THE BASING
PATTERN
For me, the base is one of the most exciting patterns
to recognize in all of technical analysis. In my experience, it is one
of the best high-probability patterns to trade. A few years ago I posted
an annual return of several hundred percent in my personal account, and
I did so in large part by trading the basing pattern repeatedly. It made
me a lot of money, so it is not a surprise I feel affectionate toward
it.
A strong base should last about two months at minimum.
The longer it lasts, the more significant it is. Often the base will
take an idealized "U" shape, although an ascending triangle
will do nicely as well.
When a base is completed and a breakout occurs,
ideally this breakout will occur on well above typical volume. The
higher the volume on the breakout, the better. Strong volume shows that
buyers are willing to pay higher prices since they are confident the
shares are going to rise in value after they purchase them.
I've already described the measuring principle in a
previous INSIDE THE BLACK BOX article (you can find this in our issue
archives in our February 3rd, 2003 issue). The measuring principle
yields a minimum target, although it is very possible for
this target to be exceeded.
In last week's StreetAuthority
Swing Trader issue (March 17th), I flagged Fluor (FLR) as it
broke out of a base on high volume. As you look at the chart above,
notice how the stock exhibited the qualities of a good base. It formed a
"U" pattern and then broke out on very high volume. MACD
confirmed the move and momentum (as measured by the histogram) increased
dramatically. Although the indicators reached overbought levels, they
did not issue sell signals. Fluor has surpassed the minimum target of
$34.60 or so, but still seems to be going strong.
Income Security
of the Month
Our "Income Security of the Month" for July 2008 invests in
a fast-growing overseas market that doesn't get much exposure in the
mainstream financial press. And although it typically makes enormous
annual dividend payments -- it has paid an average dividend of 24.9%
per year over the past five years -- this fund is perhaps most
appealing for its total return potential. Specifically, the fund has
delivered total returns of +263.9% since 2003, and
it ranks in the top 10% of its category over the past decade.
|
Top
10 Stocks for 2008!
Since we began publishing this report back in 2003, the picks we've
featured have consistently beaten the broader market -- delivering average
gains of +21.3% per year and outperforming the S&P by a nearly
2-to-1 margin. Act now to reserve your copy of our newest report -- Top
Ten Stocks for 2008. |
