Turn It Upside Down
If you’ve played the inverted
cup-with-handle to the short side for the medium term, the trend has certainly
been your friend. I’ve noted spotted numerous upside-down pattern breakouts
since February and that fact that more of them are following up from behind adds
credibility to the holding for further gains.
That
said, be religious about your stops. The more steam builds behind the shorts,
the greater the danger of short-covering rallies, which can be even more vicious
on the upside than pullbacks on the downside of a long trade. If you use the
one way to search for possible candidates is to set the Scanner for stocks
trading below their 50- and 200-day moving price averages with relative strength
scores below 50 and prices above 20.
Among
stocks forming the pattern are Zygo
(
ZIGO |
Quote |
Chart |
News |
PowerRating) and GlobeSpan
(
GSPN |
Quote |
Chart |
News |
PowerRating).
To
train your eyeballs, a few recent past breakouts from inverted cup-with-handles
include Newport
(
NEWP |
Quote |
Chart |
News |
PowerRating), which broke out on Feb. 20, and the Extreme
Networks
(
EXTR |
Quote |
Chart |
News |
PowerRating) on Feb. 19.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.