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Can't Identify The Base? Then Don't Buy The Stock

A stock with a base that has no name can cause you some pain. Trade it, and for sure you'll have just yourself to blame.

By now you know all the major base patterns that have proven their relevance over a century of stock market history. What about the bases that don't fall into one of the familiar categories? Something is wrong.

There are reasons why a cup looks like a cup. A modest decline is met with the eager hands of big-money funds amassing a position in that stock.

A ? That's the quiet time after a stock has climbed a base's right side, but doesn't quite make . Frustrated longs unload — again, into the waiting clutches of those big funds.

A ? Eager buyers won't let the stock fall any more than 10% to 15% over the course of at least five weeks.

The ascending base also follows a recipe, as does the double-bottom base.

So when a stock blazes a new path, well, maybe it will be all right anyway. But more likely, if the cake looks funny, something is missing.

Maybe you were trying to make sense out of a pattern that showed up on the weekly chart of Cepheid (CPHD).

From February through June of this year, the medical-equipment maker built a — what? If that's a cup 1, it's very lopsided.

It shouldn't be. The entry toward support (the left side of the base) should be roughly symmetrical with the exit from that support (the right side).

Can you argue this is a double-bottom? That's a stretch. And the would be below the 10-week moving average, which would be a deal-killer.

No, this base has no name. It fails to follow the rules, so something is wrong.

After months of a downward drift, Cepheid suddenly bolted higher, hitting a new high in the week ended June 29. 2 Cepheid extended into new highs by just one point, to 46 from a prior high of 45. It started backing off July 3, and the stock has since been on the downswing.

Note, too, this — whatever it is — appears after months of awkward base building from July 2011 through February 2012. Is that one base or two? Either way, what is it? (Or what are they?)