The Cup & Handle Pattern

The Cup & Handle is the corrective action after a powerful stock advance. Generally a stock will have a powerful move of some 2 to 4 months, then go through a market correction. The stock will sell off into the correction in a downward fashion for maybe 20 to 35 percent off the old high point. The time factor is generally anywhere from 8 to 12 weeks depending on the overall market condition.

As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price drift in a sideways fashion with a bias to the downside for about 4 days to 3 weeks.

The handle is generally about 5% below the old high point. A handle that is any lower is generally a defective stock and contains higher risk for failure.

The time to buy the stock, is as it emerges into new highs at the top of the handle and not the old high point set some 8 to 12 weeks ago.

I have found some of the biggest stock market winners have this very powerful formation. It is one of the best and most reliable formations to look for. However, it is important to note that the best stocks with this formation are found at the beginning of a market move after a good market correction, and not during, or at the end of a major market advance.