Page 155 - THE MARKET WHISPERER

THE MARKET WHISPERER 15 3

The cup & handle formation is a bullish pattern that suggests the
shape of a cup and handle. The pattern is comprised of a stock reaching
its high, encountering resistance and correcting downwards. The stock
returns to the high, and in this way forms the cup. At the high, the stock
once again encounters resistance (remember when we learned the term
“double top”?) and corrects downward again while creating the shape of
the handle. This time, when it returns to a high for the third time, it breaks
through the resistance and rises to a new high. The breakout point is the
point where we should buy the stock.

What have we learned about the stock prior to its breakout? The stock
reached a high, so we realize it is strong. It corrected downwards but
returned to the same high, from which we learn that buyers are still in
control. The stock drops again, but this time drops less than the previous
time and for a shorter period. The stock returns to its high a third time.

Conclusion: Buyers are in control and are even become more aggressive:
they are buying after the smallest correction, and they are buying faster.
Buyers have begun overtaking the sellers. We conclude that the stock is
strengthening and may break out the resistance soon.

Cup and Handle Formation, United States Steel – X