The stock market can at first be a disappointing place for those who seek symmetry and balance.
A double-bottom base is a pattern that only occasionally sketches a proportionate design. Unlike cup-with-handle and flat bases, double-bottoms are often distorted and difficult to recognize.
The base is roughly a "W," with the plotted a dime above the center peak. The right lobe should at least slightly undercut the left, signaling a second, hopefully a last, of low-conviction investors.
When the stock rebounds up the right side of the W, past the center-point pivot, it's time. On the occasions when the base's right side mirrors the left, they may be signaling a stock ready to make a serious run.
Cisco Systems (CSCO) and eBay (EBAY) are among the stocks to have launched out of double bottoms early in their advances.
More recently, Facebook (FB) formed a double-bottom base stretching from February through mid-July. It was an easy base to miss.
The stock had plummeted after its IPO, disappointing investors and launching a series of lawsuits over the company's pricing of its IPO.
The stock swung down into a deep, nine-month cup-with-handle base. It cleared the buy point by pennies, then reversed to begin building its double-bottom base.
Most investors were soured and not looking for a base. But those who had their eyes open saw the stock build a first lobe 13 weeks long. The second, 11 weeks.
The base was preceded by a healthy 85% rise. The structure had two primary flaws: It formed largely below its 10-week moving average, and deeply below its . It had retaken and narrowly held support at its 10-week line for two weeks prior to the breakout.
On July 25, Facebook reported a huge second-quarter earnings beat on a much larger than expected surge in mobile ad sales. The 58% profit increase on a 53% jump in revenue showed acceleration vs. the first quarter.
The stock cleared not only the 29.17 buy point with a massive gap-up move, it cleared the entire base. Shares rose more than 20% to trigger the eight-week hold rule within three days. In nine weeks, it had cleared its IPO day best and moved on to new high ground.