A stock’s breakout from a base can be a significant indicator of potential growth. Typically, this pattern produces a 20% to 30% gain, but it’s not a guarantee. A break-out can fail if the market is weak or due to other reasons, leading shares to trade sideways and form a new base just above the prior one.
This phenomenon is called a base-on-base pattern, which is historically bullish. The second base typically marks the stock’s cleanup of weak holders and preparation for a rally when fresh investors join in. A true market leader will often break out first once the general market begins to trend upwards.
The base-on-base pattern starts with a proper base, such as a cup with handle or flat base. The second formation is usually a flat base that looks like a stair-step up and forms mostly above the first base. This buy point is determined by the second base.
If the second base is more than 20% above the prior base, it’s considered separate from the initial pattern. Instead, it becomes part of a new, advanced stage of the base-on-base formation.
Nvidia (NVDA) formed an impressive example of this bullish pattern in 2021. The stock broke out of its short cup-with-handle base and then paused before forming a six-week flat base. After tapping a buy point, shares surged, indicating institutions were piling into the stock. The result was a significant gain of around 43% in four weeks from the second base’s breakout.
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Source: https://www.investors.com/how-to-invest/investors-corner/nvidia-stock-nvda-stock-charts