Investor's Quiz: Halliburton's Correction Off A Late-Stage Pattern Reset Its Bas

The stock in question is that of oil-field services giant Halliburton (NYSE: - ), a stock that was in a first-stage base at the time shown on the chart.

Starting with the week ended July 22, 2005, the stock had a huge rebound off its 10-week moving average and advanced for eight of the next 10 weeks (point 1).

After that run, it consolidated gains and corrected 22% over the four weeks. A reversal during the week ended Dec. 16, 2005, shaped a cup-with-handle pattern with a buy point 20 34.21, or 0.10 above the Dec. 13 high (point 2).

That marked the stock's third-stage base.

Halliburton passed that buy point about four weeks later. Shares rallied over the next few weeks, hitting a high of 41.19. The gain on that breakout was just over 20%. Any less and it wouldn't have climbed enough to be properly considered a distinct new base.

From there, it corrected again. Halliburton shaped another cup with handle during the week ended April 14, 2006 (point 3 ). This time, the buy point was 40.09, a dime above the April 11 high. This was its fourth-stage base.

The stock passed that buy point during the week ended April 21, but it only got up to 41.98 (point 4 )before reversing and then skidding lower.

Late-stage bases rarely work.

With the overall market in rough waters at the time, any negative news usually meant extra punishment for shareholders.

On July 21, Halliburton missed second-quarter profit estimates, sending shares down 8% for the day and nearly 19% for the week (point 5).

The down spike undercut the low of its fourth-stage base (point 6). Whenever that happens, stocks reset their base count back to one.

Halliburton hit a low of 26.33 on Oct. 4, marking a 37% correction.

The stock recouped the bulk of its losses and started forming a proper, first-stage base in December. It broke out in May and made limited progress before starting a new base. That would be the second phase of a possible base-on-base pattern -- all of it a first-stage formation.