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An Ascending Base ?

(or maybe a high handle)

The Ascending Base: A Tip-Off ToFast-Climbing Stocks

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Legend has it that spotting a four-leaf cloverbrings good luck. There is a bit more data supporting the argument that thesame holds true for those who discover ascending bases.

An ascending base is unusual, yet tends to produceoutsize winners. The base also tends to take shape during market uptrends,often in periods when the key indexes are consolidating gains.

The base forms after a stock breaks out of aninitial base and is set on moving to higher ground. It advances, then yields ina brief consolidation as the market itself pauses.

It generally takes a very healthy stock to repeatthat action three times, the basic requirement for an ascending base.

Ascending bases take on a number of differentappearances, so they can be difficult to recognize.

The basic anatomy will include three advances,followed by pullbacks of between 10% and 20%, sometimes a little deeper. Thetotal base generally forms over nine to 16 weeks. The length and degree of theascending portions of the base can vary. The one clear requirement is that thelow of each subsequent pullback must remain above the low of the prior plateau.

Taro Pharmaceuticals (TARO) built an unusual ascending basebeginning in late December 2000. It was unusual because the Nasdaq and S&P500 had topped nine months earlier, which was the beginning of the dot-comcrash. Taro staged an initial breakout in July as the Nasdaq tumbled. The stockcleared another base in October (1), as the Nasdaq rebounded mildlyamid the unfolding bear market.

Taro sprinted up 76% from its October buy point tothe left edge of the ascending base's first consolidation with a high of 34.94.The base's first pullback was a sharp 33% — an unusually big divot for anascending base.

A solid rally set up the second pullback. That wasa more tame 14% backstep. The stock charged out of that consolidation, rising23% in a single week.

A 16% pullback pause over two weeks set the stagefor the breakout. To chart the buy point, just add a dime to the left-side highof that last pullback. In this case, that was 44.48. The stock briefly clearedthat buy point in strong trade on March 27 — a day when the Nasdaq gained 2.8%.

It then eased before retaking the buy point in amore decisive breakout on April 2, 2001: a 9% gain in huge trade. Taro raced123% in fewer than four months, finally surrendering to bear-market pressuresin July.