At first glance, flat bases wouldn't appear to offer lower alternative buy points given that they're short, shallow and, well, flat.
But longer patterns sometimes do reveal lower entry points.
Flat bases aren't usually first-stage patterns. They typically form after a stock has advanced from a cup-with-handle, double-bottom or saucer base.
A typical forms over five weeks or more as the stock moves sideways in a tight range, correcting less than 15%. The is usually 10 cents above the left-side high of the base.
But in cases where flat bases form over a longer period — say, 12 or 13 weeks or more — you may see the stock repeatedly bumping up against at a price level that's a point or two lower than the highest price in the base. That's where you can find a lower .
B&G Foods (BGS) offered just such an opportunity when it began forming a 22-week in December 2011. The initial buy point was 24.74. 1 (Weekly chart is shown.) But as the base continued forming, the stock began hitting around 24.
The base shows many areas of tight trading as ebbed, which is a good sign. Also, the alternative buy point was in the upper half of the base's price range, as it should be.
Finally, on May 31, 2012, the stock broke out above the 24.10 buy point 2 in more than double its average daily trade. Then accelerated in the following weeks 3, lending further credibility to the .
From there, B&G ran up to a peak of 32.84 on Sept. 21, a gain of 36% in a little less than four months. If an investor had held onto the stock until Oct. 10, when the market fell into correction and the stock pierced its 10-week moving average, the gain would still have been 22%.
Note that B&G's base can also be interpreted as a saucer base, but the buy point would have been at the higher 24.74 level. A saucer can have a lower entry if a forms, but in this case it didn't occur. Areas of lower resistance also don't figure in determining the pattern's buy point.
As always, make sure to buy stocks only when the market is in a confirmed uptrend. The stock you choose should also have strong fundamentals, and it should break out of a sound base in volume that's more than 40% above normal.
Before B&G's , the company's profit rose a healthy 30% in the first quarter, up from the prior quarter's 7% increase. Sales for the quarter climbed 20%, a bit lower than is desirable, but up sharply from Q1.
The stock's Relative Strength line was climbing sharply as it approached the buy point and its Accumulation-Distribution Rating had climbed to A-, pointing to strong demand for the shares.
- Investment & Company Information