More Inverted Cup-With-Handles
Over the past several weeks, it’s been
a favorable environment if you trade tech stocks and cup-with-handles, inverted
cup-with-handles, that is!
Last
week, I noted a number of stocks breaking out to the downside from these
patterns, including Agile Software
(
AGIL |
Quote |
Chart |
News |
PowerRating) and the Semiconductor HOLDR
(
SMH |
Quote |
Chart |
News |
PowerRating)
on Feb. 20 and the Internet Infrastructure HOLDR
(
IIH |
Quote |
Chart |
News |
PowerRating) on Feb. 21. The
inverted cup-with-handle, called a saucer top with platform by William
Jiler, works much like the cup-with-handle.
I
refer to both patterns as continuation patterns. In the case of the inverted
version, you have a stock in a downtrend that attempts a rally, which
fails. Shortly before or after the stock enters new low ground on the resumed
decline, there’s a last gasp for air, in many cases probably the result of short covering. This begins the upside-down handle. You go short as the stock
undercuts the low of the handle.
On
Wednesday, CheckPoint Software
(
CHKP |
Quote |
Chart |
News |
PowerRating) broke down from an inverted
cup-with-handle. For the low of the inverted handle, which keys your pivot
point, see Point a in the following chart.
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.
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.