Cup and Handle

Cup and Handle

Favorable Chart Patterns to Look for before Buying a Stock

One of the biggest factors an investor should consider before buying a stock is what type of chart pattern the stock is forming. A company may have great fundamentals but if it has an unfavorable chart pattern then it may not be a good company to invest in. One of the basic chart patterns to look for before investing in a stock is called a "Cup and Handle" pattern. Typically a "Cup and Handle" looks similar to a coffee cup if you were holding the cup in your right hand.

Generally I look for stocks that take 3 Months or more to form a Cup and then develop a Handle for at least 2 Weeks. Some examples are shown below.

AMHC formed a Cup for 14 Months and then developed a Handle for 8 Weeks (point A). AMHC broke out of the Handle in December of 2001 and then preceded to rise from $8 to $37 a share over the next 12 months for a gain of over 400%.

EASI developed a 2 year Cup and then formed a 10 week Handle (point B) before breaking out in August of 2000. EASI then preceded to rise from $12 to $38 a share over the next 12 months for a gain of over 200%.

FRNT developed a 12 Month Cup and then formed an 8 Week Handle (point C) before breaking out in November of 2000. FRNT then preceded to rise from $12 to $26 a share for a gain of over 100% over the next 5 Months.

Finally TARO developed a Cup for 10 Months and then formed a 6 Week Handle (point D) before breaking out in October of 2001. TARO then rose from $17 to $50 a share for a gain of 190% over the next 6 Months.

By focusing on companies with good fundamentals that are breaking out of a favorable chart pattern such as a "Cup and Handle" will allow you to find winning stocks even in a Bear Market environment. The purpose of our site is to help focus investors on those stocks that have good fundamentals which are forming favorable chart patterns such as the "Cup and Handle".

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