Late-Stage Bases
You can get a good idea how far your car can go just by glancing at the fuel-level gauge. Do the same with a winning stock by looking at its chart.

Before hopping in, check how many bases a stock has formed. If a great stock has logged one or two bases, it may have lots of mileage left for gains.

But a stock with three or four bases could be running on empty. A larger number of bases raises the risk of serious failure.

Few stocks have the specs to build four bases during a bull market. Many Internet service provider and software stocks that took off in 1999 and early 2000 went up so fast they flamed out in huge climax runs after only their first or second base.

Counting bases can be tricky. Don't count a 15%-20% decline as a base if it lasts six weeks or less. It could be a normal pullback or part of a larger structure, such as a base on top of a base.

You can reset the base count after a great stock has gone through a deep correction. America Online rose from 9 to 71 during an 18-month rally from November 1994, then got pounded back 68% to a low of 22 3/8. The company digested those losses and started a massive new rally as profit regained its footing.

The best stocks tend to launch rallies with little fanfare. They form a firm first base in a bear market while most stocks are getting clawed. Then they break out to new highs right when the market turns higher but most investors are still nursing their wounds or aren't willing to go back in.