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Hard-To-Spot Ascending Base Gives A Launchpad To Big Gains

Cups, cups with handles, flat bases and double bottoms are generally easy to spot when you've read IBD for a while and are actively looking for buy setups.

There's another chart pattern that is tougher to see but that can also lead to powerful gains if you can spot it correctly and buy at the correct time — the ascending base.

This base is not your everyday pattern, since it usually occurs much less frequently than the others.

Not Easy To Spot — At First

The rare pattern also has more moving parts, which can make it harder to see the complete picture on a chart. In general, it takes shape as a stock strives to advance amid a choppy or fatigued market. Yet once the general market returns to a strong uptrend, the stock can break out and ramp up quickly to new highs.

An ascending base is typically not a first-stage pattern. It tends to form after a stock has already staged a breakout out from a cup, cup-with-handle base or double-bottom pattern and climbed at least 20%. Like any other base, you want to see a strong prior uptrend in the stock's chart.

Pullbacks Come In Threes

The key distinguishing feature in an ascending base is that it involves a series of three pullbacks. Each one should generally range from 10% to 20% from the most recent high to low.

Each pullback needs to create a higher high and a higher low. If it doesn't, you don't have an ascending base.

Sometimes, the stock will pull back to its 10-week moving average, but this doesn't have to be the case. Also, when you find a stock that makes a third test of its 10-week line, look a little closer; it just might be an ascending base.

Because there are more parts to an ascending base, it typically takes more time to form. A good one generally takes place over a period of nine to 16 weeks.

Just like other IBD patterns, in order to get the buy point in an ascending base, just add 10 cents to the high of the third pullback. Do not buy if the stock is extended more than 5% past that prime entry point.

San Diego-based wireless chip design leader Qualcomm (QCOM) had a monster advance in the late 1990s. The stock broke out from a cup-with-handle base in January 1999. It went on a huge run and stayed above its 10-week line until late May. After coming out of that pullback, the stock made a series of several mild retreats starting in early August.

Qualcomm then pulled back in September and October. This marked the three distinct pullbacks for the ascending base (1).

Qualcomm blew past the pattern's 56.62 buy point (adjusted for a 4-for-1 split in late December) in the week ended Nov. 5 in huge volume. Just before the breakout, the stock had solid IBD Ratings.

Its Earnings Per Share and Relative Price Strength Ratings were both 99 — the highest possible. Qualcomm's Accumulation/Distribution Rating was positive at B and its Industry Group Rating was B.

Qualcomm more than tripled before making a sharp pullback of more than 50% by late April 2000 (2).