It's pretty simple: Football players study game reels. Chess players memorize classic openings and strategies. Growth investors analyze winning stocks and charts.
Collecting charts of base patterns formed at the start of winning runs is a useful teaching tool. As you study charts of each base, you get a better idea of how winning stocks often behave as they prepare to launch their runs.
The best place to start is with one of the most common bases: the cup-with-handle. The accompanying list will give you a quick start. It provides seven cup-with-handle bases, all with varied characteristics, that prefaced advances of 267% to 5,500%.
The model list's bases started between February 2003 and April 2006, and showed varied forms and traits of cup-with-handle bases. There are thousands more out there.
Intuitive Surgical (ISRG) corrected 23% between March and June of 2004. Much of the correction occurred below the stock's 10-week moving average. But the stock began showing consistent signs of accumulation, turning in powerful up on April 30, then staging a series of closes high in its daily trading ranges.
It broke above a 19.20 in heavy trade July 8. Intuitive pulled back 6% below the buy point to test support at the 50-day moving average, then retook its buy point in massive volume on July 27.
Potash Corp. of Saskatchewan (POT) formed what looks, from a distance, like a picture perfect cup-with-handle starting in April 2004. The 10-week base included a six-day in which the stock's price pulled back nearly to its 50-day line and volume dried up almost to a halt. The came in massive volume on June 17.
Although the base looks like a cup and pulled back below its 50-day line, the total correction was only 14% — shallow for a cup-type base, and technically within the definition of a . (Cups normally correct 25% to 35%.) Still, it had the cup-with-handle profile.
Ceradyne started forming a model cup-with-handle base in February 2003. The base formed as the stock climbed out a deep, year-long consolidation.
The stock was thinly traded. The base was volatile and formed just above 10 a share. But the breakout occurred April 30 on a huge surge in trading. Accumulation and the Relative Strength line prior to the breakout were instructive.
Study the charts of the listed bases. Look for others in stocks you have owned — or in stocks you missed and wished you had bought. The process will give you a sense of quirks and flaws common to cup bases. And it will begin to sketch out a road map to help you sense whether you are or are not homing in on a potential winner.
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