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Yahoo Finance Uncut: Irusha Peiris and Justin Nielsen on Bill O'Neil's trading methodologies

In the latest episode of Yahoo Finance Uncut, Irusha Peiris, research analyst and portfolio manager at O’Neil Global Advisors and Justin Nielsen, director of stock market research at Investor’s Business Daily, join Yahoo Finance's Jared Blikre to break down trading and investing methodologies.

Video Transcript

[MUSIC PLAYING]

JARED BLIKRE: Hello, and welcome, everyone, to "Yahoo Finance Uncut." I am your host Jared Blikre. And joining us today we have a cho-- a duo-- excuse me. Irusha Peiris, he is a research analyst at William O'Neil & Co, also a portfolio manager at O'Neil Global Advisors, and hello, Irusha. I also want to introduce Justin Nielsen, director of stock market research for Investor's Business Daily. And both of them do a podcast weekly. We're going to get into that in a second.

But Irusha, really excited to have you here today. I've had you on our live program several times. You have a great feel for the market. So I wanted to see where you're coming down on where we stand right now. And just a quick note for our audience-- this is a taped broadcast, but we're going to be speaking in general terms and in some very big picture terms. You're going to want to listen to what everybody's talking about here.

Now, by way of context, this is the beginning of the quarter. It just had a big two-day rally, giving some back intraday today. But some people, as they're want to do, are getting excited about this nascent rally that we're seeing. Irusha, should investors be fooled by it? Should they be all in? I think you have some relevant thoughts here.

IRUSHA PEIRIS: Yeah. Well, we still believe we are in a bear market. We've been in a bear market this whole year. Now, obviously, hindsight has verified that. The environment is still dangerous here. So you want to be cautious. You want to be patient. But at the same time, you don't want to ignore the markets. You want to kind of still watch them. And if we get our signals, and we have some signals for the market, and we also have signals for the stocks themselves underneath the surface, that will slowly pull us in the market.

So we're not seeing a lot of stocks really setting up right now, but we could theoretically get a market signal that the market might be ready to take another uptrend tomorrow. So we're watching that pretty closely. But you really need both hand in hand. So you want to be cautious right now. And we'll let the market slowly pull us in.

JARED BLIKRE: All right, cautious, wait, and see. Justin, anything to add to this commentary here?

JUSTIN NIELSEN: Yeah. I mean, it's one of those things where, surprisingly, a lot of times the news can be the worst when that turn is going to happen. So it's very important that you don't get overly bearish and that you're open to those signals. In fact, last time I was on your show, Jared, was actually April 6, 2020. It was where one of those signals happened for us. And it was a signal that was very hard to believe. We were in the throes of COVID at the time and so much uncertainty. But we had this signal. And we had some individual stocks that were also kind of telling us, hey, maybe there's something going on here.

But to Irusha's point, there's no point in trying to guess the bottom. It's OK to let the market come up a little bit. And if you're within a few days or even a few weeks, when it's going to be a big move, a big bull market rally, you don't need to catch the bottom in order to make a good deal of money.

JARED BLIKRE: Very important, because you need cash on the sidelines to buy that dip, or buy that cavern, that crater that we see in front of us. Irusha, we're talking about some signals here. April 6, I just want to follow up on that. I think we might be talking about an IBD follow-through day. And if you could just break that down. Both of you have your rootings in Bill O'Neil's-- William O'Neil's method, which is CANSLIM. Maybe just give us a little bit of background. This is something that I've had-- I came into contact with some CANSLIM traders about 15 years ago. It really opened my eyes. And the people I've known, some of the best traders I've known in the business use this particular framework here. So Irusha, the follow-through signal and just some basics on CANSLIM.

IRUSHA PEIRIS: Sure. So yeah, so the follow-through day signal, what we're looking for is we're not trying to get the exact bottom. But we essentially have a count. And so when you have an up day, we just start counting at that point. And what we're looking for is after a few days of a rally, if we see a powerful day, up more than 1.25% on higher volume, that's going to give us a signal that the market might have a chance to rally here.

Now, here's the key. Not all follow-through days are going to work. There are going to be plenty of false signals, especially in volatile markets. But no bull market has ever started without one of these signals. So we take all of them very, very seriously. So going back to that April 6 signal, the last thing I wanted to do was start buying in the market at that point.

JARED BLIKRE: We were all watching our groceries at that time. We had bigger fish to fry.

IRUSHA PEIRIS: Exactly. But I had this signal. And over the years, I've learned that once you get a signal, you must look for something to buy. So now we're looking for stocks to break out. And so we started to see some stocks breaking out at that point. So we just started putting a little bit of money to work, and then over the next few weeks, started to get a little bit more confidence. And I think probably by a month into that rally, I was probably maybe 70% to 80% invested.

JARED BLIKRE: All right. And Justin, let me kick it to you. What stocks or sectors are on your radar? Is it too early then to have anything on your radar if you're still searching for that bottom, still maybe searching for capitulation? We haven't even gotten to that yet. But if we do get a follow-through day, as you're looking for, what kind of instruments would you be looking for, for opportunities?

JUSTIN NIELSEN: Well, the biggest tell is usually relative strength. One of the things we look at a lot is a relative strength line, which is simply just a ratio of a stock's price versus the S&P 500. And when we start looking for the stocks that are holding up the best, maybe they're resisting that downtrend. Right now with the markets down below their 200-day lines, their 50-day lines, you have a number of stocks that are above them. They're almost at new highs.

And so these are the stocks that kind of stick out to us. It's not necessarily that we're going to be buying them right now while we're still in a bear market. But these are the ones that we start building a watch list from because these tend to be the leaders when the market finally does turn.

Now, right now, there's a lot of defensive, more defensive names. I mean, for a long time, we had Hershey's and General Mills, and those showing relative strength.

JARED BLIKRE: Staples.

JUSTIN NIELSEN: Right, exactly. Insurance right now. But we also have some other areas that are starting to show some strength. I mean, certainly there was the counter trend going on for most of this year where oil and gas, energy, coal, all of those were showing relative strength compared to the market because they were making new highs when the market was making these lows. But when the market does kind of get back in phase with the leading stocks, it's that relative strength that's going to be your biggest tell on what the biggest leaders can be in the next cycle.

JARED BLIKRE: And Irusha, I'll kick it to you on relative strength. What do you like right now?

IRUSHA PEIRIS: Well, like Justin said, there's not a lot of too many exciting stocks. So one really exciting stock-- don't go too crazy here, Jared-- but it's a Rollins. So they do termites. And they get rid of termites and things like that. So ticker symbol is ROL. That's coming up on our screens with a strong relative strength line. So even though it's been going sideways, it's starting to put on a base. You're starting to see it outperform the market a little bit because it's going sideways while the market has been going down.

Another one is WWE. That's working on a cup pattern here-- a really strong relative strength line, starting to emerge from that cup. And so that's another one that's worth looking into and considering. But right now with the market acting so poorly, I'm pretty much in cash. And so I'm not in a rush to really jump out and buy anything until we get that follow-through day.

JARED BLIKRE: I love it. Homebuilders getting whacked, and so why not buy the termite play? We don't necessarily have to understand the logic behind these things. We're just talking about technicals right now. But Irusha, tell me how the methodology combines both technicals and fundamentals, because the two can work very well together synergistically.

IRUSHA PEIRIS: Yeah. So that's part of the whole CANSLIM acronym. And so ideally, what we're looking for, we're going to use the fundamentals. We're looking for great growth stocks. So stocks that have current earnings, strong current quarterly earnings, annual earnings. We like to see an acceleration. So the earnings and sales keep accelerating. So a lot of times they're really newer companies that are in a newer market. They're grabbing market share. And they have the chance to change the world so that potential, that game-changing potential.

So we're looking for these really great companies. And so we'll let the fundamentals help us screen and narrow down the list of stocks to focus on. But then we're going to use the technicals. We're going to use the charts to tell us when to get in and when to get out of the stock. So the way I look at charts is it's a way to manage risk. We could be right on that company, but the timing sometimes might be off. And so we'll let the charts and how it's behaving in the market, how it's trading the market on a price and volume basis really tell us if it's acting right or not.

JARED BLIKRE: And Justin, just your thoughts on what Irusha said, and just how you are able to use technicals and fundamentals in your trading.

JUSTIN NIELSEN: Well, as a good example, I mean, let's just take WWE, the World Wrestling Entertainment. The annual growth rate on this is 39% annually that it's been able to do for a 3- to 5-year time period. That's a phenomenal growth rate.

And now keep in mind, it's certainly had its troubles during the COVID time period. A lot of the live entertainment was shut down. It wasn't happening. And so after vaccine day in November of 2020, where they kind of changed everything. And it was like, oh, live stuff could be coming back here. WWE has had some very strong earnings since then.

So here, again, there's that combination of you've got something with some strong fundamentals. And you're looking at the chart. And the chart has the relative strength. The relative strength line is at new highs. The stock is certainly at 52-week highs, not all-time highs, but at near-term highs. And it's been moving up steadily over time. So again, you're getting this combination. The only thing we have left here is to get the market in the right direction. And then that's when you can have some really big gains in these stocks.

But for a lot of people, they look at the fundamentals, and that's it. Some people only look at the technicals, and that's it. But there's really valuable information that both sets of analyses will give you. The fundamental is telling you about what's going on with the company, but the technical analysis can really help you with your timing.

JARED BLIKRE: Irusha, another thing we can add to that is a macro, a big top down overview-- wondering if that fits into your analysis. It could be seasonality. It's a midterm election year. There is some bullish seasonality heading into November and that final period. We also have the Fed. Everybody likes to talk about the Fed. Just wondering if these things also factor into your analysis.

IRUSHA PEIRIS: We're definitely aware of that. The classic phrase "Don't fight the Fed" is true. And a lot of times we're going to see that in the charts themselves. So we want to know if the Fed's going to be dovish, or they're going to really start cracking down and raise rates like they are right now. So we definitely keep aware. We're aware of that.

And even seasonality, we're aware of it. As you mentioned, this is the second year of a first-term president. And so you are on a seasonally-- at a point where the markets should bottom and move up. That being said, though, the markets are going to do what they want to do.

And as Justin was talking about WWE later, this could be the greatest company. And you could be buying it at a great point. But if it goes against us, we're going to cut our losses because we know we're always going to-- there's going to be plenty of times we're going to be wrong in the market. And so we're going to manage our risk.

So we keep all of these things in mind. But we're always going to let the market tell us what to do. And if it's a time to cut our losses and try to keep those losses small, we have no problem doing that and let the stocks set up again.

JARED BLIKRE: And trade another day. I'll add the one bit of information about WWE I know is that the biggest key man risk to the downside, Vince McMahon definitely out. And the stock soared after that. All right, Justin. I'm looking at some of the--

JUSTIN NIELSEN: Just real quick, Jared, a couple of things on that. His daughter took over as co-CEO, and the co-CEO along with her. There is talk about whether or not this is something that could be absorbed into another media company. So I think the co-CEO there was definitely someone who was very interested in that. And I don't like to get into the speculation game, because there's a lot of uncertainty there. But I think you with Vince McMahon out, that might have opened the door for some of that speculation to go rampant.

JARED BLIKRE: Hey, I work for a media company. I want to avoid the speculation. So I'm not even going to mention how that could go. But we are actually private as well.

Justin, I was going to ask you about some of these older leaders-- Shopify, Peloton, Zoom. They've had their day in the sun. Most of them have round tripped all those tremendous gains, and then given all of them back, and sometimes even more than that. Is this the last, do you think, we've seen of these? Just I know it's difficult to put on your goggles and see a year into the future, especially when we're not necessarily seeing this reflected in the technicals just yet. But given your understanding of the macro setup, is it just over for a lot of these growth names?

JUSTIN NIELSEN: Typically what happens is you get into these cycles where what was the greatest thing since sliced bread becomes something that you never hear from again. Now, you just mentioned some really great companies. I mean Shopify and Zoom, they're some of these companies that they may come back. In fact, we did a study once where we were looking at some of the companies that how often do they come back to lead another cycle. And it was really a small number. It was actually about 12 and 1/2% would come back and lead in a future cycle. So you just have to know that the odds are against you.

Now, how am I going to know whether or not these are worth investing in again? Usually, it's going to be the technical action that tells me. We get so many people. We have a number of live shows. We have questions coming in from our audience members. And for months here we've been hearing, is it time to buy Shopify now? And it's like, well, this is off 80% from its highs. There's a lot of work to do. There's going to be a lot of overhang.

And so we tend to have a philosophy of buying on strength, not on weakness, not trying to get the bottom tick on a stock. It's about what's working now. And for that reason, we're probably going to ignore a lot of these companies until they show that evidence that they've been able to reinvent themselves, come back in a better and stronger way, and some companies do that. Microsoft, that went sideways for 15 years after it topped in 2000.

JARED BLIKRE: When it finally did.

JUSTIN NIELSEN: Yeah. When it finally did come back, it wasn't because of its Office system. It wasn't because of Windows. It was because of the cloud computing. So they were able to reinvent themselves. So it's that kind of reinvention that we kind of need to see from some of these companies in order for them to get on our radar. And again, what's going to pop up first a lot of times is that technical action.

JARED BLIKRE: And Irusha, do you want to add anything to this? Because I could talk about two market leaders people look to, Apple and Tesla. We can't necessarily expect these to be perennial market leaders going forward. But Apple took the number one spot in terms of market cap, as I recall, from Exxon in 2013. And Exxon was the leader in the '80s, just to show you that even an oil stock can have its day in the sun more than once. Just what do you think about that?

IRUSHA PEIRIS: Yeah. Well, Justin mentioned about Shopify. I actually did think it was the greatest thing since sliced bread for many years. And I would tell people that. It's like that was kind of my go-to stock. This is one of those companies that was changing the world. They were helping a lot of small- and medium-sized businesses.

But that being said, this year, once it really started to break down below the 200-day moving average-- and I was in it at the beginning of the year. It was really at the end of last year. When it broke out again, I started trying again. But it stopped me out. And then once it broke below the 200-day moving average, which is a really long-term moving average, it started to really kind of come off even being considered until it sets up again. And it hasn't set up. So I had no idea it was going to come down this much. It's down 80% off its highs. That's mind-boggling to me that a Shopify could do that. But in the end, anything can happen in the market.

And the same thing with an Apple. Anything can happen to Apple. There's going to come a time where Apple might top and maybe go sideways like Microsoft for 15 years. Anything is possible. So we're always going to manage our risk and let the charts tell us when to get in, and especially when to get out of those stocks.

JARED BLIKRE: Let's talk about what you'd like to see in the charts. You mentioned some patterns. So I know you're looking at, for instance, cup and handle, as a lot of traders do. But in terms of indicators, you like moving averages. I was talking to a Katie Stockton yesterday. She loves the Ichimoku Clouds, and kind of off the radar, though. But that's something I appreciate as well.

And the point I have for a lot of especially newer investors is you've got to find what works for you. Yahoo Finance charting has what seems like dozens and dozens of indicators. Not everybody's going to use all of them. But just wondering what you like here.

IRUSHA PEIRIS: Yeah. The one thing is that over the years-- and I've studied a lot of oscillators and indicators. What I've actually came out to what works best for me-- and I think you said the key thing there, Jared. It really comes down to what works best for you. For me, it was keep it simple. The market is complicated enough. Keep it simple.

And so I'm using price and volume. How is the stock actually behaving? And then just simple moving averages-- the 50-day moving average, the 200-day moving average, and I'll have a 10- and 21-day moving average just to give me an idea of the momentum.

But I'm just looking at the price. Is the stock breaking out of a pattern, like a cup with handle, on huge volume. And of course, is the market itself in an uptrend at that point? But besides that-- and really kind of the final thing, I think, is the X factor. And probably the most important thing that I've learned over the years and I've just really grown to appreciate the most, I think, the relative strength line.

So we're looking at a chart. So whatever chart we're looking at, we're comparing it to the S&P 500. And so on the MarketSmith charts, on the O'Neil charts, on PANARAY charts for William O'Neil, we're plotting a line that compares that stock versus the S&P 500. And so if it's going up, it's telling us that that stock is outperforming. And so when a stock is breaking out, we want to see that line either going into new highs or right near new highs, because at least then it's telling us, yes, the stock is breaking out and becoming more of a leader in the market.

JARED BLIKRE: And Justin, your thoughts on-- what indicators do you like? How are you seeing the market? And what do you like to use?

JUSTIN NIELSEN: Well, you can tell that both Irusha and I spent some time with Bill O'Neil because sometimes our answers are similar. Certainly one of the things we both learned from Bill was that the price and volume is really, when it comes down to it, what matters the most.

One thing I would caution your viewers is that it's great to have a service that has a lot of indicators available. But as you mentioned, Jared, that doesn't mean you want to use them all, because sometimes they'll give you conflicting information. And then you can just kind of freeze up, like a deer in the headlights, because you've got this set of indicators giving you a bullish signal, this set of indicators giving you a bearish signal, and then you're not quite sure what to do.

Keeping it simple. Again, a lot of price and volume can tell you a lot-- that relative strength line. And when you've got a trending stock, I feel like the 10-week moving average line is one of the simplest things that investors can use to let you know, is this trend continuing in a healthy way, or is it potentially going to be taking a break for a little while? And that's OK. It's actually very normal for stocks to take a break.

And remember that even if you sell something, it doesn't mean that you can't turn around and buy it back if it snaps back, if it makes another base and breaks out of that. So nothing is final. And it doesn't have to be all or nothing decisions. You can be buying a little bit on the way up. You can be selling a little bit on the way down. And sometimes that incremental, based on some of these indicators, can help you feel like you're doing something and not freezing.

JARED BLIKRE: Yeah. I think that's very important because I've consulted with people over the years. And they come to me with various strategies saying, I have these 5 or 10 squiggly line indicators that I really like. I noticed when they line up just perfectly this way, there's a great signal. Now I just want to put this-- I want to automate this, and set it, and forget it, and make $1,000,000,000.

And I mean, that's how the thinking goes. And I'm not criticizing that because I've been there myself. I think that it's called indicator fascination. And it's a process that's described by people who write psychology books about the market.

But it's important not to get distracted by that, because there's no perfect holy grail combination of indicators. At the end of the day, we've got to do some work, or surrender ourselves to an algorithm, and just kind of trust it. So I'm wondering, Irusha, what you think about this, and maybe what advice do you have for newer investors coming to the game for how to get your footing, because there's so much, so much to look at.

IRUSHA PEIRIS: Yeah. Well, I think the first thing is start small. Start trading small. But you want to be putting some real money to work. So play with a small amount of money that you can afford to lose, and start with a system, and see if that's a good fit for you.

Now, one thing that I wanted to mention about the indicators, we use mainly daily and weekly charts. If you want to catch stocks and try to hold them for longer and try to catch more of the primary trend, you want to lean more towards the weekly charts. But we always use both. I always like to start with the weekly charts, and then move the dailies.

I don't watch intradays too much because that makes me more anxious. It tries to get me to trade more. I trade a lot more that way. Even daily charts a lot of times I might trade too much. So I like to look at weekly charts. They remove more of the noise. And so I think really the big thing is you really want to start small. You want to find a strategy that's a good fit, and also that's a strategy that works and has been around for a while.

But the one thing that really appealed to me-- and this really goes back to how I really got into this. In '99, which is very similar to 2020, in '99, I thought I was a genius. I just started investing in the stock market. I rode a bunch of stocks up. But in 2000, I learned that I knew nothing, and I just rode all the stocks right back down.

And that's what kind of inspired me to discover Bill O'Neil, start reading IBD, and learning about the O'Neil methodology. And since then I just learned defense was the most important thing to me. Bill O'Neil talked about defense and cutting your losses. I never heard anyone talk about stocks like that before. So the longer-- the better you can protect your principal, the better chance you have to participate in the next great bull market.

And so that was kind of the thing that resonated with me, playing defense, and only putting the money to work when things are really trending well. And of course, charts really appeal to me, too. That made a lot of sense. And so I started putting all those things together. And that being said, it still took me many years of just kind of hanging around. And the ones who really get this down are the ones who just hang around the longest and can protect themselves and survive long enough.

JARED BLIKRE: And that takes capital. You've got to preserve it, or come up with more-- pony it up. Justin, your advice-- I'll give it to you. Your advice for newer investors, where to start.

JUSTIN NIELSEN: Well, certainly, that risk management is such an important part, because you're going to be wrong. And you're going to be wrong a lot. You talk with some of the successful traders, and they have no problem being wrong. But they have very solid risk management principles in place so that when they're wrong, it's not something that devastates their account. It's not one of those blowups. And it's fine to have a thesis, but it's critical that you have a risk management system in place in case your thesis is wrong. And this is something that happens all the time.

Look. There's all sorts of things that are going on on the macro side. And you've got economists that are saying one thing, and very smart economists on one side saying one thing, and very smart economists on the other side saying something else. At the end of the day, you don't know who's going to be right. And so you can go along with that thesis. But unless you have some risk management principles in place, you're really kind of playing an odds game with a huge disadvantage. That risk management comes into play and will protect you from yourself so many times.

And in the same way, even like an algo, even a system where you think got it all automated, if you don't have that parachute of, what if this is wrong? What if everything that I base this automated system on changes tomorrow? That's what risk management does for you.

JARED BLIKRE: And that brings up a very good point that markets don't trade the same throughout time. You have bull markets and bear markets. But even they come in different flavors. You're going to have different market leadership, different interest rate environments. You never know who's going to be fighting each other and invading each other's territory. How do you deal with the fact that markets change over time? This affects backtesting, and maybe that's something for more sophisticated traders. But just in terms of thinking, how are you approaching the environment that we're in compared to previous ones and avoiding some of those biases, Irusha?

IRUSHA PEIRIS: Yeah. You always have to be worried about the biases, for sure. The reason why I like the O'Neil methodologies are signals are simple enough that they're going to adapt to different environments. And so going back to that April 6, 2020 signal that we got on the NASDAQ, it just said, hey, this is a powerful day. It's rallied off a little bit. Look for something to buy. And it was simple enough to adjust to that extreme environment right there.

And then you started seeing some stocks starting to move up on better volume, starting to show relative strength, and then so you start trying some and start to see if you make progress. So your portfolio a lot of times is going to be the ultimate gauge. Are you making money or not? If you start making money, now it's telling you that you might be on the right track, and now look for some other stocks to buy. And you can start making more money. If you start losing money, maybe back away. So that's really the first thing there.

Now, stocks, when they're being accumulated, they behave a certain way. They start going up a little bit faster. Pull back a little bit slower. So they go up on bigger volume-- come back on slower volume. They're not undercutting key support areas. And a lot of times, they break out once, and then they're gone. The best ones, they'll break out once. They give you that one time to buy, and then they're gone for a couple of months. And you're just kicking yourself saying, oh my god, I missed out on that.

And a lot of times that will happen at the turn of a new bull market. The very best ones are just going to take off. So if you start seeing something like that, and you're regretting not getting into some of those, that could be telling you something. Now, when stocks are starting to sell off, they're going to behave a certain way. You start seeing some heavy selling. They can't really find a bid. They can't move up a little bit more. And then they just keep selling off again. We saw that at the end of November of last year. We started seeing a number of the stocks that were doing really well all of a sudden one day-- I think it was like November 22 of last year-- just got crushed within like a half hour of the open.

JARED BLIKRE: And that was the high for a lot of these stocks still to this day.

IRUSHA PEIRIS: Exactly. And so at that point, we knew something was off. We knew those stocks were probably going to be out of favor. But the one thing we didn't know is how bad it was going to get. We just knew that it was time to be a little bit more cautious. And a lot of times as the market slowly pulls you in when the times are right, they start pushing you out when the times are starting to get more treacherous. And that's exactly what happened over the next couple of weeks. All the stocks I had, they started pushing me out. Even the best ones, like the biggest semiconductors, biggest tech stocks in the world, they were just throwing me out left and right because they were breaking key support areas.

So the market is always telling you something. It's always giving you feedback. And so it's up to us to listen to that and really get out of our own way and stop letting our ego kind of take over. We're going to be wrong, as Justin said. We're going to be wrong most of the time. I'm wrong 60% of the time in my decisions. But the reason why I'm still around after 20-plus years is because I'm cutting those, and I know that I'm wrong, and the market's always right.

JARED BLIKRE: It's playing the odds. Justin, I want to get your thoughts. We're talking about potentially the market sneaking up on us. As we're waiting for the next bull market to emerge, waiting for leadership, how should people be preparing? We don't necessarily know exactly what's going to be strong right now because we've yet to see it. But should people be reviewing the charts on a daily basis, weekly, and then what should they be looking for?

JUSTIN NIELSEN: Yeah. I mean, it certainly isn't one of those things where you have to plant yourself in front of the screen the entire day to look at every last thing. You can be taking a little bit more of a hands-off approach. I think it's still important to be engaged because by recognizing the stocks that are holding up best, that's how you're going to be able to do your homework ahead of time. And so when there is that turn in the market, you'll be able to capitalize on it. That's a huge thing.

So right now-- I mean, Irusha mentioned that he was mostly in cash. I'm in the same way. We're really just kind of waiting. We're watching. We're building our watch lists. And again, we had this strong two-day rally. But that's just two days, right? It's one of those things where you can't get too excited about any single day.

In fact, I mean, I can show you the top 10 gainers of the NASDAQ composite over the last 40 years. And the biggest percentage gains-- look-- they all happen in bear markets. That's where that extra volatility is coming in. And so there's a lot of people that say, hey you can't time the market. And they'll point to if you miss those few days and you're not in the market, look at how horrible your portfolio is. But I would kind of flip it around and say, look at the days around those best days.

JARED BLIKRE: Exactly.

JUSTIN NIELSEN: Those are some of your worst days. And if you miss those, you can have some-- you can protect your capital in a big way. So again, I think it comes down to not getting overly eager. And look. For a lot of us, we like trading. And we want to trade. But this is where we have to kind of keep our emotions in check, our ego in check, and be flexible enough to say, right now is not the time. We're going to wait because we know that if we're able to wait and be patient, then when the time is right, we're going to be able to capitalize on it that much greater for huge returns.

JARED BLIKRE: Irusha, as we're waiting here and being patient, you guys are conducting a weekly podcast. Just tell me a little bit about it. What is it? I'm sorry. I have the name right here. Trading with I--

IRUSHA PEIRIS: "Investing with IBD."

JUSTIN NIELSEN: "Investing with IBD."

JARED BLIKRE: There you go-- "Investing with IBD," very simple, keeping it simple here. Irusha, tell me about this project and what you've learned along the way here.

IRUSHA PEIRIS: Yeah. So now Justin and I are doing it together. We've been doing it for a little over a year. And before that, I was the host of the podcast for a couple of years. And I think it's just a really great opportunity for Justin and I to pick the brains of experienced investors out there. And it's not just within our methodology. We like to bring all different types of investors to try to broaden our perspective.

And so we try to get analysts to give us more insight on whatever trends are happening within their field-- portfolio managers to hear how they're trading. We had Tom O'Halloran from Lord Abbett. He's been doing this for many, many years very successfully. And he was telling us that he was starting to get a little bit more bullish here because he's started seeing stocks round out more.

Now, he has a different strategy because he has to get into some of these stocks a little bit earlier because he's managing a lot more money than Justin and I are managing. But we try to really kind of keep up the hope because these markets are going to turn. And one thing, even though we cut our losses, and a lot of times when you're following the O'Neil methodology, you're going to be on the sidelines during bear markets. The one thing that happens, though, is you can start becoming a little too bearish and start ignoring the signals because you're going to think that they're going to still fail.

And so we're always trying to just keep everyone in touch with the markets, and more importantly, help everyone, including ourselves, manage our psychology, our mental psychology, and try to remember that we still want to be mentally on the offense and ready for the next bull market. Because when that signal comes, we're going to have a life-changing opportunity. And so we definitely don't want to miss it. It could come next month. It could come next week, next month, or maybe next year. But there is going to come a great opportunity to buy the next great growth stocks. And they're going to work incredibly well in that first and second year of the next bull market.

JARED BLIKRE: Wise words here. I'm in the same boat. I've got to tell you I learn a lot from the guests. And also, sometimes, I have somebody who I have a great amount of respect for, who I disagree agree with, and I've got to think twice and check my biases there. Justin, what have you learned through the podcasting process? And what do you hope to do with it?

JUSTIN NIELSEN: Well, there's so many times where there are certain lessons that are very timeless. And that doesn't mean you have to hear them once, and then you get it. I remember when I read "How to Make Money in Stocks" by Bill O'Neil, it was like, oh, this is great. This is awesome. And I was really impressed with a lot of the things I was reading.

Then I did some trading, and then I read the book again, and it was like a completely different book for me, because it was like, oh, yeah, he said not to do that, and I did it anyway. And so that's what happens with some of these lessons. You really have to kind of fight against your nature, against human nature. And that's one of the things that's the most fascinating about the market is that there's a lot of elements-- for as much as technology has changed, in terms of how fast we can trade, and how easy it is to trade, there are certain elements that haven't changed, and that being human nature.

And so I think a lot of times having these guests on and hearing these different perspectives, it just kind of reminds me of some of these lessons that you have to hear more than once, or you have to be reminded of. Even in a bear market, it's so easy to get discouraged and think, oh my gosh, the sun will never come up again. But then we'll have some of our guests on that are just reminding of, hey, how powerful these rallies are and how much money you can make, and everything like that, and also those timeless lessons of protecting your capital, too.

And all of that, I think, is good reminders for us personally, but especially for our audience, who for us, we're hearing it all the time because we're kind of surrounded by it. But for some of our audience, trading can be a lonely game. You're not getting that interaction all the time. And so we hope to provide these lessons on a regular basis, these reminders for them.

JARED BLIKRE: Irusha, we've been talking about how much hard work is necessary to be a successful trader-- having to have the capital, protecting it, sticking around for years, putting your nose to the grindstone. But being a smaller trader, a retail trader does have its advantages. You just mentioned a minute ago a larger trader, an institutional trader who has to worry about getting into the market without moving it too much. A lot of these guys can't even trade some of the smaller stocks. So if you could just give us maybe a ray of sunshine here. Hold out some hope. For the smaller investor, what are some of the advantages that we enjoy?

IRUSHA PEIRIS: Yeah. Well, the big advantage, especially this year we're seeing it, you can go to cash. You can stay on the sidelines 100%, 90% in cash, and wait out the markets. The larger institutions don't have that opportunity.

Now, in house, we have been testing some relative books, which means that you have to always be invested at 90% of the time, or more than that. And I'll tell you what. It is very hard. It's almost-- it's a nightmare to try to invest in a market where a lot of things aren't working, but you're trying to outperform on a relative basis.

JARED BLIKRE: There's always Dogecoin.

IRUSHA PEIRIS: Exactly. Exactly. So on an absolute basis in my personal accounts, I've been mainly in cash the whole year simply because I've been through a number of these cycles now. And the market hasn't given me too many opportunities to really start putting money to work using the O'Neil methodology.

Now, there have been some times. We had a pretty good rally in July where the markets moved in. And so you had some opportunities. You tried some stuff-- maybe made a little bit. But some others really got whacked, and so you back away.

So a lot of times what I'm doing right now is I usually would start with a 5% to 10% position in normal markets. I've been getting hit so much those few times I've tried this here, I'm trying like a 1% position, just saying, OK, can I get a little bit of traction here? So it's a huge, huge advantage for individual investors to get out of the markets, and then really get back in it when the times are much better.

JARED BLIKRE: Justin, I mentioned Dogecoin, and a serious question for you. We haven't mentioned crypto yet. I'm just wondering if you guys are into crypto. Don't necessarily have the fundamentals the way you would with the stock, but you definitely have the technicals. Do you like Bitcoin or Ethereum? Are you tracking it?

JUSTIN NIELSEN: You know what? I have played some of the cryptocurrency plays based on a technical basis because-- I'll be honest-- on the fundamental side, I still don't get it. When people talk about the store of value and everything like that, a hedge against inflation, you know what? I don't get it.

And to me, as soon as it starts acting like a currency, well, then who's going to want to trade it? Because currencies tend to be very flattish, right? But I have seen at times some technical setups where it's just been too good to pass up. And I've played it for short-term moves. I haven't done anything long-term personally with cryptocurrency myself.

It's hard to, again, put it into the CANSLIM methodology because there's a lot of things missing on the fundamental side. And again, it's hard for me to grasp some of the concepts behind it. And that's just where I am in my cryptocurrency journey, I guess.

JARED BLIKRE: Really interesting to think about, that as a currency, currencies tend to be mean reverting, not necessarily seeing that right now because the dollar is trending so much. But usually, they do tend to mean revert. Irusha, a big crypto guy here or just kind of on the sidelines?

IRUSHA PEIRIS: Well, on the sidelines right now. In 2020, I was in crypto. And we've gone over some charts in the past for other shows on Yahoo, where we've gone over whether it's acting well or not. Now, the funny thing with crypto is they actually trade on a technical basis pretty well. There's a lot more complications, I think, with stocks and a lot more variables.

But with crypto, once Bitcoin started to trend pretty well and started breaking out of patterns, it worked really well for quite a long time. Once it started breaking down and started really forming down trends and undercutting key support areas, it's been trending down for quite a while. So if it starts up again, I might try it. But right now, I'm on the sidelines. But you always want to respect that risk. You always want to respect the chart and trend.

JARED BLIKRE: And we're getting towards the end of our hour here, 50 minutes. And I know you have an example you wanted to share, a story about Bill O'Neil trading eBay way back in the days. It was 2002, so 20 years ago, two decades. Let's have at it.

IRUSHA PEIRIS: Well, I'll just start off with it quickly. And Justin, you can go into more of the details. But the reason why we wanted to bring up this story was because from 2000 to 2002, so 2 and 1/2 years of a brutal bear market, and so in house a lot of these key portfolio managers who were practicing the O'Neil methodology, they were really getting kind of discouraged. Even though they were on the sidelines, anything they tried, it wasn't working. And so you start to mentally get to a point where, oh, the markets are never going to work again.

But in October of 2002, we had a follow-through day. And the interesting thing was that a lot of the in house portfolio managers, they just assumed that it's not going to work again. But here's Bill O'Neil following his strategy, and he went and he bought a great stock, eBay, and ended up slowly building on that position. Justin, why don't you go into a little bit more of those details?

JARED BLIKRE: Yes, Justin.

JUSTIN NIELSEN: Well, one of the things that was really interesting about that is he did a lot of research. He was looking at the stock. And by the time he was getting into a larger and larger position-- because, remember, while the market bottomed in October of '02, it really didn't start getting some legs until March of '03. By that time, he had a larger position. And he actually-- I was his assistant for 15, 16 years. And he had a chart that he marked up with 70 different positive points that he was seeing on eBay, from who the CEO was at the time, Meg Whitman, and her background, what was going on with the earnings, what was going on with the sales, what was going on with the chart. There were at least 20 different chart elements that he was looking at.

And so at the end of the day, I think one of the things that we learned the most from Bill O'Neil was his flexibility to say, OK, this is what I'm thinking now. And I can do all this research. But if the stock does something different, I'm going to change my mind. If the market does something different, I'm going to change my mind.

And on the flip side, when he was right, he was completely willing to make a concentrated bet on something, to buy more, buy more as the market was giving him that feedback that he was correct in his thesis so far. So again, I think that flexibility that he was able to show often. I mean, I remember one of the first times I ever drove him to the airport when I first started working for him. It was in '99. And he was so bearish at the time.

And then a couple of weeks later, I see him buying stocks like crazy. And I'm like, what happened? You just sent a note to 500 clients about how bearish you were, staking your reputation on it. And he's like, yeah, but the market changed.

JARED BLIKRE: Well, the Fed, I think, they introduced a lot of liquidity because of Y2K. That could have been it.

JUSTIN NIELSEN: Yes. Right. I mean, it's just what he was seeing happening in the market charts said this is enough to tell me that my previous thesis was wrong, and rather than fight and plant my flag in the sand, and say, "I'm right. The market's wrong. I'm going to wait for the market to agree with me," he changed his mind, and he made a lot of money between September, October 1999 and the ultimate top in March of 2000, that if he had just stuck to his guns, that would have been a lot of money left on the table. So again, having that flexibility, not necessarily going with what you want to see happen, but noticing what's actually happening-- I think those are two completely different things.

JARED BLIKRE: And we've just got a couple of minutes left. Irusha, we were talking. I like for people to take away some notes on what works for the masters. And just looking at Bill O'Neil as an a good example, he's writing things down, taking notes, not afraid to change his opinion. Any other traits that you've noticed among some of the great traders?

IRUSHA PEIRIS: Have a consistent routine. Whether you're in a bear market or not, you always want to have a consistent routine. Do your work on the weekends. Come up with that watch list. Now, sometimes not a lot of stocks to add to the watch list. But other times, you're going to be adding a ton. And that in itself is going to tell you something about the market.

And then, finally, post-analysis-- it really comes down to the ones who end up doing really well at this are the ones who really know themselves, how they act in the market, how they operate in the market. And that only comes through post-analysis, because you have to go through this tough exercise of looking at your mistakes and looking at all the dumb things you did that year.

But there are valuable lessons there, and there are valuable opportunities to write rules. And so going through that process of looking at your mistakes and writing rules will help you really adapt yourself to the market and really kind of cater the larger concepts that Bill has taught all of us. And you make it your own, because we all trade different stocks. We all gravitate towards different industries. And so it's up to us to take these larger concepts and make it our own because that's how we're going to really get better.

JARED BLIKRE: Justin, got actually 90 seconds left. I'll throw it to you now. Anything else you want to add?

JUSTIN NIELSEN: Well, you know what? Irusha stole mine. He took two, and that post-analysis thing is, I think-- what it comes down to is you always have to be willing to learn more. And I think that's something that-- Bill always did a lot of reading. And he was always trying to get better. Here he was one of the greatest traders out there, but he was always trying to improve, and post-analysis was one of the ways he was doing that. So always look for those ways in which you can improve yourself and your trading.

JARED BLIKRE: Lots and lots of words of wisdom here. You guys should do a podcast or something. That's what I'm thinking.

JUSTIN NIELSEN: We'll get on that.

JARED BLIKRE: It was really great talking with you here today. Irusha Peiris, as well as Justin Nielsen, I wish you the best. And everybody, check out their podcast as well. And wow, speaking to everybody here, we're out of time. And thanks for joining us. And look forward to another episode of "Yahoo Finance Uncut."