In a recent blog post, All Star Charts highlighted a stock retesting a breakout from a very large base. This was the money quote:
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.
This is precisely the scenario we see unfolding in Tractor Supply Co $TSCO.
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