General Information:

 

There is a misperception among many traders that after a stock has been in a long downtrend, it needs to form a nice long base in order for it to be a good long candidate. However, this is not the case, stocks can form very short bases of a few weeks and offer huge upside potential. The base of these patterns is short term, and definate resistance line can be drawn that signals the trader to enter long once broken. Typically, these patterns also exhibit Positive Divergence which signals the stock is going to breakout. These short-term basing patterns sometimes resemble the letter W, where the resistance would be at the top of the middle hump (see the picture above). These types of patterns should not be ignored because they can produce huge upward price movements after breakout.

Below I've placed some examples of stocks that classify as Short-Term Base Breakouts.

 


 

GMR above is a great example of a Short-Term Basing Pattern. Also notice how this pattern looks like the letter W and you can see the Positive Divergence that formed prior to breakout. After breakout, GMR really takes off and even froms a bullish Ascending Triangle.

 


 

PWER above is another great example of a Short-Term Basing Pattern. Also notice how this pattern looks like the letter W and you can see the Positive Divergence that formed prior to breakout. Also notice the large % price movement that resulted after the breakout.

 


 

AMT above is another example, but notice how much the price went up after breakout! Again, a substantial price movement was produced after the pattern was broken.

 


 

TTEK above is another good example of this bullish pattern, but does not have the obvious W looking base. However, Positive Divergence was seen was well as an obvious resistance area. Notice the large run-up after breakout