Negative Base Characteristics:
Updated June 2015
1. Prior advance ≤ 30% with lackluster RS line during the prior advance.
2. Too deep, generally shallower than 25% is very good, but they may be deeper if the market is correcting. They can be 2.5 times the market correction sometimes.
3. Handles deeper than 15%, but 12% or less is better. Like bases, in corrections deeper handles can sometime work. (Charles Schwab model stock from October 1998)
4. Handles in bottom half of the cup or double-bottom.
5. Handles where the pivot point is more than 15% below the high on the left side of the base.
6. Poor shapes, lousy visual aesthetics:
a. Poorly formed cups, V-shaped, or cups with “ice bergs”. Rounded bottoms are best.
b. Very lopsided double-bottoms.
c. Don’t look smooth and orderly. Good looking bases are better.
7. Don’t meet any of the listed characteristics of the base type, in length and depth for example. Bases and handles that are too short are defective.
8. Long price bars with the weekly/daily highs and lows are widely separated with wide price swings.
9. Many weekly/daily closes are widely separated, up one week/day down then next.
10. Piston action, up one week/day, down the next.
11. Down “arrows” in the base where the stock rallies for the day/week, above the prior day’s/week’s close, but then stalls out and closes down. The bar looks like an arrow pointing down.
12. Many weeks/days with above average volume that were down or showed stalling. Weekly is more important.
13. Few or no weeks/days on high volume that were up or show support. Weekly is more important than daily for this.
14. Prices come straight up from the bottom. The last of the weak owners have not had time to sell as the price gained fast. The fast rise encouraged them to hold on a little longer, but they will sell when the stock attempt a breakout to new high.
15. Cups that look like mugs with straight sides and flat bottoms.
16. Cups with concave bottoms (curved up in middle), or bumps in the bottom, sometimes called icebergs.
17. Late stage bases.
18. RS line is headed down, not near a recent high. This depends on the type of base and market action.
19. The RS line will not soon confirm a breakout. It is too low to make new high with or soon after the price.
20. RS number is low, less than 85 is suspect, but it depends on the type of base.
21. Unusual price action, like gaps down.
22. Recent failed breakouts.
Evaluate the base in the context of what the market is doing. Sometimes defects can be overlooked. Look at the Charles Schwab Base on the next page. This is October 1998. SCHW went on to make huge gains. Study How to Make Money in Stocks Chapter 2, the details are very important.