Registered User
Joined: 8/24/2007
Posts: 5
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Hi all,
Again, I am still a TA novice but I am wondering if you all agree that this is a confirmed C&H, with the close today? Based on my understanding of the pattern, after today would be the time to buy since it closed above the top of the cup. What do you think?
Chris
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Registered User
Joined: 10/26/2005
Posts: 238
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In my opinion for a proper cup and handle formation the weekly chart is better. For me to trade a C & H from a daily chart it needs to take a minimum of six months to form. This is due to the theory on why the C & H forms. If you need me to explain my view of the theory I will. AB
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Registered User
Joined: 12/21/2004
Posts: 902
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CBB = it does resemble the general overall shape of the "Cup-and-handle", however, generally a cup-and-handle tends to form over a longer period of time. Check out the Investor's Business Daily website, in the Learning Center, under Lessons on Buying-Reading Stock Charts II section, where they give a good write-up of the cup-and-handle, along with several characteristics to look for (granted, there are no absolute "set rules" and this may, in fact be succesful)
But among the characteristics that IBD lists includes:
"The downward phase, or left side, of the cup should form over a period of at least two weeks. Typically, the left side corrects 5 to 7 weeks or more." also,
"The handle should not drift upward. That's when the daily or weekly price lows trend upward over several weeks. Such upward-wedging handles are failure prone."
On this particular stock, I would look for a longer base along the bottom rather than a quick up-and-down which this seems to be, along with a shorter, less meandering handle. OTOH, another characteristic is the higher than average volume both times the cup finish and handle finish pass the pivot point, which this one does.
Also, and this isn't necessarily part of the C&H, but look at the MACD-Histogram (MACD-H) on a 12,26,9 setting. Compare the MACD-H high level at the Aug 26-27 high, compared to where it is now. The way MACD-H works, when you have two price highs like 8/27 and today, the MACD-H on a strong stock will have an equally strong MACD-H on the second high to match the first. The fact that this MACD-H is now a lot lower than it was is an indication of lack of strength.
Nothing in technical analysis is set in stone, you look at patterns and indicators and evaluate them all against each other. Doesn't mean that this stock won't necessarily go up from here, (other indicators such as TSV, OBV, and MS look good, for example). And I normally consider a horizontal consolidation after a price run-up a sign of strength.
So in this case, because it isn't a true cup-and-handle, and is tempered by the low level of the MACD-H, I would weigh those factors against the postive indicators and horizontal consolidation in making my decision, rather than relying on what I would expect a "cup-and-handle" to tell me.
A probable deciding factor, would be to look at this as having met resistance in the 14.15-14.18 area several times since May. Notice that today, it briefly went above that intra-day, but wasn't able to close above 14.15. I would wait for it to decisively clear this resistance area at a close before entry (I'd want it to clear todays 14.25 high at a close, also - or else 14.25 may become resistance), keeping an eye on another resistance level coming up at 15.18 (the March high).
If the postive volume indicators hold true, it should clear this resistance. If the MACD-H level signal holds true, it may have problems. The basic similarity to a cup-and-handle isn't enough in this case, in my opinion, to base entry just on that alone - it's just not unambiguously ready yet.
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