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.

Historical Stock Chart Examples 3A-3C:  PNC Bank (PNC) October 1982

Deficiencies of the Base Cycle

Now that you've seen how the Base Cycle progresses, let me poke some holes in it.

I am willing to learn from the market and don't mind being wrong in my analysis.

Here are some market conditions where the Base Cycle may not play out in a textbook manner:

1.  Choppy Uptrends

During choppy market uptrends like we saw for most of 1999 (Nasdaq), the distinction between Leading, Bottom and Reinforcing Bases can be cloudy at best.

Stocks will break out, pull in and set up again at a later date.

This may leave you confused on the Base Cycle, but that's okay because the market isn't always easy to figure out.

2.  Swift or V-Shaped Market Corrections

The shorter and swifter the correction/bear market, the less likely it is that you'll have a clearly defined Base Cycle (Leading, Bottom and Reinforcing Bases)

This makes sense because the fewer twists and turns that a correction/bear market takes, the less opportunity there is for stocks to break away/diverge from the stock market averages.

V-shaped corrections tend to take everything down and then back up to a point where you'll have mostly Bottom and Reinforcing Bases leading the uptrend.

The 7-week downdraft from February to late March 1980 is a good example of a V-shaped market correction that featured mostly Bottom and Reinforcing Bases.

3.  Market Crashes

When the market crashes, just about everything is destroyed on the charts. 

The ensuing recovery takes repair time and the Base Cycle may be delayed off the absolute low.

To conclude, the Base Cycle provides you with a framework for understanding the evolution of stock leadership within market uptrends.

It gives you specific technical events to look for during market corrections and the early stages of an advance so that you don't miss any important details from the market.

To best utilize the Base Cycle, you can perform a weekly search for stocks that meet the criteria outlined for Leading, Bottom and Reinforcing Bases.

The Base Cycle may help you find an emerging market uptrend, spot leaders fueling the initial rally of a low and identify stock candidates that may feed the later stages of an uptrend.