How To Invest In Stocks: Count Bases To Determine A Stock's Upside Potential

Overview

• Importance of counting bases in stock market investing.
• Focus on earlier-stage bases for higher success rates.
• Later-stage base formations can indicate a stock's long-term advance is aging.

Key Concepts

Counting Bases

• Definition: The method to assess a stock's long-term growth potential by counting bases.
• First-Stage Bases: Stocks should climb at least 20% from the previous buy point to move to the next base stage.
• Subsequent Bases: Stocks that climb only 10%-15% remain in the same stage.
• IBD Insights: First- and second-stage bases are more likely to result in significant gains.

Importance of Base Stages

• First and Second Stages: Offer the best opportunity for growth before stocks become widely recognized.
• Third Stage and Beyond: Typically more recognized by Wall Street, indicating a mature stock.
• Resetting Base Count: Occurs when a stock undergoes a deep decline or a long consolidation period.

Case Study: MercadoLibre

• 2020 Performance: Tumbled 44% during COVID-19, resetting base count to first stage.
• Rally and Breakout: Achieved a bullish breakout past a 633.20 buy point, doubling in three months.
• Subsequent Base Formations:
  • Second-Stage Base: Formed a nine-week cup base, achieving a 59% gain.
  • Third-Stage Base: Experienced a lackluster breakout and significant decline.

Practical Tips

• Base Counting: Essential for determining a stock's potential for further gains.
• Monitor Base Stages: Use tools like IBD MarketSmith for accurate base stage identification.

Additional Resources

• Related Articles:
  • Top Growth Stocks To Buy And Watch.
  • How To Time The Market With IBD's ETF Market Strategy.
  • Find The Best Long-Term Investments With IBD Long-Term Leaders.
• Tools and Services:
  • IBD Live for daily stock market analysis.
  • MarketSmith for research and data analysis.

Conclusion

Counting bases is a critical strategy for successful investing, helping determine the appropriate timing for buying and selling stocks based on their growth potential.