Still in an interim role, former West Ham and Middlesbrough midfielder O'Neil worked on a game-to-game basis up until the World Cup break.
He has taken charge of 12 matches, winning four, drawing four and losing four.
“With the capacity crowd that you can get here, and they fill it every week, it's very difficult how they're going to survive and keep going. So hats off to them.
“I don't understand why they aren't giving it to the man who is doing the job at the minute (O'Neil). He's doing a brilliant job.
“I'm not being funny, but look at what he's doing. Look at how the players are responding to him. Sometimes it's right under your nose."
Asked for his thoughts on concerns some may have about O'Neil's lack of managerial experience, Holloway said: “He got the job totally unexpectedly, but that's the way it is.
“You need his generation to come through and do things.
“Eddie Howe had his start here and look what he did for the club and look what he's doing at Newcastle.
“At the end of the day, sometimes you can't see what's right under your nose."