[Premium] Big Bases To Watch

To set the stage for our trade setups, let's look at what a "big base" is and why they're one of our preferred setups.

Before we get into a few names we're watching, I think it's worth reiterating why we like looking for bases. Why is that important to us, particularly in environments of choppy, trendless action?

The reason I like looking for base breakouts in this environment is two-fold.

First off, big bases take time to form because they are caused by steady institutional accumulation. Mom and pop investors aren’t the ones creating this trend, so I know that there’s underlying demand that will support prices if they do move lower.

Because prices have memory and the base has taken a significant period of time to build, there’s likely been more trading at each price level along the way. As a result of this institutional support, the rate of change to the downside is likely to be less severe versus a name that’s advanced quickly to the upside with less trading activity at each level, and thus less memory among market participants to defend these levels on the way down.

Secondly, our risk is extremely well-defined when trading these patterns. In the event that we are buying a base breakout (or pullback), we know exactly where we are wrong and can generally minimize our risk relative to potential reward.

Additionally, if stocks with these bases are breaking out to new highs it is a sign that buyers are in control of their long term trend which is typically not something we see in an environment where equities are doing poorly.

If that’s the case, we want to be participating, but if stocks continue to struggle and the breakout never triggers, it’s somebody else’s problem.

With that as our backdrop, let's take a look at a few charts.

First up is Just Dial Ltd., which has already broken out. Any weakness towards 600 should be bought, with a price target near 920.

Click on chart to enlarge view.

CESC. Ltd. has been building a base for over two years and is approaching the top of its range once again. A breakout above 850 would signal the continuation of its long-term uptrend and target 1,180.

Apollo Hospitals is trying to break out of a 5-year base by getting decisively above 1,480. If prices are above that level then we can be long with an initial target near 1,825.

Indraprastha Gas is approaching resistance near 345 for the third time in the last 20 months. A breakout above that level would signal the start of a move towards 424.

Voltas Ltd. still has work to do, but we want to keep it on our radar. A move above 675 would signal the continuation of its long-term uptrend and target 802 on the upside.

V-Gaurd Industries has failed to break above 255 for two years but is set up for another attempt in the weeks ahead. A move above 255 would signal the start of a new trend that has an initial upside target near 313.

While not actionable today, these are the types of stocks we want to keep on our radar. They are under clear accumulation by institutions and other big holders, it's just a matter of waiting for confirmation so that we can know our thesis has a higher probability of success, and more importantly, we'll have a level to define our risk against.

I have a feeling in a few weeks/months we'll be revisiting a lot of these names as they break out to new highs and offer an attractive reward/risk on the long side. In the meantime, it remains a choppy environment so we'll work with what we've got.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team