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Ken's Mailbag Q&A 4/29/11 - What does a "late-stage" base mean?
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


Subscriber Questions:

April 27, 2011

Dear Ken,

I'm having a great experience with your picks I just wished I jumped in sooner! Great work on your featured stock list and everything in it! I wanted to ask you about BIDU. You have repeatedly mentioned late-stage breakouts are more risky and prone to failure  Can you explain what a late stage breakout means? And how do you count bases? Is it always 5 weeks in length? I believe late stage breakouts has something to do with less supply available for accumulation by institutions, but I'm not sure. Thanks  Andy

 
Ken's Response:

 April 28, 2011

Dear Andy,

Thanks very much for the positive feedback! 

It can be tricky to count the stages since they may not all be perfect by-the-book base patterns.  After you have seen 3 or 4 sound bases and breakouts that worked out, you are probably better off looking for a time to be selling, rather than looking to just get on board with a brand new entry.

The term "late-stage" is explained as follows on page 268 of the 4th edition of "How to Make Money in Stocks":

"Sell when your stock makes a new high in price off a third- or fourth-stage base.  The third time is seldom a charm in the stock market. By then, an advancing stock has become too obvious, and almost everyone sees it. These late-stage base patterns are often faulty, appearing wider and looser. As much as 80% of fourth-stage bases should fail, but you have to be right in determining that this is a fourth-stage base."

I would count BIDU in the "obvious" category by now.  It is not near its latest sound base which was cleared on 3/23/11.

The 5-week flat base is the minimum length base pattern among the basic and most popular bases the investment system has long recognized.  An advanced base which we also may occasionally note in our analysis could include a "3-weeks tight", but this rare pattern requires a considerable run up of +70-100% in the past 9-16 weeks following a breakout from an earlier sound base pattern, followed by 3 very tight closes on its weekly chart.  The phrase 'late-stage" is only appropriate when there were multiple bases formed and the stock has already enjoyed a considerable rally from its first-stage breakout.

Please feel free to contact me directly or let me know if I can be of any further help to you.

Best regards,

Kenneth J. Gruneisen
Founder & Contributing Writer for CANSLIM.net
www.canslim.net

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

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