A consolidation phase is signaled by a breakout in William O'Neil's Cup with Handle, a bullish continuation pattern. The cup and the handle are the two components of the motif. Following an advance, the cup takes on the shape of a bowl or rounded bottom. As the cup is finished, the handle forms and a trade range appears on the right side. A repeat of the previous rise is indicated by a further breakthrough from the handle's trading range.
How this indicator works
- The cup should resemble a bowl or rounding bottom. The perfect
pattern would have equal highs on both sides of the cup, but this is not
always the case.
- After the high forms on the right side of the cup, there is a
pullback that forms the handle. The handle is the consolidation before
breakout and can retrace up to 1/3 of the cup's advance, but usually not
more.
- The cup can be spread out from 1 to 6 months, occasionally longer.
Ideally, the handle will form and complete over 1-4 weeks.
- The buy point occurs when the stock breaks out or moves upward
through the old point of resistance (right side of the cup). This breakout
should occur with increased volume.
- The price target following the breakout can be estimated by measuring the distance from the right top of the cup to the bottom of the cup and adding that number to the buy point. This should be used only as a guideline.
- 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.
Tags:
Pattern Analysis