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Strategies & Market Trends : Technical Analysis - Beginners -- Ignore unavailable to you. Want to Upgrade?

To: Secret_Agent_Man who wrote (8179)	3/27/1998 3:24:00 AM
From: Chip Anderson	Respond to of 12039

Here's a CANSLIM-oriented definition of the C&H pattern taken from Stocks & Commodities, V. 12:12 (491-497): ========================= The cup and handle takes its name from the resemblance in profile to a cup. The "cup" typically forms during intermediate-term market corrections and is usually three to six months in duration but can be as long as 12 months or as short as seven weeks. The best patterns are those that correct the least during intermediate market declines, so be wary of those stocks that have dropped excessively and are forming deep cups, say in excess of 45%. Though not all-encompassing, here's a useful guideline to determine whether a constructive cup and handle base is forming by combining depth and duration: Base depth Duration (%) (Weeks) 12-20 7-13 21-35 13-26 It's also important to look for tight price areas in the cup with volume virtually nonexistent around the lows and rising on rally days. Sometimes, the left side of a cup will be erratic and then settle down and trade with small, daily price variations as the right side is formed. <...> The handle forms as a necessary process for setting up the breakout to new highs. During the formation of the right side, the stock may be subject to profit-taking at its old highs from sellers who bought at the cup's bottom. As the stock declines, buyers step in and smart money add to their positions to support the stock, forming the handle. Handles are usually more than one or two weeks long, should drift down and have very low volume. It should form in the upper half of the cup, preferably the upper third, and be above the stock's 200-day moving average. <...> Finally, one nuance in a cup and handle pattern is the retest of the lows in the form of a price consolidation area that occurs after the initial move off the bottom. Many newcomers to CANSLIM mistake this as the handle, but sometimes, the mistake can be profitable. When a stock's RS rank is 96 or higher, the trader can cheat by buying the consolidation breakout rather than waiting for a handle to form. ===================== So by a CANSLIM definition, DGIV cannot have formed a C&H pattern because the cup need at least 7 weeks(!) to form. CANSLIMers like long, U shaped cups in order to ensure that the "weak" money has been shaken out of the stock. That sets the stage for the strong breakout later. Of course, pattern reading is a subjective art, you mileage may vary, void where prohibited, etc. etc. Hope this helps, Chip coolhistory.com