Short-Selling with the O'Neil Disciples

Short Selling with the O'Neil Disciples is a guide to optimizing investment performance by employing the unique strategies put forth by William O'Neil. The authors traded these strategies with real money, then refined them to reflect changing markets and conditions to arrive at a globally-relevant short-selling strategy that helps investors realize maximum profit. Readers will learn how short selling recognizes the life-cycle paradigm arising from an economic system that thrives on 'creative destruction,' and has been mischaracterized as an evil enterprise when it is simply a single component in smart investing and money management. This informative guide describes the crucial methods that preserve gains and offset declines in other stocks that make up a portfolio with more of an intermediate- to long-term investment horizon, and how to profit outright when markets begin to decline.

Short-selling is the act of identifying a change of trend in a stock from up to down, and seeking to profit from that change by riding the stock to the downside by selling the stock while not actually owning it, with the idea of buying the stock back later at a lower price. This book describes the methods that make short-selling work in today's markets, with expert advice for optimal practice.

• Learn the six basic rues of short-selling
• Find opportunities on both the long and short sides of stocks
• Practice refined methods that make short-selling smarter
• Examine case studies that profitably embody these practices

Investors able to climb out of the pessimistic, conspiratorial frame of mind that fixates on the negative will find that short selling can serve as a practical safeguard that will protect the rest of their portfolio. With clear guidance toward the techniques relevant in today's markets, Short Selling with the O'Neil Disciples is an essential read.

Preface ix

Acknowledgments xiii

Chapter 1 Introduction to Short-Selling 1

Chapter 2 Short-Selling Essentials 15

Chapter 3 Short-Selling Set-Ups: Chart Patterns for the Dark Side 51

Chapter 4 In and Out: The Mechanics of Short-Selling 75

Chapter 5 Case Study #1: Apple (AAPL) in 2012–2013 123

Chapter 6 Case Study #2: Netflix (NFLX) in 2011 137

Chapter 7 Case Study #3: Keurig Green Mountain (GMCR) in 2011 145

Chapter 8 Case Study #4: 3D Systems (DDD) in 2014 153

Chapter 9 Case Study #5: Molycorp (MCP) in 2011 163

Chapter 10 Templates of Doom: A Short-Selling Model Book 175

About the Authors 301

Index 303

GIL MORALES and CHRIS KACHER are managing directors of MoKa Investors, LLC, coauthors and publishers of www.VirtueofSelfishInvesting.com, as well as the authors of the top-selling books Trade Like an O'Neil Disciple and In the Cockpit with the O'Neil Disciples. Morales is also the author and publisher of www.Gilmoreport.com.

USE SHORT-SELLING TO OPTIMIZE THE PERFORMANCE OF YOUR PORTFOLIO

Short-selling is often vilified as the "dark side" of the market; however, bestselling authors Gil Morales and Chris Kacher reveal the positive side and tremendous profit potential of selling stocks short. Short-Selling with the O'Neil Disciples is filled with compelling case studies that illustrate the precise mechanics of shorting, and offers a proven methodology for tapping into the power of the life-cycle paradigm of stocks as it relates to short-selling.

Stocks can have more than one life cycle, providing opportunities on both the long and short sides depending on where they are within the virtuous cycle of creation and destruction. Short-Selling with the O'Neil Disciples lays out the rules, tactics, and market signals necessary to profit on the often rapid downside movement of stocks and other related securities. At the same time, this vital resource shows how to develop the skills for understanding when to sell long positions in leading stocks that have finally reached the end of their upside life cycle.