I talk about bullish bases in MTM’s Group Coaching class practically every day, especially with the market generally moving higher for most of 2021. Yes, the market has been predominantly bullish. But what does a bullish base look like and how can we use it for a potential bullish entry? Let’s take a look.

What I consider to be a bullish base is when a stock moves considerably higher, usually over a short period of time, and then begins to trade sideways. To me, the question becomes what is sideways? If the stock does not pull back more than two-thirds of the move higher, it is a bullish base.

For example, if a stock moved higher from $70 to $76 and then traded sideways and never closed below $74 ((6 X 2/3) + 70), it has formed a bullish base. Many times, the stock has trouble moving over some resistance that has kept it from moving higher but the potential is there.

Take a look at this daily chart of Goldman Sachs Group, Inc. (GS), from approximately August to the end of October.

The stock broke out around the $380 area and traded all the way just over the $416 level. It then had trouble moving past the $415 level but never really traded much below the $410 level. The move was approximately $35 (415 – 380) but did not retreat much past the $410 level, which means it easily held two-thirds of its run higher.

John Kmiecik, Market Taker Mentoring