Phil's Stock Market Blog

What's all this about the magic cup-and-handle pattern? People insist it's totally subjective, but I don't think so. I drew it in on the chart below. The trick is not to talk yourself into something that isn't really there. It has to have all the right features, particularly in the handle and along the lows of the cup. For example, we like to see a flat section along the bottom of the cup with the volume drying out and "triangling" down, and also the handle should be relatively flat and shallow, drifting downward as opposed to wedging upward. The quiet and triangling-down volume is important here too.

A good cup-and-handle pattern will be self-replicating. The chart below of the Rydex 2x SP-500 ETF is a perfect example; you can a miniature cup-and-handle which forms the bottom of the main cup.

A good pattern also tends to generate some killer buy signals along the lows of the cup, or in this case along the lows of the handle. It was a Climax Low buy signal (shown in blue).