules-based investing process called CAN SLIM. Over O’Neils long and illustrious career, he made a fortune investing in the hottest, most innovative growth stocks of the day, and more importantly, selling them near the top. Over his multi-decade career, O’Neil made millions in novel ideas and companies such as Price Company (which later became Costco, online marketplace Ebay, EV-pioneer Tesla.
It’s About What You Keep
Once a growth investor takes time-tested principles like growing earnings, a bullish chart pattern, and a growing industry into account, making money in the market becomes not only possible, but repeatable. However, buying winning stocks is not the issue for the majority of investors. After all, a baby can pick Scrabble letters out of a bag and potentially find a winner.
The hard part of investing is selling stocks; especially those that are moving in your favor rapidly. O’Neil was genius at doing this: He rode internet-related stocks like Qualcomm higher for months before selling them near the absolute top. How was O’Neil able to pull off such a feat? By studying hundreds of winning stocks and their topping patterns.
“The pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” ~ Jesse Livermore
The Climax Top
Though O’Neil had several sell signals, today we are going to focus on a sell signal that is relevant to today’s environment. Below is a blurb from O’Neil himself on Climax Tops:
“Many leading stocks top in an explosive fashion. They make climax runs – suddenly advancing at a much faster rate for one or two weeks after an advance of many months. In addition, they often end in exhaustion gaps – when a stock’s price opens up on a gap from the prior day’s close, on heavy volume.”
Key Rules of the Climax Top
1. Largest daily price run-up: A cautionary sign occurs when a stock that has rallied for months experiences its largest point increase in the move.
2. Heaviest daily volume: Extreme volume is a signal that trapped shorts have capitulated, while amateur longs chased the extended stock.
3. Exhaustion gap: If a stock gaps up (trades higher in after-hours trading) multiple times, the advance is on its last leg.
4. Climax top activity: “Sell if a stock’s advance gets so active that it has a rapid price run-up for two or three weeks on a weekly chart, or for seven of eight days in a row or eight of ten days on a daily chart.”
1999 QCOM Case Study
In 1999, no hotter stock existed than semi-conductor maker Qualcomm.As the internet craze went into a frenzy, QCOM ran from ~$6 to $200 in a year! Sure enough, the move came to an end in a classic climax top:
1. Largest point spread: On December 29, 1999 QCOM gained $39 points in a single session, marking its largest point spread to that point.
2. Heaviest daily volume: Though QCOM didn’t trade its highest volume ever, volume on 12/29 soared 142% versus the 50-day average and was the heaviest volume in weeks.
3. Exhaustion gap: After running for months, QCOM gapped up in price from an extended move. ***(It’s important to decipher a gap up from a base (healthy) from a gap up from an extended move (exhaustion))***
4. Climax top activity: From 12/13/1999 to 12/21/999 QCOM shares gained ground for seven straight sessions – a red flag.
Below is the 1999 QCOM example marked up. A good exercise is to look at each data point and match them up to the chart and the commentary.
After topping in January 2000, QCOM shares would not see their climax top highs for another twenty years!
Super Micro Computer:Shades of QCOM in 99’?
Like QCOM in 1999, SMCI is a clear leader in today’s market. Over the past fiver years SMCI is up nearly 5,000%. Year-to-date (keep in mind we are in February), the bull trend has accelerated, and shares are up a mind-blowing 250%! Instead of the internet, the new frenzy on Wall Street is AI.
After such a breathtaking move, its worth looking at SMCI as a potential Climax Top situation. The stock gapped higher for a second straight day from an extended move, saw its highest trading volume in history (25 million shares, 244% above average), saw its largest one-day point spread ($123), and has gained ground for nine straight sessions (climactic activity)
To give you an idea of SMCI’s strength, the stock opened 2024 at ~$275, and today, gained $123 points for the day!
Bottom Line
The stock market is notoriously hard to predict, especially calling tops. However, SMCI has all the ingredients to a classic Climax Top pattern.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.