Page 1210 - How to Make Money in Stocks Trilogy

Don’t Invest Blindly: Use Charts to See the Best Time to Buy and Sell 193

The price range will usually remain fairly tight throughout the base.
That may mean institutional investors—who have to buy tens of thou-
sands or more shares to establish their large positions—are quietly buy-
ing within a certain price range. That’s how they increase their holdings
without significantly driving up their average cost-per-share.
• Support and Resistance: Here again the buy point is determined by
adding 10 cents to the most recent area of resistance—the highest price
point within the flat base. Until the stock breaks through that “ceiling”
(preferably on heavy volume), it won’t be able to launch the next leg of its
climb.
• Shakeout: Flat bases also have a way of shedding those weaker holders
we keep mentioning. Instead of a sharper sell-off like the handle in a cup-
with-handle or the second-leg undercut in a double bottom, the flat base
shakeout is more of a slow grind. The weaker holders just get worn out by
the indecisive, sideways action and eventually lose patience and sell.
Here’s a quick list of the key traits to look for in a flat base.

■ ✔ Prior uptrend: 30% or more

■ ✔ Base depth: 15% or less

■ ✔ Base length: At least 5 weeks
• The first down week in the base counts as Week #1

■ ✔ Ideal buy point
• 10 cents above the peak within the base
• Buying range: Up to 5% above the ideal buy point
• Always buy as close as possible to the ideal buy point!
■ ✔ Volume on day of breakout: At least 40%–50% above average

Launching Big Gains with the Flat Base

Here are just two examples of winning stocks that launched big runs from a
flat base.