Cup with Handle

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chart_analysis:chart_patterns:cup_with_handle_continuation [2019/06/24 19:38] (current)
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 +====== Cup with Handle ======
  
 +The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. It was developed by William O'Neil and introduced in his 1988 book, //​[[https://​store.stockcharts.com/​products/​how-to-make-money-in-stocks|How to Make Money in Stocks]]//.
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 +As its name implies, there are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or [[:​glossary_r#​rounding_bottom|rounding bottom]]. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle'​s trading range signals a continuation of the prior advance.
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 +{{:​chart_analysis:​chart_patterns:​cup_with_handle_continuation:​cuphandle-jbl.png|Jabil Circuit, Inc (JBL) Cup with Handle example chart from StockCharts.com}}
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 +  - **Trend:** To qualify as a continuation pattern, a prior trend should exist. Ideally, the trend should be a few months old and not too mature. The more mature the trend, the less chance that the pattern marks a continuation or the less upside potential.\\ \\
 +  - **Cup:** The cup should be "​U"​ shaped and resemble a bowl or rounding bottom. A "​V"​ shaped bottom would be considered too sharp of a reversal to qualify. The softer "​U"​ shape ensures that the cup is a consolidation pattern with valid [[:​glossary_s#​support|support]] at the bottom of the "​U"​. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.\\ \\
 +  - **Cup Depth:** Ideally, the depth of the cup should retrace 1/3 or less of the previous advance. However, with volatile markets and over-reactions,​ the retracement could range from 1/3 to 1/2. In extreme situations, the maximum retracement could be 2/3, which conforms with [[:​glossary_d#​dow_theory|Dow Theory]].\\ \\
 +  - **Handle:** After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a [[:​glossary_f#​flag|flag]] or [[:​glossary_p#​pennant|pennant]] that slopes downward, other times it is just a short pullback. The handle represents the final consolidation/​pullback before the big breakout and can retrace up to 1/3 of the cup's advance, but usually not more. The smaller the retracement,​ the more bullish the formation and significant the breakout. Sometimes it is prudent to wait for a break above the [[:​glossary_r#​resistance|resistance]] line established by the highs of the cup.\\ \\
 +  - **Duration:​** The cup can extend from 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 week to many weeks and ideally completes within 1-4 weeks.\\ \\
 +  - **Volume:** There should be a substantial increase in volume on the breakout above the handle'​s resistance.\\ \\
 +  - **Target:** The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup.\\ \\
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 +As with most chart patterns, it is more important to capture the essence of the pattern than the particulars. The cup is a bowl-shaped consolidation and the handle is a short pullback followed by a breakout with expanding volume. A cup retracement of 62% may not fit the pattern requirements,​ but a particular stock'​s pattern may still capture the essence of the Cup with Handle.
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 +{{:​chart_analysis:​chart_patterns:​cup_with_handle_continuation:​cuphandle-emc.png|EMC Corp. (EMC) Cup with Handle example chart from StockCharts.com}}
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 +  * **Trend:** EMC established the bull trend by advancing from 10 and change to above 30 in about 5 months. The stock peaked in March and then began to pull back and consolidate its large gains.\\ \\
 +  * **Cup:** The April decline was quite sharp, but the lows extended over a two-month period to form the bowl that marked a consolidation period. Also, note that support was found from the Feb-99 lows.\\ \\
 +  * **Cup Depth:** The low of the cup retraced 42% of the previous advance. After an advance in June and July, the stock peaked at 32.69 to complete the cup (red arrow).\\ \\
 +  * **Handle:** Another consolidation period began in July to start the handle formation. There was a sharp decline in August that caused the handle to retrace more than 1/3 of the cup's advance. However, there was a quick recovery and the stock traded back up within the normal handle boundaries within a week. The essence of the formation remained valid after this sharp decline.\\ \\
 +  * **Duration:​** The cup extended for about 3 months, while the handle extended for about 1 1/2 months.\\ \\
 +  * **Volume:** In early Sept-00, the stock broke handle resistance with a gap up and volume expansion (green arrow). In addition, [[:​glossary_c#​chaikin_money_flow_cmf|Chaikin Money Flow]] soared above +20%.\\ \\
 +  * **Target:** The projected advance after breakout was estimated at 9 points from the breakout around 32. EMC easily fulfilled this target over the next few months.\\ \\