The Cup-and-Handle price pattern is a popular bullish signal that develops over a longer time frame than many simpler patterns. In this week’s real-time technical analysis example, we’re going to review a Reverse Cup-and-Handle. As you might expect, this is a bearish signal if the pattern completes.
Let’s take a quick look at the two key components of this pattern.
The first is the “Cup” – a dome-shaped movement of price. It’s good to see both symmetry and a deep cup. That shows significant, consistent (not knee-jerk trading) price movement to set up the pattern. You can see from Friday’s chart of Stanley Black & Decker (ticker: SWK, $68.96, up $0.24) that the Cup met this criteria.
The second part of the pattern is the “Handle”. This typically is a shorter time-frame movement that indicates consolidation after the longer time-frame Cup. The classic handle for a Reverse Cup-and-Handle would be a narrow uptrending channel. In this example, there is a slight uptrend to the highs but the lows are flat. I’m not as concerned about the Handle meeting the strict definition as long as it shows consolidation – which it does in this example.
Going into this week, the Reverse Cup-and-Handle would be complete if it closes below the green dashed support line on strong volume. At that point, look for SWK to re-test the July lows around $60. Remember that technical patterns are guides and should always be accompanied by disciplined risk management.
Rick and Shawn
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