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Byline: JONAH KERI
When it comes to bases, silence is often golden. Stocks stand the best chance for success when they can show calm price and volume action.
A stock making herky-jerky moves in its base may be on its last legs. A breakout can easily turn into a breakdown. A stock that trades in an orderly fashion through its base often nets the cleanest breakout and smoothest path upward.
Bases start to form after strong prior run-ups. Stocks can't go up forever, so they must correct off their highs before launching a new upward move.
But a stock in the early stages of a base should not flash huge volume spikes or giant price declines.
Instead, the move down should look relatively smooth. A growth stock should correct no more than 2 1/2 times as much as the major indexes in a normal correction.
Ideally, the stock will find support and start to form the bottom of its base. That support may show up in an upward reversal, where the stock falls early in a day or week, then rebounds to close at the upper end of its range.