An ascending base looks like a series of pullbacks to a stock's rising 10-week moving average line. Those who recognize it can reap big rewards.
The base forms when a strong stock's ascent gets batted down by a weak or volatile market.
The base has three pullbacks and three advances to new highs, with each high topping the previous peak. Each low rises above the prior low. The depth of each pullback typically ranges 10% to 20% from the last peak.
The buy point is 10 cents above the third peak's high. Volume should be 40% above normal on the breakout.
Ascending bases form over a period of nine to 16 weeks. That's quite a bit longer than most other bases, and a major reason why the base is hard to spot.
It's also easy to mistake the ascending base for a normal pullback of a stock that's extended well beyond its buy point. As with all new bases, the ascending base usually forms after a stock has risen at least 20% after its breakout, typically from a cup-with-handle or double-bottom base.
Titanium Metals (TIE), the maker of specialty alloys, formed an ascending base over 16 weeks from early December 2005 to late March 2006. The base formed after the stock had run up 53% from a breakout from a cup-with-handle base in June 2005.
The first wave started on Dec. 9, 2005, with the stock pulling back 24% to near its 10-week moving average in the week ended Dec. 30 1. In the second wave, the stock retreated 19% by the week ended Feb. 17, piercing its 10-week line. But the stock reversed higher that week, ending at the top end of its trading range, a bullish sign 2.
The third and final wave crested at 22.25 (adjusted for a 2-for-1 split) in the week ended March 10. The stock then pulled back 14%, bouncing off its 10-week line 3. The split-adjusted buy point was 22.30.
Titanium Metals broke out above that buy point on March 27 in volume that was 57% above normal. The stock went on to double over the next seven weeks, hitting a split-adjusted peak of 47.62 on May 11, 2006.
As you can see, it takes patience and a watchful eye to identify an ascending base. Titanium Metal's base formed as the S&P 500 seesawed around its 10-week moving average in mostly sideways action.
More examples of ascending bases are in William O'Neil's "How To Make Money In Stocks." They include Boeing (BA), which formed an ascending base in the second quarter of 1954 and went on to double in price.
"History does repeat itself," wrote O'Neil. "The more historical patterns you know and come to recognize, the more money you should be able to make."
