Here’s What We Look For In Breakouts
Most people associate
cup-and-handle
patterns with breakouts occurring near 52 Week Highs based on the daily price
chart. But, like many other technical patterns, this formation can also
yield excellent results when executed as a reversal pattern. When a downtrending
stock has found a price level for support, then you might consider getting a
“handle” on this intraday reversal setup.
In TM’s chat room, it was pointed out that XL
Capital
(
XL |
Quote |
Chart |
News |
PowerRating) was looking like a breakout candidate.
The stock had actually been on my Nightly Daytraders Report as a potentially
weak issue that had closed in the bottom of its range. Well, after a gap higher
on general market enthusiasm the stock did attempt to set new lows out of a
FlipTop
formation, but then a funny thing happened. This laggard found support at prior
lows as evidenced by the daily chart. There’s a couple of adages on Wall Street
that made a case for a potential reversal off of session lows. “Support
must be respected until broken” and “All trends must come to an
end” were two of the things that I might have subconsciously been thinking,
but one thing that was very clear was the imminent Cup & Handle
breakout,
reversing daily chart action off of supports that remained intact.
Chris Tyler