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Rick

Cup and Handle

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Cup and Handle

Normally found as a correction pattern after a sustained upward price movement. Can last two to fifteen months, depending on the length of the initial upward movement. Pattern begins with the cup, in which the highs and lows when connected are in the shape of a "U". The handle has a downward tendency from the "U". The second top in the "U" should be slightly lower than the first top.

This daily chart shows Apple Computer, Inc. from January-September, 1994. It displays a cup-and-handle formation. It fits the criteria of such a pattern by exhibiting a "U" shape over a period of about six months, where the second high of the cup is lower than the initial high of the cup. This is illustrated by the trendline connecting the two tops. The handle of the cup directly precedes the first top.

Notice the MACD, or Moving Average Convergence/Divergence, that is plotted above the chart. In this time frame, the crossing of the signal line and histogram above or below zero could have been a signal for upcoming price movement. When they dip below zero in mid-March, the stock price is about to decline for the next three months or so until the MACD crosses above zero, directly before the upswing in price. Finally, when the MACD dips below zero again in mid-September, the stock price is to move away from its previous high. (The relationship between MACD and price in this example is not necessarily representative of all situations or circumstances.)

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