What is a Good Base

Investors Daily has a article in Monday's edition which details what they believe to be the characteristics of a good base. This is good information to keep in mind:

1) A stock must move up at least 20% abouve its previous buy point before a new base can start.

2) If a stock is forming a third or more base in its rally, you must be careful as these "late" bases are more likely to fail.

3) Bases need to be built over time. A "base" that is three weeks long is a consolidation, not a base.

4) Volume in a base is important. If a stock is up in a given week and the volume rises, that is a good sign. If it is up in a given week and the volume falls, you need to be careful. Also, you do not really want to see weeks where the stock is down and volume is up.

5) When a stock gets near its breakout point, check its relative strength, If it is at or near a high, that is a good sign.

6) Bases which have "tight" movements are better than bases which have "wide and loose" price action.

7) On the breakout, volume should be at least 40% higher than average.

Keep these points in mind as the current correction plays out. Stocks with good bases will be more likely to lead the market in the next move upwards.