One of the most powerful pattern in 2016: Bullish Base
When stocks rally a lot – they take a long term rest by forming a bullish base (like Base Camp mountaineers make when they climb a mountain) – and then sometime in future – rally like crazy from that base. Hence, Bullish Base in Leadership stock becomes a great Opportunity.
I shared many such opportunities during the year – prominent ones –
1. Jubilant Lifesciences
Phase 1: Jubilant Lifesciences made a big breakout move in 2015 as you can see in the chart below.
Source: Chartalert.com
Phase 2: Jubilant Lifesciences after a huge breakout move, formed a big bullish base only to take off this year in 2016.
Source: Chartalert.com
When stocks are in Bull market – they rally – and then trade sideways – form a base and then rally again. The trading cum investment opportunity presents itself when stock retests the base third time
2. Bharat Forge
Bharat Forge made a big move in 2013-2014 and since last year and a half has been trying to build a base.
Here’s the weekly chart
Source: Chartalert.com
Bharat forge stock after building a base at 730 did take off this year
Source: Chartalert.com
When stocks embark on a multi year Bull market – then they do the following –
1. They rally to a point
2. Then they pause – form a base – also called as Horizontal Base for months and years before resuming the uptrend
3. HDFC Bank
HDFC Bank stock – a stock in Long-term Bull market
Source: Chartalert.com
Now this is how stock formed a base early in the year, and then rallied from that base –
Source: Chartalert.com
4. LIC Housing Finance
LIC Housing Finance stock – a stock in Long-term Bull market
Source: Chartalert.com
LIC Housing Finance stock formed a base at 390-400 over years and then took off in a grand style in 2016
5. MRF
Source: Chartalert.com
Lesson we can learn:
Never take your eyes off the Leadership stocks. Stocks do not end Bull market abruptly. When stocks are in Long term Bull market – they rally – form a base and then rally again. Does it work all the time? Well, in markets nothing works all the time. All you have to do is work with certain assumption. This pattern is worth the risk.
The problem with this pattern is TIME. One just does not know how long it will take for stock to consolidate above a base line. Hence, the only way such patterns can be worked upon: One can jump on the opportunity at baseline and then patiently wait for stock to make a move. It usually leads to rewarding opportunity.
Take the example of Persistent – stock is still at the base
Source: Chartalert.com
Does Base also leads to breakdown and disappointment?
There is no guarantee in the market. Lets take the example of Gateway Distriparks. It built a base at 311 and there was optimism on the stock but it broke down below 311 and see what happened..
Source: Chartalert.com
That’s why it is said that when stocks break down – Hope is not a great strategy and one should have exit plan ready the moment stock breaks the base. Once stock breaks the base – the best strategy: Exit, and then wait for signs of turnaround.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers