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Cup And Handle

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A cup and handle is a technical analysis charting formation that signals a stock or security is setting up for a possible breakout to the upside. The cup and handle pattern, also called cup with handle, was first introduced in 1988 by William O'Neil. Mr. O'Neil describes the cup and handle as a bowl-shaped trading pattern followed by a brief period of trading within a tightly bound range. The bowl of the cup and handle consists of trading activity that trends downward over a period of months (i.e. typically three to six months but can range anywhere from 7 to 65 weeks). Analysts believe the bowl of a cup and handle should be U-shaped to indicate that the consolidation has formed a strong base, hence signaling a strong reversal. On the other hand, a V-shaped cup is often considered too abrupt of a reversal and therefore, in a majority of cases does not result in a valid cup and handle formation. After the cup in the cup and handle pattern reaches its high, a short reversal forms the handle (i.e. at least one to two weeks but can be more). Typically, the price correction from the peak to the low price of the cup in a cup and handle pattern ranges from 12 to 33%. The handle of the cup and handle usually doesn't retrace more than 12% in a bull market. In bear markets, however, the handle of the cup and handle can drop rapidly and by as much as 20-30% off its peak. After the handle of the cup and handle forms, the pattern is completed when the price breaks resistance on heavy volume. A variation of the cup and handle pattern is the saucer with handle pattern.

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