Search Now

Recommendations

Sunday, January 23, 2005

Market Term - Cup and Handle


From Investopedia

A pattern on bar charts resembling a cup with a handle.
The cup is in the shape of a "U" and the handle has a slight
downward drift. The right-hand side of the pattern has
low trading volume. It can be as short as seven weeks
and as long as 65 weeks.

As the stock comes up to test the old highs, the stock
will incur selling pressure by the people who bought at or
near the old high. This selling pressure will make the stock
price trade sideways with a tendency towards a downtrend for
four days to four weeks... then it takes off.

A couple points on trying to detect cup and handles:

Length - Generally, cups with longer and more "U" shaped bottoms,
the stronger the signal. Avoid cups with a sharp "V" bottoms.

Depth - Ideally, the cup should not be too deep. Also, avoid
handles which are too deep since the handles should form
in the top half of the cup pattern.

Volume - Volume should dry up on the decline and remain
lower than average in the base of the bowl. It should
then increase when the stock finally starts to make its
move back up to test the old high.

Retest (of old high) - doesn't have touch or come within
a few ticks of old high. However, the further the top of
the handle is away from the highs, the more significant
the breakout needs to be.