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An important point for prudent investors to remain cognizant of is that a strong stock normally builds several bases before it eventually tops out.  Needless to say, earlier stage bases are less risky than their later stage counterparts.  A general rule that is derived from studying leading stocks over the course of the past several decades is that if volume swells as the stock advances then odds favor that further price appreciation is likely. However, the converse is also true, and a lack of volume behind gains gives investors another reason to question a stock's ability to make a sustained advance in price.

NewMarket Corp. (NEU +$5.04 or +7.41% to $62.98) blasted into new high territory on more than 3 times normal turnover and this stock was first featured today in the CANSLIM.net Mid Day Breakouts Report (read here) at $60.85 as it was approaching its $62.45 pivot point. The company sports healthy fundamentals and broke out of a decent third stage base. This was attention grabbing strength on a day where the broader market was mostly quiet and trading with a negative bias.

From August 2001 to January 2003 this stock built a massive double pattern formation. In January 2003 this stock vaulted out of its double bottom pattern and triggered its first technical buy signal. In the next few months after clearing the center of the "W" at $7.40 this stock surged an impressive +245% reaching $25.57 in January 2004.  After such an explosive move, it is natural to see a stock consolidate. This is precisely what NEU did as it spent most of 2004 and 2005 building a long second stage base.

In December 2005 this issue exploded out of its second stage base on massive volume and quickly appreciated +125% before pausing to build a new base. On April 10th this stock flashed a worrisome negative reversal, but it surged again to yet another new high before the overall market's negative activity in mid-May started to weigh on virtually all stocks. This began what is now considered as its third stage base. After a choppy consolidation over the past 4 months, which included a substantial drop under its 50-day moving average (DMA) line, a big gain on August 8th lifted it clear of most near-term resistance due to overhead supply.  On more that triple its average volume total, today's big gain sent this stock to a fresh 52-week high. A reversal back into the prior base would negate the bullish breakout, as any loss leading to a close back under its recent high close of $58.00 on August 16th, 2006 would be considered a technical sell signal.  At the same time it is important to adhere to a strict sell discipline in the event this breakout is negated, proper discipline requires investors to avoid chasing the stock and buying at prices more than 5% above prior chart highs.

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