Saucer bases take a long time to unfold, but they're capable of producing strong gains similar to shorter patterns such as the cup-with-handle and flat bases.
Saucers form over a period of seven weeks to a year or more. They're harder to recognize than cup-type bases because their length makes them look shallower even though they can correct up to 30%, or as much as a solid cup pattern.
This next point is critical: In some cases, saucer bases can be so long that they're only visible on a weekly or monthly chart. So make sure you are not limiting your research by looking only at daily charts.
Find The Big-Cap Winners
Saucers are often shaped by big-cap stocks, which tend to be slower moving and less volatile than their smaller, high-growth counterparts. Some stocks form saucers during periods when the general market moves sideways.
Both cups and saucers can also form handles, which yield lower buy points.
Altria Group (MO), the tobacco giant, began shaping a 13-week saucer-with-handle base in late December 2013. The buy point was 37.43, or 10 cents above the high of the handle that began forming in early March 2014. The stock cleared the buy point in weak volume on March 27, when the market was in a correction.
Few stocks can defy a market slump, but Altria rose for seven straight weeks and volume picked up, a good sign. Patient investors would have also noticed that its fundamental and technical characteristics also continued to improve.
Altria's Composite Rating was just 52 at the breakout, its Earnings Per Share Rating was a tepid 67 and its Relative Price Strength Rating was a lowly 41. Such weak ratings, not to mention the longer base, tend to scare off growth investors. But they're fairly typical of slower-moving big-cap stocks that form such a long base.
Slow And Steady
Also, Altria typifies the stocks featured in IBD's Income Investor column by possessing extremely steady earnings and solid dividend growth.
Today, Altria sports a 3-year Earnings Stability Factor of 1 on a scale of zero (most stable) to 99 (least stable). Long-term dividend growth is healthy at 8% annually.
In particular, stocks that form saucer bases tend to have weak RS Ratings because the metric tracks 12 months of price progress. Such a calculation penalizes stocks that shape long bases.
By the end of April, Altria's Composite Rating had climbed 27 points to 79, while its RS Rating had jumped to 67 even though the market remained in a correction. The stock rose for seven straight weeks following its breakout.
Importantly, Altria's base showed nice symmetry. The number of weeks on the left side of the pattern equaled the number of weeks on the right side.
Altria revealed a hefty shakeout near the bottom of the pattern. Weak shareholders were exiting the stock. The handle drifted lower in light volume, a bullish sign.
Over the next year, Altria rose 51% to a high of 56.69 in the week ended March 6 of this year.
