Commentary
Sector Watch


Play of the Day
Current Plays
Watch List
New Plays
Play Updates
Drops


Announcements
Current Split Catalog
New Candidates
Candidates Index
Expected Splits
Splits 101


Play Results
Split Predictions


Ask the Trader
Trading 101
Bookstore
Glossary
Dow Charts
FAQ


Splits
SEC Filings
Coming Economic Events
BoD Meetings
Earnings


Chat Room
Message Boards


Email Newsletter
Author Search
Advertise With Us
Change Password
Contact Us

Ask The Trader
Wednesday, December 06, 2000

A Beautiful Chart


What are cup-and-handle charts, and can they be profitable?


Cup-and-handle charts are usually formed in bull markets, but can be formed in market reversals as well. The pattern made famous by William O'Neal, founder of the Investor's Business Daily publication, must go through the following machinations before being considered a legitimate cup-and-handle.

First, a stock must break down on fairly good volume. It then starts to form a trough (or the bottom of the cup) by moving sideways. From the bottom of the cup, the stock rallies higher on volume heavier than the previous dip. Next, the stock forms the all-important handle. The handle is a crucial element of the formation and serves to shake out the last weak shareholders before the stock moves to higher ground. The handle should be a tight sideways to down-sloping move that comes on lower volume. Watch out for up sloping handles, though, as they do little to shake out weak shareholders and can lead to false breakouts.

The last key aspect of the cup and handle comes at the pivot or buy point. The buy point is just above the highest close of the handle. Be careful not to chase a stock too far from its buy point, since after breaking out, most stocks pause and settle back towards their handles. You know you have a winner on your hands if the stock holds above its pivot point.

The profit can come from buying at the pivot point because many traders are now expecting the stock to make another strong run.

With that said, lets take a look at this cup-and-handle formation in Kenneth Cole (KCP), which is nearly perfect. You might want to print and save this beautiful chart to compare to other possible cup-and-handle formations.

Good Luck and Have a Profitable Trading Day

Craig Seidler
Assistant Editor

 


Copyright 2001 SplitTrader.com

Do not duplicate or redistribute in any form.
Privacy Statement   Disclaimer   Terms Of Service