Inverted Cup-With-Handle
For decades, traders who bought off
cup and saucer patterns have sold short off their upside-down versions.
For example, William
Jiler, who described a bullish saucer-with-handle pattern in his 1962
book on technical analysis also referenced an inverted version for
bears. Mark Boucher also shorts off inverted cup-with-handle patterns.
Lucent Technologies
(
LU |
Quote |
Chart |
News |
PowerRating) may be
forming an inverted cup-with-handle now.
As you can see in the chart,
the stock has traced the virtual mirror opposite of what I look for in a bullish
scenario. Lucent has been in a major downtrend confirmed by a declining
strength line. From Dec. 21, 2000 to Jan. 19, 2001, the stock put in a
counter-trend rally, then sagged anew until bouncing off Dec. 21 support on
Wednesday. The stock drifted higher on lower volume than the prior session.
Ideally, the stock would etch a day or two more upward on declining volume,
before breaking the low of the inverted handle.
The top field of all
charts in this commentary uses a logarithmic price scale and displays a 50-day
price average in red.
In the second field, a blue relative strength line represents the displayed
security’s price performance relative to the S&P 500. The third field
displays vertical daily volume bars in black with a 50-day moving average in
blue for volume.
For more on
short-selling, see my lesson, Sell
‘Em Short: Three Patterns For Bears and Shorting
Down Gaps. Also check out my lesson ETF
Trading Tactics, Part 3: How To Short ETF Breakout Failures. The
base-failure pattern described in that lesson works for stocks as well as
exchange-traded funds.
Remember that all stocks are
speculative and risky. On any trade, reduce your risk by limiting your position size to a percentage of your total
account and setting inviolable price stops. For an intro to combining stops with
position sizing, check out my lesson, Risky Business.