Break-Out from A Consolidating - Saucer Base Breakout

Stocks sometimes take time to consolidate and build a base before continuing their movement. This base allows time for the stock to take a breather and a chance for the sales and earnings to catch up to the new valuation of the stock. In many ways, it is similar to a long Continuation Pivotal Point in function, although the formation looks different, and it usually takes longer for the Consolidating Base to form.

When the Consolidating Base occurs, the same patience must be applied to the situation as required with the Continuation Pivot Point—don’t anticipate—rather wait for the stock to tell you by its action which direction it is going to go.

A common pattern of a Consolidating Base is called the saucer pattern. This pattern shows a slow, often long-term consolidating bottom that forms a kind of extended gradual change in trend as it develops into full maturity. To recognize this pattern, the trader must see a clear arc with tight trading ranges at the nadir, or bottom, of the arc.

As stated, this pattern is very similar to the Continuation Pivotal Points pattern, where the buyers and the sellers are about equal in power. The stock lags along, or languishes and consolidates, waiting for the next move. These extended consolidations often come at the end of long market declines or advances. But the key rule still applies: do not anticipate the next move—wait patiently for the market to tell you—to confirm the movement either up or down.