Short Bases OK For New Issues Like SolarWinds

• Paul Whitfield
• On 6:04 pm EDT, Friday October 2, 2009

For new issues, short bases can be acceptable.

In "How to Make Money in Stocks," IBD founder and Chairman William J. O'Neil notes that "Google should have been bought in mid-September 2004, in the fifth week after its new issue."

On the day it broke out, the base was three weeks and two days long.

IPO and software developer SolarWinds (NYSE:SWI - News) recently broke out of a 51/2-week base.

Although the short base showed no net accumulation, the Accumulation/Distribution Rating was A at the time of the breakout.

The buy point was 21.72. Volume was 280% faster on the breakout.

After marking a new high at 24.25, SolarWinds fizzled, dropping as much as 6% below the buy point.

Anyone who bought 1.8% or more past the ideal buy point 15uld've faced an 8% loss.

Yet, SolarWinds now appears to be finding support at its 10-week moving average. Look for the stock to rebound from the line, preferably in high volume.

If it gets that validation, those chased out could buy it back. Those who bought at the buy point 14d held could add shares as long as they do so at a higher price than the first purchase. Otherwise, they'd be averaging down.

Buzz up!