cup and handle chart - tag category postings

One of the most frustrating things about stock trading is when a stock or index approaches its recent highs and then fails to break through.

One of three things can happen.  The stock can form a double top and then break down badly by breaking recent support. 

The second thing a stock can do is test the recent highs and then pull back in a shallow handle on low volume as old buyers at the previous high desire to get out of the stock.  So when the stock pulls back, it is ideal for the pullback to be contained and to hold support, most preferably forming a right handle of a cup and handle formation.

Lastly, a stock can reach the old highs and then do a very minor pullback while barely stopping to take a breath and then just break out higher and not waste any time.  In my experience it is rare for that to happen.  Usually there are boatloads of people who still want to get out at the old high and that causes some temporary damage to the stock.

The situation with SPU right now is that it really needs to hold its low of today of 6.27 for me to stay constructive on it going forward.  I do not want to see it violate that low in any shape way or form.  Rather I would like to see it trade choppy and sideways between that low and the recent highs.  That would setup the possible creation of a handle pattern, helping to finish this setup into a cup and handle pattern.

I don’t like the look of the RSI (Relative Strength Index) right now and the MACD versus price.  It is showing a bearish divergence or the moderate variety.  The stock is going to have to maintain its composure above 6.27 and then head higher pretty soon in order for this bearish divergence to be invalidated.

CBL looks like it has a cup and handle setup and if CBL can get a price move above 8.80 I think we could see breakout type action and a continuation uptrend.

CBL probably should have been the first stock I mentioned today.  All the others I have talked about so far today are not that timely.  CBL on the other hand looks like it may get something going this week, if not tomorrow. 

The cup and handle formation is the near term pattern.  But there is a much larger head and shoulders bottom formation that is almost one year long.  Both the cup an handle and the head and shoulders bottom formation lead to a possible price move to 12. 

So I think CBL has a good shot at delivering a 10 percent  to 20 percent move within the next week or two.  If it breaks down tomorrow and falls back inside the blue channel lines then the breakout would be delayed.

The gold price has accomplished a feat so huge that it may never ever be seen or repeated again for at least half a century or more.  So if you are reading this, pay attention because you will probably never see a pattern like this again in your life time.  The gold price has formed a cup and handle chart of massive proportions.

I was tipped off about this pattern by a friend of mine name Roland.  Thank you Roland for this outstanding observation!  Sometimes the most obvious patterns have a way of hiding from you, maybe because some of them are so slow to develop. 

The pattern is called a cup and handle for obvious reasons, it looks like a tea cup with a small handle.  This is not the rarest of patterns but still popular and was made very popular by William J O’Neil and his Investors Business Daily investing publication.  The cup is a large rounding bottom type formation and the handle forms near the old highs and represents residual selling that precedes a breakout to new highs or new all time highs. In the case of the gold price we are looking for new all time highs.

This beast of a pattern is…

A Massive Twenty Nine Years Long !

The entire pattern is 29 years long. So that means I was 10 years old when the cup portion of this pattern started forming. So I would have had to observe the gold price at age 10 and then wait and watch it form the cup for about 28 years and change. 28 years and change! That is a long time to wait for a pattern to develop!

The chart to the left is once again the actual gold price as of 01/02/2009.  What is interesting is once again there appears to be a smaller cup and handle pattern that seems to be saying gold wants to breakout.  The measurement target of this smaller pattern is roughly 1040 gold.

This means that if this smaller pattern is valid, we should see in early January a fairly fast and swift move back up to the old all time highs in the gold price.

But wait there is more.

Here again is the more recent action of the gold price as represented by the GLD gold ETF.  You can see that the pattern has the look of a large flag pattern. And you can see the smaller cup and handle near the end of the flag.

So if this smaller cup and handle gets a breakout, it means that price will be above that white downtrendline on the flag.  So by definition that would say the breakout is in effect.

So we essentially have a very large cup and handle pattern of 29 years in length. But then we have a smaller cup and handle pattern within the very large handle of the whole 29 year pattern. Does that makes sense?

Certainly the gold market does not have a reputation for making things easy.  So as bullish as all the above charts look, I am still a little bit weary it will play out exactly like this.  We cannot rule out one more violent shakeout to the downside before things start cooking.

Markets seem to have a habit of doing that. Shaking the tree as much as possible before the big move.

Lets see what happens.