Finding flat bases and cups with handle | stockbee


Finding flat bases and cups with handle

The technical analysis believers like flat bases and cup with handle. In the CANSLIM approach also there is lot of stress on chart patterns like flat bases, cup and handle and double bottom at top of the range. All these pattern essentially indicate stalled price action on the charts. It is a different and visual interpretation of the concept that long term momentum is good but to time low risk entry you should find a weakness on smaller time frame. So essentially you want to find a swing point for entry from where stock is likely to make another major move in the direction of previous major move.

If you can identify such stocks in advance then you can anticipate an entry. Some people calculate complicated pivot points on such stocks down to few cents and put conditional orders at those points. If you see the Investors Business Daily weekly 85-85 list or IBD 100 list, they have such stocks with black border.

Similarly everyday Investor Business Daily in their NYSE Stocks in the News and NASDAQ stocks in the news page have 2 stocks which are first two in that list of stocks which usually have the ideal IBD patterns and also those stocks by IBD standards are ready to breakout.

Most of the time if you read carefully it will also have exact buy points mentioned. Every day I put those 4 stocks on watchlist and you will often find those stocks breakout within few days or in most cases on the day of their appearance. Similarly notice how many of the stocks which are black boxed in 85-85 or IBD 100 breakout on Monday.

Now one of the ways to use the base universe of 100 % plus movers to find flat bases and cup with handle is to just sort those stocks with 65 day price growth and take bottom 10%. If you go through that list of stocks you will find several flat bases and cup with handle in strongly up trending stocks.

So after doing the same on the 397 stocks up more than 100% from their low in 260 days, I got this list for next week of stocks to watch:

AKAM,Akamai Technologies Inc (Google  Yahoo  Earnings  Chart
AKH,Air France KLM (Google  Yahoo  Earnings  Chart
AMAG,Advanced Magnetics Inc (Google  Yahoo  Earnings  Chart
AMIE,Ambassadors Internat Inc (Google  Yahoo  Earnings  Chart
AXTI,Axt Inc (Google  Yahoo  Earnings  Chart
BRLC,Syntax-Brillian Corp (Google  Yahoo  Earnings  Chart
CBEY,CBeyond Communications Inc (Google  Yahoo  Earnings  Chart
FCGI,First Consulting Grp Inc (Google  Yahoo  Earnings  Chart
HHGP,Hudson Highland Grp Inc W/i (Google  Yahoo  Earnings  Chart
LBY,Libbey Inc (Google  Yahoo  Earnings  Chart
LNOP,Lanoptics Ltd (Google  Yahoo  Earnings  Chart
MAG,Magnetek Inc (Google  Yahoo  Earnings  Chart
MFB,Maidenform Inc (Google  Yahoo  Earnings  Chart
OVEN,TurboChef Technologies Inc (Google  Yahoo  Earnings  Chart
POZN,Pozen Incorporated (Google  Yahoo  Earnings  Chart
RBN,Robbins & Myers Inc (Google  Yahoo  Earnings  Chart
RIMM,Research In Motion Ltd (Google  Yahoo  Earnings  Chart
RVBD,Riverbed Technologies Inc (Google  Yahoo  Earnings  Chart
SOFO,Sonic Foundry Inc (Google  Yahoo  Earnings  Chart
TAR,Telefonica De Argentina (Google  Yahoo  Earnings  Chart
TRFC, (Google  Yahoo  Earnings  Chart
WRSP,WorldSpace Inc (Google  Yahoo  Earnings  Chart

Now if you go through the list it is full of stocks with flat bases and cups with handle. If you further narrow down the list by earnings or any other criteria you have 4-5 good candidates to anticipate entries on. So instead of buying a breakout after a stock has gone up 4% you can anticipate a breakout and enter with a pre defined buy stop. That way you can capture a part of the breakout move.

If you want to go even further in to microscopic details, then you can find out the required volume and price action for a breakout and break it down by hours or minutes and if you see a stock meeting that condition in first one hour of trading then you buy. So that you can benefit from the 5 to 10 dollars move in a stock on day of breakout. This can further reduce your risk on entry by reducing the distance from breakout price. That is how the list on first page of is generated under the heading Stocks On The Move. The list is calculated by using hourly equivalent of the the percentage up or down in trading volume of a stock compared to its average daily volume over the past 50 days.(The average 50 day figure is divided by number of trading hours and given a certain weight for first few hours and when the trading volume exceeds that level, the stock appears on that list).

Another very microscopic detail which can help you fine tune your entries.


F. said...

Thanks for the link. Good stuff. I use Trade Ideas for the same purpose.

Woodshedder said...

Pradeep- love your blog. Some great stuff here. If you get a second, read the latest post on my blog which references some of what you suggest. I would appreciate knowing if you think I'm on the right track.