Now back to the market.  As most of you know, I use charts on a daily basis, but I hesitate to call myself a technician.  Technicians, or technical analysts, rely heavily–sometimes exclusively–on charts to find stocks to buy and tell them when to sell.  And they usually look for certain patterns–triangles, coils, pennants, ascending structures, etc.–to foretell where a stock or market is heading.

To me, those types of patterns aren’t overly reliable; sometimes they work, and sometimes they don’t.  Instead of trying to predict the future, I prefer to use charts to help with simple supply-and-demand analysis–I look at price and volume first, and everything else second.

With all that said, there is a tenet of technical analysis that is worth remembering:  The longer the base the longer the race.  (The corollary, by the way, is:  The longer the top the longer the drop.)  That’s just a cute way of saying that if a stock, sector or the market as a whole consolidates in a range for a very long time, and then powerfully breaks out of that range on the upside, it’s usually ready for a big run.

The most obvious example of this was the stock market itself back in 1982.  For more than 16 years, the Dow Industrials were stuck below the 1,000 level.  But when the market got going decisively in 1982, it ushered in a long-term bull market that didn’t hit its zenith until 2000.

But most bases aren’t going to last 16 years, and even if they did, who would notice them?  So, when I look at long bases, I’m usually looking for stocks or groups that have gone nowhere for more than a year and have totally worn out the weak hands and the public’s eye has moved elsewhere long ago.  That way, when the buyers truly step in, there is no supply (no ready sellers), resulting in sharply higher prices.

These days, following the 2008 wipeout, there aren’t many long-term bases to speak of; most stocks are buried well below their multi-year peaks.  However, one group has recently broken out of an 18-month base, and I think it has lots of potential.  I’m talking about gold and gold stocks.