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A Flat Base: Making 'Flat' A High-Performance Term

"Flat" is not a high-currency term in the investment trade.

Flat earnings, flat sales and falling flat — none stirs joy in investors' hearts.

But the lives in another category. This base often shows a stock impatient to move on to .

It says a stock is not in need of a deeper , correcting 15% or less. While a cup-without-handle base has a six-week minimum length and a cup-with-handle must be at least seven weeks, a flat base can be as short as five.

Off-price apparel and home goods retailer TJX (TJX) started to pull back on July 22, 2011, in what would become the first week of a seven-week flat base. (1) The market was in an uptrend, but faced rising distribution. The market status shifted to "uptrend under pressure," then "market in correction" by July 28.

Like the dollar stores, investors were playing TJX as a somewhat recession-resistant stock: The worse the economy becomes, the more shoppers like to save money.

TJX was taking advantage of the economic downturn to build its market share and extend the reach of its TJ Maxx, Marshall's and Home Goods chains.

The stock broke below its 10-week moving average in heavy trade, but found support several times at its 40-week moving average during the base. Normally, a flat-base comes from the base's high point generally near the left side of the base. But in this case, TJX set up an early option, at 56.66 — a dime above the Aug. 25 high — for aggressive investors. (2) It cleared that buy point in heavy trade, during a seven-day run-up that followed support at its 200-day line. ( Please see a daily chart.) However, the market began pulling back just as that run-up peaked on Sept. 20. Market status shifted to "under pressure" Sept. 22 and "correction" the next day.

TJX pulled back 6.6% below the 56.66 buy point, stopping just short of the 40-week moving average and the 8% sell trigger. (3) It wavered higher in light trade.

The stock finally broke free from its 10-week moving average in November, after the market shifted back into "confirmed uptrend" status.

TJX climbed 64% from its September 2011 and 134% from its initial breakout in February 2010 to its high in 2012.