Cup w/ Handles

[skiracer]

Well...I called everybody I could think of who is a CS Expert...And none of them know what it is called when the handle starts to reverse and move up before the Breakout (or Breakdown)...Obviously, Billy made the term Pivot Window up...So I'm OFFICIALLY changing the name to FLASH POINT WINDOW...Unless WON wants to post here and correct me.

If the handle continues down after a reasonable amount of time and continues downward that would have to be called a failure of the cup & handle wouldn't it? On the other hand at what point would you call a move up out of the handle a breakout. I would think any move up from a low point (volume has to be taken into account here) where the volume has dried up in the handle and the move up is accompanied by heavier volume would have to be called breaking out from the handle. Once the move up from the handle breaks the horizontal line bridging the high points on the left and right side of the cup and continues up with increasingly heavier volume and accelerating price action is the breakout. The breakout should be similiar to what FRPT did last Thursday and Friday. Heavy volume with big price move. At some point it has to start to move up from the low point of the handle but I don't think that point can be called the breakout unless it is a big move in price and volume.

[Rob]

When Is It a Cup With Handle?

Rob,
I wouldn't call it a cup with handle, myself, but I would say I love that chart. Thanks for posting!

It seems that people have varying perceptions of what qualifies as a cup and handle chart pattern. Let me reword that: It's obvious that people have varying perceptions of what qualifies as a cup and handle chart pattern.

Out of curiosity, I would like to know who thinks this chart qualifies. This is a one-year, daily chart ...

Valid? Not valid? Tell me!

[billyjoe]

Rob,
I'd bet a person could see a cup/handle on 80-95% of all charts if there wasn't a specific time period restriction. Your chart doesn't have a well defined cup/handle the way I see it. The sharp ups and downs mess up the cup. Follow those high/low points with a solid pencil line and it looks like a ladle about to pour out someone's money.

------------billyjoe

[IIC]

It seems that people have varying perceptions of what qualifies as a cup and handle chart pattern. Let me reword that: It's obvious that people have varying perceptions of what qualifies as a cup and handle chart pattern.

Out of curiosity, I would like to know who thinks this chart qualifies. This is a one-year, daily chart ...

Valid? Not valid? Tell me!

You are right ,there are differing opinions...I call some classic and most not...I prefer that the right side high is within 5% of the left side high...but I still put up ones that are not if they meet most of the criteria like the one above.

[IIC]

OSIS breaking out

[IIC]

If the handle continues down after a reasonable amount of time and continues downward that would have to be called a failure of the cup & handle wouldn't it? On the other hand at what point would you call a move up out of the handle a breakout. I would think any move up from a low point (volume has to be taken into account here) where the volume has dried up in the handle and the move up is accompanied by heavier volume would have to be called breaking out from the handle. Once the move up from the handle breaks the horizontal line bridging the high points on the left and right side of the cup and continues up with increasingly heavier volume and accelerating price action is the breakout. The breakout should be similiar to what FRPT did last Thursday and Friday. Heavy volume with big price move. At some point it has to start to move up from the low point of the handle but I don't think that point can be called the breakout unless it is a big move in price and volume.

I would consider it a b/o if it passes the right side high on hi vol. During the day it may be difficult to call the volume so I eyeball it...But theoretically the volume could high early as it breaks out and then the vol. dries up later...At the end of the day, even tho the stock ends up higher than the right side high...it may not be ,technically anyway, a true breakout.

I would prefer that the handle does not breach 50% of the difference between the high of the left or right side high of the cup(whichever is higher) and the low of the cup.

But we can all have differing opinions and we can all play them differently...I don't think there is just one correct answer.

I posted some links to some sites that expalin what they think a cup w/ handle is...take a look when you get a chance.

[Rob]

Your chart doesn't have a well defined cup/handle the way I see it. The sharp ups and downs mess up the cup. Follow those high/low points with a solid pencil line and it looks like a ladle about to pour out someone's money.

Billy, thank you for taking the bait and having the courage to express your opinion on this. The thing is: I agree with you! This does not look like a well-defined cup & handle. But are you ready? This is the very pattern O'Neil uses as an example on one of his pages teaching people to recognize this pattern! The chart I put up shows Krispy Kreme Doughnuts (KKD) from May 3, 2000 to May 3, 2001.



So my purpose here was not to "catch" somebody, but to illustrate the point that many of us, myself included, probably tend to be a little too quick to dismiss a valid cup & handle just because it isn't picture perfect.

KKD busted out of that pattern and topped out in the neighborhood of 47 by the end of 2001, took a dive from there down to somewhere near 26 and back up to about 50 in the latter half of 2003, at which point, in hindsight of course, it was a beautiful short play.

Today you can buy KKD for less than $9 a share, as their earnings work their way closer toward getting back out of the hole. It was a great buy a year-and-a-half ago at less than $5, but who knew?

Lest my main point be lost in the above rambling, I repeat: just because a cup and handle pattern is not picture perfect, that doesn't mean it should be ignored.

[IIC]

Rob...there really are not that many that are "Picture Perfect"...Most of the ones I've seen at paid sites are not...in fact, I'd say the majority don't even come close...And I'll admit that a number of ones that I put up are questionable...But I think I'm posting a higher percentage of reasonable CwH patterns than any other site I've come across

[IIC]

VOLC looks nice

[billyjoe]

Rob,
If a stock with an identical chart tanked, O'Neil and his cohorts would say it's because the cup/handle was flawed, don't you think?

-------------billyjoe

[Tatnic]

Bulkowski on C&Hs

...I'm guessing some of youse have his book in your collection. He rates the c&h fairly high on the reliability scale (90%), with an average rise of 38% after breakout (continuation). Not the highest rated formation but pretty high up there.

Just like any other chart pattern, you'll hardly ever find a "text book" case, so to play it safe you still need to pay attention to volume and RSI. If either one are not confirming you'll probably see a failure occur.

That chart that Rob posted may not have been a text book example but did you notice that huge spike in volume preceeding the right side of the cup? Whenever I see something like that and the price goes sideways for a while it always gets my attention. That's a huge alert signal to be on the watch for. That usually indicates to me that somethings up and to expect a breakout to the upside, not always but in many cases.

I can think of one case recently where it did not pan out and that was with BRNC...back in december there was a huge spike in volume on an up day but no follow-through. You've always got to be asking what if...

[Rob]

If a stock with an identical chart tanked, O'Neil and his cohorts would say it's because the cup/handle was flawed, don't you think?

Of course, but even a perfectly shaped cup and handle with the perfect volume characteristics will not deliver every time. It's the same principle Spike uses with his "fuzzy" C's. In looking for cups and handles--or any chart pattern for that matter--you have to allow for a certain degree of fuzziness. Personally I like to see reasonably good fundamentals behind a bullish pattern as well. The better the fundamentals, the less likely the chart will crash and burn.

[riverbabe]

KKD busted out of that pattern and topped out in the neighborhood of 47 by the end of 2001, took a dive from there down to somewhere near 26 and back up to about 50 in the latter half of 2003, at which point, in hindsight of course, it was a beautiful short play.

And I was there! Long. And made a bundle. Great memories. 'Course at that time I didn't know a CwH from latte. Just went by intuition. Read an article in a newspaper and said to myself, "Hmmm... ." Riverbabe

[IIC]

Park had posted Bull's site http://thepatternsite.com ...He seems to think the CwH pattern is OK...But not the best by any means: http://thepatternsite.com/id75.html

Billy...I don't think WON or any other credible guru would claim that a pattern works all the time...What WON would probably say is "You should have sold at -7%"...Now lets just suppose that the pattern (Post Breakout) goes up an average of 30% Fifty % of the time...WON might say you made 30% 5x and lost 7% 5x...Sounds OK to me.

However, Rob is right...I agree that you would do much better narrowing your CwH trading to the better fundamental stocks...and possibly those in the Industry Groups in favor.

[IIC]

Type of chart:

Also, been meaning to post this...Sometimes you can see a CwH (or any other pattern) on a logarithmic chart and not an arithmetic (or linear) chart and vice - versa...I prefer log charts myself although I use both.

For those that don't know...here is a textbook def of each:

linear chart

Definition

The standard chart type, on which a given distance always represents the same absolute change in price (unlike on a logarithmic chart, where a given distance always represents the same percentage change in price). In other words, the distance from 1 to 10 is the same as the distance from 10 to 100 on a logarithmic chart, but the latter distance is ten times greater on a linear chart.


logarithmic chart

Definition

A chart for which the price scale (usually on the vertical axis) is skewed so that a given distance always represents the same percentage change in price, rather than the same absolute change in price (as is the case for a linear chart). In other words, the distance from 1 to 10 is the same as the distance from 10 to 100 on a logarithmic chart, but the latter distance is ten times greater on a linear chart.