As Technicians we like to use the phrase “the bigger the base, the higher in space” when talking about breakouts from consolidations. Long periods of indecisive price action build a lot of potential energy that is then released once a stock breaks out of its range. This applies to any asset class on any timeframe because the psychology behind the pattern is exactly the same. We’ve written about bases before and they’re common in our work, so click here if you’re interested in learning more about this pattern.
A good example of this is in action is H.E.G. Limited. The stock did nothing for roughly 472 weeks, but broke out in June 2017 and quickly rallied 960% in 39 weeks. Put another way, it rallied 2,975% in the 120 weeks it took to move from its 2016 lows to the all-time highs made a few weeks ago. This is a truly massive move that was made possible through the frustration of both longs and shorts for 9 long years.
Click on chart to zoom in.
The Bottom Line: Not all bases breakouts are going to lead to moves like H.E.G. Limited, however, history has shown us that large base breakouts often offer asymmetric reward/risk scenarios with clearly defined risk. We remain bullish on equities in India and as an asset class and large bases are a great place to search for long opportunities.
We’ve done a deep dive on these patterns for Premium India members, so click the following links for a list of Nifty 150 Midcap stocks and Nifty 250 Smallcap stocks with bases like the one above.
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