• ChicagoSean
• December 4th, 2011

On Wednesday November 30th, amidst a monster 4% rally in the S&P that day, StockTwits hosted a live Q&A on the stream with W. Scott O'Neil of Marketsmith and Investors' Business Daily. The rally served as the perfect backdrop for our community to ask Mr. O'Neil his thoughts on the potential of the markets reversing course back into rally mode, and particulars on his interpretation of the CANSLIM strategy.

What follows is a wide-ranging discussion covering the current market environment, CANSLIM basics, attractive stocks right now, and the virtues of patience in bear and choppy markets.

Enjoy…

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WScottONeil: I'm ready, fire away!

cubbiebears: Have you seen many successful 3rd day follow throughs?

WScottONeil: Only one 3rd day FTD in 1960s worked well. In this environment I'm looking cautiously at the 4th day and beyond.

jfahmy: What's more important to you: Technicals or Fundamentals?

WScottONeil: In general stock selection, its 70% fundamental and 30% technical. Fundamentals tells me what to buy, technicals for when to buy. But in this lousy environment technicals are everything to me. They all have good stories… but the charts are very questionable.

hertcapital: What is the best piece of advice your father has given you?

WScottONeil: My father told me not to approach the market without a solid set of rules, and never let losses exceed 7%. Never freeze up.

JeanPaul: Your top three stocks on your watchlist currently?

WScottONeil: Nothing looks great – concerned about continued reversals – watching $SWI $MCD $FAST $DLTR & $MA. 

AngrySpeculator: Aren't CANSLIM setups just the result of info already exploited by those who work to understand growth fundamentally early on?

WScottONeil: CANSLIM setups are the result of Institutional Buying. Smart money that understands the fundamentals, yes.

tradewithpete: What will it take to bring back the retail investor? A bull market or more regulation to make them feel the game is not rigged?

WScottONeil: A bull market cures everything and more IPOs couldn't hurt… we need new merchandise.

VVarrenI3uffett: Do you not play these 2-3 day rallies because IBD has "market in correction"? Or start stepping in small and then build up?

WScottONeil: I don't go long in a bear market but when I buy I always build postions incrementally. I don't invest for 1 or 2 points.

tsisung: If a stock has a low ROE do you require higher growth in the recent quarterly earnings and sales?

WScottONeil: Absolutely! If the ROE is low, the bigger quarterly EPS growth the better. I still like ROE over 17%.

Deepali: If you have $SWI since breakout will you add it today, ignoring that market is in correction?

WScottONeil: Be careful about adding to stocks that are extended. Many stocks have been reversing when in hew high ground.

TomSchiavone: What would you say is the hardest part about following the CANSLIM system for you personally? What challenges you?

WScottONeil: The hardest part about CANSLIM for me is having the patience and discipline to stay out of bad markets… like this one.

ChartDiva: Do you have any thoughts you can share after today's price/volume gains?

WScottONeil: Even if this results in an FTD, I would still be very careful and buy small. Looking for the environment to prove itself.

chicagosean: When/how do you determine a winning position is one to hold for a BIG move, and one to bang out for a 20%-ish gain?

WScottONeil: The market is usually a factor. In this market, I'm not holding out for home runs, I would take 20% when I can.

And Mr. O'Neil also shared some general color on the current trading environment…

WScottONeil:  Today's action aside, the market chart has major distribution on it, continuing to make us cautious. An FTD confirms a change in trend to the upside when a major index is up at least 1.7% on a pick up in vol (more vol the better). None of the world's issues have been solved – don't get too excited about today. Go slow, if real there will be plenty of opportunies. Forget all the predictions and opinions in the media. The charts will guide us. In my opinion the August break was not enough to "clear the deck" for a new bull market and most bases are late stage bases. 

For those tracking distribution days, this is how I see the current count. 

WScottONeil: This Q&A session was great. For more of my market commentary be sure to check out my blog http://t.co/yGMwX6va @MarketSmith.

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It was great having Mr. O'Neil participate in this Q&A and our community thanks him. Be sure to follow @WScottONeil on StockTwits as he is regularly sharing timely, actionable information as well as top-notch charts on Chart.ly.

~ Sean McLaughlin: Editor & Curator, StockTwits (@chicagosean)

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.