Stock market corrections, like a rain storm, aren't fun to be in, but are necessary to let the major indexes and leading stocks forge new bases and buying opportunities.
Tesla, Apple, Meta Platforms, Netflix and Nvidia chipmaker Taiwan Semiconductor Manufacturing have all forged bases in the past few days. All are S&P 500 giants except for Taiwan Semiconductor, which is not a U.S.-based company.
That's no coincidence. Stocks generally follow the action of the major indexes. Some will outperform and others will lag, but general market conditions are one of the primary pillars of the IBD Methodology.
Nasdaq, S&P 500 Peaked In July
The Nasdaq set its record high on July 11, while the S&P 500 did so on July 16. As of Aug. 23, that's 32 and 28 market days, respectively, or seven and six weeks.
Most proper bases require a minimum of 30 days, or 6 weeks. The flat base, which can be no more than 15% deep, can be as short as 25 days or five weeks. Ideally, the cup-with-handle base and double-bottom base should have at least seven weeks, though sometimes exceptions are made.
So with the S&P 500 and Nasdaq falling and rising over six or seven weeks, a large number of stocks have forged bases.
Apple Stock
Apple stock has forged a six-week, 17%-deep V-shaped cup base on a weekly MarketSurge chart. The buy point is 237.23 The iPhone giant needs a few more days for a base to form on a daily chart. AAPL stock peaked at 237.23 on July 15, then dived to 196 intraday on Aug. 5. If it weren't for the brief dive amid the global market sell-off, Apple likely would have had a flat base.
Tesla Stock
Tesla stock has a 32-day, 33%-deep consolidation, becoming a proper base on a daily chart as of Aug. 21. Shares sold off after a huge run from late June to early July, ultimately round-tripping those gains. TSLA stock is above its key moving averages but in the bottom half of its new base.
The relative strength line, which tracks a stock's performance vs. the S&P 500 index, hasn't bounced back with Tesla stock.
Investors could use the Aug. 20 high of 228.22 as an early entry, but the official buy point is 271.
EV Giants Forge New Bases, With Caveats
Meta Stock
Meta stock has a 33-day, six-week consolidation that's 18% deep. Shares peeked above the 542.81 buy point on Thursday but didn't close above it.
Netflix Stock
Netflix stock has a 31-day, six-week cup base that's 16% deep. NFLX stock broke out past the 697.49 buy point on Aug. 20, but then pulled back modestly.
Taiwan Semiconductor Stock
Taiwan Semiconductor stock has a 32-day, 6-week cup base. Shares peaked at 193.47 on July 11, ultimately almost hitting its 200-day line on Aug. 5. TSM stock has bounced back as pausing right around its 50-day line.
A handle appears to be forming. It needs another day to be a proper handle, but officially Taiwan Semi needs a few more days to be long enough for a cup-with-handle. On a weekly chart, TSMC needs another week for its existing handle to qualify.
However, investors could use the Aug. 19 high of 175.45 as an early entry, near the 50-day
Keep in mind that Nvidia earnings are due Aug. 28. The AI chip leader's results, guidance and commentary will be sure to swing Taiwan Semiconductor stock and probably the entire market.
Nvidia stock, which has a 46-day, 10-week consolidation, is on Leaderboard. Meta stock is on SwingTrader. Nvidia and TSM stock are on the IBD 50.
Please follow Ed Carson on Threads at @edcarson1971 and X/Twitter at @IBD_ECarson for stock market updates and more.
