Cup and handle: Technical side

source: http://ammegan.tblog.com

Ever heard some friends who say they are seeing a cup and handle formation?

Weird huh? But what is that cup and handle they talk about?

I am not a full Technical guy but let me enlighten you about this wonder most Technicians and Chartist call CUP AND HANDLE formation. Below is a graph of FPH(First Philippine Holdings)

Here is what our friendly Investopedia.com say  about CUP AND HANDLE:

A cup-and-handle pattern resembles the shape of a tea cup on a chart. This is a bullish continuation pattern where the upward trend has paused, and traded down, but will continue in an upward direction upon the completion of the pattern. This pattern can range from several months to a year, but its general form remains the same. 

Note that a cup and handle pattern is a pattern in which the stock is generally on the uptrend and due to correction or consolidation it dipped down forming a cup. Though there is a deep correction investors who believe in the stock hold onto it thus after the dip it rises back to form the cup part of the pattern.

In our example FPH enjoyed a brief comeback from the cup and handle formation due to the correction that the market is in right now. But if you noticed it there was a small downtrend after the cup formation thus completing the cup and handle.

But lots of chartist have various interpretations and view on a cup and handle formation. Also such formation may take a short period or a long period lasting to months and even years.

Not all cup and handle pattern go to the expected reversals thus I warn anyone who reads the chart to do check it and do some calculations. As always check volume if it confirms it. When a formation is forseen and the volume picks up there is a great likelihood that such pattern will lead to reversal.