$ENDP, $CBT, $GNK, $BIDU, $ULTA and $RAD are six stocks that are trying to emerge from bases. I’m always intrigued by bases because, typically, a prolonged period of contraction leads to an extended period of expansion. We have covered bases extensively here (SEE BELOW) on the blog, and they are one of my favorite set-ups.
Stan Weinstein, the author of Secrets For Profiting In Bull And Bear Markets, has a great definition of the “basing area,” specifically the ones that are formed after several down months.
The Basing Area: “After XYZ has been declining for several months, it eventually will lose downside momentum and start to trend sideways. What’s actually taking place is that buyers and sellers are starting to move into equilibrium, whereas previously the sellers were far stronger, which is why the stock had plummeted. Volume will usually lessen–dry up–as a base forms. But often volume will start to expand late stage 1, even though prices remain little changed. This is an indication that dumping of the stock by disgruntled owners is no longer driving down the price. The buyers who are moving in to take the stock off their hands are not demanding any significant price concession.”