The ascending base is a rare, hard-to-find pattern. But it's also among the most powerful of all chart structures. Maybe the biggest problem with ascending bases is finding one. That's not so easy, first because they're so rare, and second because you could be looking right at one and not immediately recognize it.
So, what is an ascending base? Get out your calculator.
First, look for a of at least 20%. That, of course, is a requirement for any base.
Next, spot an uptrend with three pullbacks, each between 10% and around 20%. These are not bases, just small, identifiable moves. The lowest point of each pullback should be sitting higher than the prior retreat's pullback. You'll be looking at three higher lows and three higher highs.
The entire wave-of-three move should generally take between nine and 16 weeks to build. The comes in 10 cents above the high of the third wave. As in any base-driven , should rise at least 40% from its usual pace.
Often, the ascending base appears from a stock that's got a lot going for it but is facing a head wind from a hostile broad market. So, after some rough goings for the S&P 500, you'll see a stock that's ratcheting higher in stop-and-start fashion. It won't look like one of the familiar patterns, such as a cup-with-handle or a .
America Online, which in 2000 merged with media giant Time Warner (TWX), established a delightful ascending base in nine weeks in 1999. The structure, like all bases, began with a down week, that of the week ended Jan. 8. 1 In the next two weeks, AOL made a new high, then came back 22% from that 83.50 high.
In the next two weeks, AOL hit another new high, then backed off 20%. 2 Two weeks later, AOL scored another new high of 91.81 on Feb. 23.
At this point, if you were sharp enough to see this developing, you'd know that as long as AOL kept its retreat to no worse than 20%, you'd be looking at an ascending base with a 91.91 buy point (that last high plus a dime).
That is what happened. AOL backed off just 8% during the week ended March 5, marking the pattern's ninth week — the minimum for an ascending base. You'd have caught a winner.