What Is the Brobdingnagian Base? -- Journal Report
By Simon Constable
When investors first read or hear the term "Brobdingnagian base"
they might be taken aback. Not only is "Brobdingnagian" a mouthful
to pronounce, it is a literary reference that at first glance might
seem unrelated to finance.
But understanding what the phrase means could be beneficial
because some analysts use it to describe potentially large
profit-making opportunities in markets.
Coined in the early 2000s by John Roque, now a technical analyst
at Wolfe Research in New York, the term combines two words: one
from the world of letters (Brobdingnagian) and the other from the
realm of finance (base).
In Jonathan Swift's classic novel "Gulliver's Travels,"
Brobdingnagian describes the people who live in the fictional
country of Brobdingnag, a land inhabited by giants. Base,
meanwhile, refers to a bullish chart pattern where the price of a
security or other asset has moved sideways within a defined price
range for a period.
The longer the sideways price action has gone on, the bigger a
subsequent rally is expected to be, according to technical
analysts, also known as chartists, who analyze stock-price
patterns, among other things, to forecast where prices are headed.
So-called Brobdingnagian bases are those that have lasted for many
years and thus are pointing to the potential for a gigantic
This kind of price pattern can arise in two ways, says Jonathan
Krinsky, chief market technician at New York-based broker-dealer
Bay Crest Partners. It can be a sideways consolidation of an asset
price in a rising trend, or it can be due to the reversal of a
bear-market trend. Investors tend to be wary of assets that have
failed to perform for a long period, Mr. Krinsky says, and that
caution is seen as a bullish signal, or sign that the asset price
One historical example of a Brobdingnagian base involves the
stock of Microsoft Corp., which moved sideways from 1999 to 2016.
In 2016, the price finally broke through the previous all-time high
of around $60 reached in 1999. "At that point, people thought of it
as a stodgy old tech stock," Mr. Krinsky says.
After the $60 price was breached, the stock continued to rally
to more than $220 recently. Simply put, the 17-year-long
Brobdingnagian base was a precursor to an almost fourfold jump in
the price of the stock.
Another example of an even more impressive Brobdingnagian base
is the Nikkei Stock Average, which tracks the Japanese stock
market. That base started three decades ago in 1991 and broke out
of the sideways trade about two months ago, on Nov. 5, according to
a recent research report by Mr. Roque.
If history is any indication, the upward move in the Nikkei may
be just the beginning. From January 1920 to January 1948, the
Nikkei formed a base that lasted 28 years, according to Mr. Roque's
report. Following that base, the index rallied 2,200% over the next
14 years, including two bear-market interruptions when it
temporarily lost 45% and 26%, respectively.
Or as Mr. Roque titled the chart in the report: "The Land Most
Investors Forgot Being Remembered."
Mr. Constable is a writer in Edinburgh, Scotland. He can be
reached at firstname.lastname@example.org.
(END) Dow Jones Newswires
January 10, 2021 09:14 ET (14:14 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.