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Long, Shallow Saucer Bases Can RewardPatient Investors

Saucer bases and cup bases have as much in common as, well, saucers and cups.

The saucer is usually longer and shallower than the cup, correcting about 12% to 30% and forming over a period of seven weeks to a year or more. Cups can run as deep as 40%-50% in bear markets and can also take a year or more to form, though most are much shorter and less deep. Both patterns can also form handles.

Saucers are often shaped by big-cap stocks, which tend to be slower moving and less volatile than their smaller, high-growth counterparts. Saucers can also form during periods when the general market moves sideways. Their longer, shallower profile makes them difficult to recognize.

In some cases, saucer bases can be so long that they're only visible on a weekly or monthly chart.

Regardless of the size, investors should focus on stocks with strong fundamental and technical characteristics — with one exception: While top stocks should have Relative Price Strength Ratings of 85 or higher at the , a saucer base's RS Rating can be much weaker. The RS Rating tracks a stock's price progress over 12 months, which penalizes those that form long bases.

Investors tracking a stock forming a saucer base must have patience, because it takes longer to shake out the weak holders. By contrast, cup bases shake out weak investors more quickly because the correction is shorter and tends to feel sharper.

Those who wait out a saucer base have to stay vigilant. When the pattern is completed and the market shifts into a confirmed uptrend, a strong dose of buying can send the stock out of the saucer and produce a powerful breakout. Stocks should clear their buy points in that's at least 40% above normal.

Mega-cap stock McDonald's (MCD) formed a 20-week saucer with starting in early December 2010. The correction ran 11% deep. The was 78.51, or 10 cents above the narrow handle's 78.41 high. It cleared the buy point in higher weekly trade. Another valid entry came when it exceeded the left side's high of 80.94 in mid-May.

Its Relative Strength Rating was just 43, but its was a respectable 84. Profit and were accelerating at the time of the breakout.

McDonald's rose 32% to 102.22 by mid-January 2012 before correcting to form a new base.