Cup With Handle Flashcards
What is the typical correction Ina cup with handle, peak to trough?
The usual correction from the absolute peak (the top of the cup) to the low point (the bottom of the cup) of this price pattern varies from around the 12% to 15% range to upwards of 33%.
How long can a cup with handle pattern last?
Cup patterns can last from 7 weeks to as long as 65 weeks, but most of them last for three to six months.
What should you look for in a stock prior to a cup with handle pattern?
You should look for at least a 30% increase in price in the prior uptrend, together with improving relative strength and a very substantial increase in trading volume at some points in the prior uptrend.
Describe the shape of the cup and why that is important?
The bottom part of the cup should be rounded and give the appearance of a “U” rather than a very narrow “V.” This characteristic allows the stock time to proceed through a needed natural correction, with two or three final little weak spells around the lows of the cup. The “U” area is important because it scares out or wears out the remaining weak holders and takes other speculators’ attention away from the stock.
How much should a stock decline in a cup pattern?
It’s normal for growth stocks to create cup patterns during intermediate declines in the general market and to correct 1½ to 2½ times the market averages. Your best choices are stocks that deteriorate the least during an intermediate decline. Stock downturns that exceed 2½ times the market averages are usually too wide and loose and must be regarded with suspicion.
Describe the handle?
The formation of the handle area generally takes more than one or two weeks and has a downward price drift or “shakeout” (where the price drops below a prior low point in the handle made a few weeks earlier), usually near the end of its down-drifting price movement.
Describe what happens to volume during the formation of a handle?
Volume may dry up noticeably near the lows in the handle’s price pullback phase.
Where should a handle form?
When handles do occur, they almost always form in the upper half of the overall base structure, as measured from the absolute peak of the entire base to the absolute low of the cup. The handle should also be above the stock’s 10-week moving average price line.
Tell me about sideways or wedge-up handles?
Handles that consistently wedge up (drift upward along their price lows or just go straight sideways along their lows rather than drifting down) have a much higher probability of failing when they break out to new highs. This high-risk trait tends to occur in third- or fourth-stage bases, in laggard stock bases, or in very active market leaders that become too widely followed and therefore too obvious. You should beware of wedging handles.
What sort of price action should I see in the handle?
A price drop in a proper handle should be contained within 8% to 12% of its peak during bull markets unless the stock forms a very large cup.
What is tightness in a chart pattern?
On a weekly chart, tightness is defined as small price variations from high to low for the week, with several consecutive weeks’ prices closing unchanged or remarkably near the previous week’s close. There should also be at least some tight areas in the price patterns of stocks under accumulation.
What happens at Pivot Points?
When a stock forms a proper cup-with-handle chart pattern and then charges through an upside buy point, the “pivot point,” the day’s volume should increase at least 40% to 50% above normal. In almost all cases, it’s professional institutional buying that causes the big, above-average volume increases in the better-priced, better-quality growth-oriented stocks at pivot breakouts.
Why is it important tot buy at the Pivot Point?
You want a stock to prove its strength to you before you invest in it. Also, if you buy at more than 5% to 10% past the precise buy point, you are buying late and will more than likely get caught in the next price correction.
Describe why and when volume on a stock drys up, that can be good for the formation of a proper base?
Nearly all proper bases will show a dramatic drying up of volume for one or two weeks along the very low of the base pattern and in the low area or few last weeks of the handle. This means that all of the selling has been exhausted. Healthy stocks that are under accumulation almost always show this symptom. The combination of tightness in prices (daily or weekly price closes being very near each other) and dried-up volume at key points is generally quite constructive.
What does big volume in a stock tell you?
Volume is your best measure of supply and demand and institutional sponsorship—two vital ingredients in successful stock analysis. Big volume can signal really important institutional buying.
