Investors are always looking for the latest news on the next great stock. Why focus on the past, some might say, when the only money to be made is in the present and future?

It's true that investors can't directly make money off Boeing's breakout in the mid-1970s or Wal-Mart's big advance in the '80s.

But studying patterns of old market winners is a great way to gain insight into the bases being formed by a new generation of stocks. For as long as the stock market has existed, the same patterns have kept popping up, again and again.

Decades of IBD research drives this point home. The best stocks carve certain bullish patterns, regardless of the era. Whether in the 1920s, 1950s, 1980s or today, stock charts always look the same.

Those patterns include the following: the cup with handle, saucer base, flat base and double bottom. You also will find shorter patterns such as the three-weeks-tight and the high-tight flag throughout the stock market's history.

Why do these patterns keep repeating themselves? Because for all our technological, medical and societal changes, human beings remain, by and large, the same.

As noted in Friday's Investor's Corner, people constantly let their emotions get the best of them. Fear and greed govern many investors' decisions now, just as they did 100 years ago. Those emotions translate to certain price patterns.

The classic cup-with-handle base, for instance, is little more than an outline of investor emotions, with fear and greed dictating the dips and surges on a stock's chart.

So when you see a stock start to assume a certain shape on its chart, it pays to go back and review older examples to see how other stocks taking that same form fared.

Armed with that knowledge, you will be better equipped to withstand blips and shakeouts, wait for a breakout and bank big gains.

When Cisco Systems went public in 1990, it did so during a tumultuous time for the market. The economy was struggling while conflicts abroad were heating up.

The maker of routers and switches broke out of a cup-with-handle base in June of that year (point 1). But the stock quickly stalled, falling through its 10-week moving average.

But Cisco wasn't breaking down. Armed with strong fundamentals, the stock simply needed time to build a new base, biding its time until all the pieces were in place and the broad market had improved.

Sure enough, Cisco's correction evolved into a cup-with-handle pattern lasting about three months (point 2). The stock staged a powerful breakout during the week ended Oct. 19, 1990 (point 3), rocketing 32%. Cisco went on to become the decade's biggest winner, during a 10-year period that included hundreds of tech titans.

Fast-forward to late 2002. The Nasdaq has gone through one of the worst bear markets in Wall Street history. But just as the market hit bottom, eBay was about to take off. The online auction site corrected for nearly four months from June to October '02. That pattern turned out to be another double bottom (point 4).

Like Cisco, eBay owned strong fundamentals when it broke out during the week of Oct. 25 (point 5). The market struggled for a few more months before following through in March 2003. By then eBay was surging to multiyear highs (point 6).



Copyright 2007 Investor's Business Daily, Inc.