5.2. CHARACTERISTICS OF POCKET PIVOTS

A pocket pivot point generally occurs within the stock's chart base, before the standard new-high breakout buy point appears. Pocket pivots can also appear as continuation buy points as stocks move higher after launching out of a chart base or consolidation. Price/volume action and base formation leading up to a pocket pivot point are of paramount importance in identifying a proper pocket pivot buy point. Pocket pivots are also signs of strength within the base of a leading stock and as such have some predictive value with respect to the potential of a stock to continue higher. A stock will often break out of its base within a few days or sooner of a proper pocket pivot point, assuming the general markets are also acting bullish or are in a bull trend.

When looking for pocket pivot points, limit your universe of potential candidates to fundamentally strong stocks with constructive basing action leading up to the pocket pivot point. This would include characteristics such as tight price closes within the weekly chart, as well as high-volume spikes with supporting or upside action on the weekly range, or other evidence of accumulation within the base. We would avoid wide-and-loose bases since the premise of accumulation that the pocket pivot concept is based upon is not generally evident on the charts of stocks forming wide-and-loose bases. Pocket pivots within such faulty patterns are therefore more prone to failure. In addition, it is necessary to compare the overall base formation to the action of the major market averages formations such as the NASDAQ Composite and S&P 500 Indexes, to see if the stock's base formation is constructive relative to the overall averages. For example, a pocket pivot that occurs within the base of a stock that is acting and holding up much better than the market averages would carry more weight than one that occurs in a stock that is acting much more erratically or negatively than the general market and leading stocks as a whole.