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Cup with Handle
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The formation occurs after a trend
change, where a series of rising peaks and troughs is followed
by a reversal of the price trend. A downtrend of lower peaks
and lower troughs form the left side of the cup, rounds out and
later begins a new rising trend so that a cup is formed. The
cup is in the shape of a "U". The handle is a drop in prices
after the right side of the lip of the cup has been reached.
The handle can have a variety of shapes and can consist of
double handles and high handles. As long as the price does not
fall back through the 200 day moving average in forming the
handle, the expectation for the pattern is for prices to rise
after completion of the handle. |
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he cup and handle formation is
uncommon and forms over various time spans. The
resulting market activity should never be taken for
granted as there is much variety in the psychological
settings, economic trends and fundamentals that produce
price action on the market. Volume is usually
light in forming the right side of the cup.
Selling pressure is typically present as those investors
who bought into the security as the left side peak
occurred, sell into the rising trend of the right side
of the cup and this often leads to the formation of the
handle. When the enthusiasm of selling during the
formation of the handle translates into price, there is
evidence for the success or failure of the resulting
trend after the handle is fully formed |
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Light selling during the handle
formation leads to a greater potential for higher prices
after the cup and handle formation is complete. If
prices fall below the 200 day moving average during the
formation of the handle then subsequent upside handle
breakout is suspect. A breakout from the handle
formation is usually accompanied by rising volume and is
a positive sign for a continuation of the trend in the
direction of the breakout. |
To the right technical studies
are examined in more detail to provide a sense of conformational
evidence for traders of the critical day. Click on any of the
terms to take a closer look at a technical discussion on that
topic. All formations, patterns, indicators and technical tools
fail at various times and so should only be used to build a body
of evidence in forming a trading decision rather than being
solely relied upon. There are a number of valuable studies that
lead to intuitive understandings about price and volume but a
strong compliment to technical analysis is an understanding of
the trends and changes in the fundamentals and economic activity
that ultimately lead valuation levels in the markets.
Walk
through a critical day
| The graphs
show a price plot of the Dow Jones Industrials from Sept
28/00 to early November. The First graph ends on
November 3/00, two days before an upcoming critical day
on November 7/00. Our members looking at the market are
expecting a trend reversal to occur due to the high rate
of success in our research. Ideally a member will be
using their own skills to judge the supply and demand
changes, using technical and fundamental indications to
confirm suspicions of a reversal, and trade accordingly. |
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| On the
second graph we see that the price action on November 6
was a bullish day, reversing the short trend so that the
short trend leading into the critical day is now up. A
critical day is an expectation of a reversal of the
short trend that immediately precedes the critical day.
In the case of the November 7 signal, given to members 3
days before, is an indication that the upward moving
trend, recognized at the close of November 6 is expected
to reverse direction. |
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| On the third
graph we can see that November 7 was a low volatility
after a large gain on November 6 of about 160 points for
the Dow Jones Industrials. The subsequent move over the
three days following the November 7 signal saw the Dow
Jones Industrials fall 376 points. The next day,
November 13, the Dow Jones Industrials lost an
additional 83 points with intra-day low a full 609 point
loss since the open on the critical day. |
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Most recent
signals
A closer view of the
most recent signals.
You can see the short trend immediately prior to a successful
critical day, reverses coming away from the critical day. Often
a failed critical day will indicate a stronger bias in the
market for continuation of the trend that was in place prior to
the critical day. A failed signal can therefore provide as much
information and opportunity as a successful one. Take a look at
tech studies to develop a sense
of trend reversals and use |
