The Pattern: Bullish Base
When a stock is in strong Bull market, it rallies for some time and then takes a LONG pause, during which phase it builds a long base and then resumes the uptrend.
Here's one Illustration
As you can see in the chart above - stock built a long base between October 2014 and Nov 2015 at 240 and then rallied sharply from 240 to 360 in following six months. The Opportunity is attrative. One can add stock near base with closing stop loss of 6-8% below the base and then patiently wait for stock to resume uptrend. If the pattern succeeds, then rewards are outstanding but if it fails - one can get out with limited loss. One of the big problem with Bullish base pattern: it can test your patience. One should be prepared to wait as long as the base holds.
Here's one example where stock is trying to build a base.
Bharat Forge @ 730
Here's the weekly chart
Bharat forge stock was in strong bull run during 2013-2014 period. Since then the stock has turned sideways and seems to building a long base at 730. Considering the time - stock has passed in building the base - it looks like a perfect moment for stock to restart its bullish journey. The company is expected to announce results on May 17 2016 and it can add to volatility risk. Having said that - purely technically speaking: Stock is at attractive base and one can hope that stock will go higher from the base. Also, note any breakdown below 730 will open the gates on the downside and stock can slip to 200 week ma which as of today stands at 620
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