How the Base-On-Base Chart Pattern Etches Superb Stock Gains

What is a Base-On-Base Pattern?

Was Rahul Dravid a better captain than Sourav Ganguly? What about the other Rahul – Can he become India’s Prime Minister one day? And can base-on-base patterns produce a superb breakout?

People might disagree on the first two questions. As for the third, the answer is an indisputable “yes.”

A base-on-base pattern, like the name suggests, is a base that forms on top of a base. The base-on-base pattern appears frequently on the stock market landscape. Why?

Sometimes, a stock is ready to break out to new highs and does so, but the rally fizzles out and does not achieve a 20% gain. This could happen because the overall market is moving sideways or even going into a correction. Another reason could be a subdued quarterly result from the Company in question.

When the market is shaky, stocks have a tougher time going higher. Most stocks follow the market’s direction.

So, when the stock that you have bought correctly and researched thoroughly does not produce the 20% profit that you had hoped for, despair not. Watch for a new base to develop on top of the earlier one. The new base’s low can slip into the prior base, but ideally not by much.

A Look at Titan’s Base-On-Base Pattern

Titan Company is India’s largest producer and retailer of watches, jewelry, eyewear, and accessories. The stock created a base-on-base pattern before breaking out in November 2017 and achieving a 25% rally.

In the week ended August 4, 2017, the stock moved past the INR 547 entry point, as it gained 14.6% on massive volume driven by upbeat quarterly results. (1)

However, the demand for Titan’s stock faded as the Indian stock market uptrend hit a speed-breaker due to rising distribution. With the Indian market condition slipping to Under Pressure, Titan’s stock remained sideways for six weeks, as it built another flat-base pattern.

Since the stock did not give the mandatory gain of 20% from its previous breakout, the base count remained the same, making the new flat base as a base-on-base pattern.

With market bulls returning to the scene, the Indian market moved back in a Confirmed Uptrend in early October 2017. As a result, Titan saw an improvement in its price-volume action. On the back of impressive Q2 numbers, the stock broke out of the base-on-base pattern, as it cleared the previous resistance level of INR 654. (2)

Since then, the stock has witnessed follow-up buying and has advanced by a handsome 40% in a span of just 11 weeks.

Now, if you come across a base-on-base pattern being developed by a fundamentally-strong stock, what should you be doing? Well, add the name to your watchlist and keep a close check on its movement. You never know, the stock might give you decent returns in a short span of time.