3 Groups of Bases that Power Market Uptrends

Note:  This article is meant to help you learn from the market and does not serve as investment advice for any specific group or individual.  For more information, please read the HSR Terms of Use.

These details are important, but they don't get much attention as they unfold.

Did you know that the presence of Leading Bases may indicate that a market uptrend is around the corner?

The 1982 Bull Market was preceded by stocks breaking out of Leading Bases months before the late August '82 explosion.

Specifically, stocks tied to discretionary spending were quietly starting their own bull market while the bear market continued to claw stock portfolios.

This was an important clue to identify because retail stocks will usually lead at the beginning of an economic expansion.

Below, is an example of Target, a retail name and a Leading Base from March 1982. 

Target broke out of a 44-week base nearly 6 months before the official start of the 1982 Bull Market (see chart 1A).

More importantly, after it broke out, it didn't fail (see chart 1B).

Was this just a coincidence or was the market trying to tell those watching and waiting that better times were on the horizon?

Target then accelerated higher once the market turned bullish in late August 1982 (see chart 1C).

Historical Stock Chart Examples 1A-1C:  Target (TGT) March 1982

2.  Bottom Bases

Bottom Bases are stocks that break out as the market is rallying off a low within a bear market/correction.

Bottom Bases are common to those who study the market because they are usually responsible for powering the early stages of a market uptrend (see chart 2B).

Much like Leading Bases, Bottom Bases can help you gauge market sentiment at a critical time.

Here are some common outcomes of a base breakout:

A.  Price moves higher without flinching (most bullish) - see chart 2C

B.  Price stalls or grinds higher, but doesn't fail (somewhat bullish)

C.  Price fails and rolls over back into the base (bearish)

All three scenarios can happen in a bear market rally, but it's most common to see outcomes B and/or C play out.

Outcome B can happen in the latter stages of a bear market.

Historical Stock Chart Examples 2A-2C:  Pier 1 Imports (PIR) August 1982

3.  Reinforcing Bases

Reinforcing Bases are stocks that break out after the market has been rallying off a low for more than 1 month.

Reinforcing Bases help to fortify (reinforce) a budding market uptrend and satisfy the market's appetite for new stock leadership after the initial crop of Bottom Bases are extended.

You can spot stocks that have the potential to be Reinforcing Bases if you look for stocks that are "hanging around" their 40 Week MA when the market begins a rally (see chart 3A-next page).

Many times, these stocks will round off the bottom of their bases and quickly shoot up the right-hand side of their base during the market's initial leg up (see chart 3B).

In doing so, these stocks are getting into position to feed the rally and expand the stock leadership upon breakout (see chart 3C).

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