Investor's Corner: Several Pullbacks May Be Ascending Base

This unusual pattern consists of three pullbacks, each a bit higher than the prior.

In other words, each low is higher than the prior low and each high is higher than the prior high, forming a staircase-like action.

Each of the pullbacks is 10% to 20% deep. These may coincide with touches of the 10-week moving average, but not always.

As with all bases, the ascending base forms after the high of the first pullback is at least 20% above the prior base's buy point.

Ascending bases tend to form while the general market is weak.

The escalating action reflects a stock that's able to make some progress despite broad market weakness.

The buy point 19 set by adding 10 cents to the highest price level of the third and final pullback. The entire pattern usually spans nine to 16 weeks.

Watch the stock soar past the buy point 19 volume jumps. That's a breakout from an ascending base.

A few years ago Schnitzer Steel (NasdaqGS: - ) was a good example of an ascending base.

The stock cleared a cup-with-handle base in February '03 (point 1).

Schnitzer more than doubled through a short-term peak in late June (point 2). From there, the processor of scrap steel made its first pullback in the ascending base.

After easing, it rebounded to its a new peak five weeks later (point 3).

The stock staged its second pullback. Notice the stock held above its first bottom (point 4).

In the middle of August, it marked its third and last peak (point 5).

Together with the first two pullbacks, this third and last pullback formed the ascending base.

Schnitzer cleared it just two weeks later, on Sept. 8, as volume increased 73% above average (point 6).

While the ascending base formed, the general market was trending sideways. The S&P 500 didn't make a new high until Sept. 2.

The stock then proceeded further, reaching a record high in January 2004.

At that point, it would have been good for investors to get out, banking stellar profits.

Strong institutional selling that followed signaled the stock was exhausted. Shares fell sharply on heavy trading, piercing their 10-week moving average (point 7). Instead of rallying back, shares met resistance at that line (point 8).