Breakouts of long bases on strong volume are frequent harbingers of continued price appreciation. Another harbinger, after the initial up-leg, is a low-volume, orderly pullback towards support.
Kendle International (KNDL)
An analysis of Kendle International’s chart illustrates this strategy. As the daily chart indicates, Kendle in February 2005 broke out of a base pattern that extended back almost two years. Some traders, who missed entering early, may have given up on the stock when it doubled by late June, but a closer look at the chart shows why it had more room to move.
Kendle’s pullbacks were orderly, coming on lower volume and holding near its moving averages, a key sign of more upside to come. Only once did its pullback break beneath the 40-day moving average (in mid-April), but on extremely low volume. Otherwise, as the daily chart indicates, each pullback hugged the 21-day moving average, or, at worst, as in early July, touched the 40-day.
The pattern was...
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