Click here to view samples of the Flat Base pattern

In this pattern, prices move generally sideways, slipping only 8% to 12% from their absolute high to low point over a period of at least five weeks. This pattern often occurs as a second-stage base that follows a cup with handle. A flat base may wear out some investors who grow tired of waiting for the stock to resume its climb. After this, the stage is set for a new wave of buying to push the stock higher. Let's say a stock has been trading between $29 and $32 for several weeks. The pivot point is when the stock trades at $32.10, provided that on that day trading volume surges at least 50% above normal.

Take a look at this example of Amgen in 1990, which rose to become a leading maker of drugs based on advances in cellular and molecular biology.

• After drifting upward, the stock starts flattening (point 1).
   
• The stock traded between $29 and $32 (the lines marked by points 1 and 2) for seven weeks, as neither buyers nor sellers dominated trading.
   
• The stock finally breaks through May 15 at $33.38 as volume increases (point 3).

Amgen shares went on to rise about 640% from this point, in April 1990, through early 1992. In the quarters prior to this surge, it had reported accelerating sales growth of 46%, 84%, 207% and 621%. Quarterly earnings growth went as high as 700%.

Related Resources:

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