How to Spot a “Saucer-with-Handle” Price Pattern
A “saucer with handle” is a price pattern similar to the cup with handle except
that the saucer part tends to stretch out over a longer period of time, making
the pattern shallower. (If the names “cup with handle” and “saucer with han-
dle” sound unusual, consider that for years you have recognized and called
certain constellations of stars the “Big Dipper” and the “Little Dipper.”) Jack
Eckerd in April 1967 was an example of the saucer-with-handle base.
Recognizing a “Double-Bottom” Price Pattern
A “double-bottom” price pattern looks like the letter “W.” This pattern also
doesn’t occur quite as often as the cup with handle, but it still occurs fre-
quently. It is usually important that the second bottom of the W match the
price level (low) of the first bottom or, as in almost all cases, clearly undercut
it by one or two points, thereby creating a shakeout of weaker investors. Fail-
ure to undercut may create a faulty, more failure-prone “almost” double bot-
tom. Double bottoms may also have handles, although this is not essential.
The depth and horizontal length of a double bottom are similar to those
of the cup formation. The pivot buy point in a double bottom is located on
the top right side of the W, where the stock is coming up after the second
leg down. The pivot point should be equal in price to the top of the middle
peak of the W, which should stop somewhere a little below the pattern’s
peak price. If the double bottom has a handle, then the peak price of the
handle determines the pivot buy point. See the accompanying charts for
Dome Petroleum, Price Co. and Cisco Systems for outstanding examples
of double-bottom price patterns found during 1977, 1982, and 1990. Some
later examples are EMC, NVR, and eBay.
For double-bottom patterns, the following symbols apply: A = beginning
of base; B = bottom of first leg; C = middle of W that sets the buy point; D =
bottom of second leg. If the double-bottom pattern has a handle, then E =
top of the handle (sets the buy point) and F = bottom of the handle.
Definition of a “Flat-Base” Price Structure
A flat base is another rewarding price structure. It is usually a second-stage
base that occurs after a stock has advanced 20% or more off a cup with han-
dle, saucer with handle, or double bottom. The flat base moves straight side-
ways in a fairly tight price range for at least five or six weeks, and it does not
correct more than 10% to 15%. Standard Oil of Ohio in May 1979, Smith-
Kline in March 1978, and Dollar General in 1982 are good examples of flat
bases. Pep Boys in March 1981 formed a longer flat base. If you miss a
stock’s initial breakout from a cup with handle, you should keep your eye on
it. In time it may form a flat base and give you a second opportunity to get
on board. Here are a few more recent examples: Surgical Care Affiliates,
CB Richard Ellis, and Deckers Outdoor.
Here’s a New Base We’ve Dubbed a Square Box
After moving up from a cup with handle or double bottom, this formation
typically lasts from four to seven weeks; doesn’t correct too much, usually
only 10% to 15%; and has a square, boxy look. I’ve noted this over recent
years, but finally we’ve studied, measured, and classified it. Here are some
examples: Lorillard, Korvette, Texas Instruments, Home Depot, Dell, and
Taro.
The E. L. Bruce pattern in the second quarter of 1958, at around $50,
provided a perfect chart pattern precedent for the Certain-teed advance
that occurred in 1961. Certain-teed, in turn, became the chart model that I
used to buy my first super winner, Syntex, in July 1963.
What Is a Base on Top of a Base?
During the latter stages of a bear market, a seemingly negative condition
flags what may be aggressive new leadership in the new bull phase. I call this
unusual case a “base on top of a base.”
What happens is that a powerful stock breaks out of its base and
advances, but is unable to increase a normal 20% to 30% because the gen-
eral market begins another leg down. The stock therefore pulls back in price
and builds a second back-and-forth price consolidation area just on top of its
previous base while the general market averages keep making new lows.
When the bearish phase in the overall market ends, as it always does at
some point, this stock is apt to be one of the first to emerge at a new high en
route to a huge gain. It’s like a spring that is being held down by the pressure
of a heavy object. Once the object (in this case, a bear market) is removed,
the spring is free to do what it wanted to do all along. This is another exam-
ple of why it’s foolhardy to get upset and emotional with the market or lose
your confidence. The next big race could be just a few months away.
Two of our institutional services firm’s best ideas in 1978—M/A-Com and
Boeing—showed base-on-top-of-a-base patterns. One advanced 180%, the
other 950%. Ascend Communications and Oracle were other examples of a
base on top of a base. After breaking out at the bear market bottom of
December 1994, Ascend bolted almost 1,500% in 17 months. Oracle
repeated the same base-on-base pattern in October 1999 and zoomed nearly
300%. Coming out of the Depression in 1934, Coca-Cola did the same thing.
A “saucer with handle” is a price pattern similar to the cup with handle except
that the saucer part tends to stretch out over a longer period of time, making
the pattern shallower. (If the names “cup with handle” and “saucer with han-
dle” sound unusual, consider that for years you have recognized and called
certain constellations of stars the “Big Dipper” and the “Little Dipper.”) Jack
Eckerd in April 1967 was an example of the saucer-with-handle base.
Recognizing a “Double-Bottom” Price Pattern
A “double-bottom” price pattern looks like the letter “W.” This pattern also
doesn’t occur quite as often as the cup with handle, but it still occurs fre-
quently. It is usually important that the second bottom of the W match the
price level (low) of the first bottom or, as in almost all cases, clearly undercut
it by one or two points, thereby creating a shakeout of weaker investors. Fail-
ure to undercut may create a faulty, more failure-prone “almost” double bot-
tom. Double bottoms may also have handles, although this is not essential.
The depth and horizontal length of a double bottom are similar to those
of the cup formation. The pivot buy point in a double bottom is located on
the top right side of the W, where the stock is coming up after the second
leg down. The pivot point should be equal in price to the top of the middle
peak of the W, which should stop somewhere a little below the pattern’s
peak price. If the double bottom has a handle, then the peak price of the
handle determines the pivot buy point. See the accompanying charts for
Dome Petroleum, Price Co. and Cisco Systems for outstanding examples
of double-bottom price patterns found during 1977, 1982, and 1990. Some
later examples are EMC, NVR, and eBay.
For double-bottom patterns, the following symbols apply: A = beginning
of base; B = bottom of first leg; C = middle of W that sets the buy point; D =
bottom of second leg. If the double-bottom pattern has a handle, then E =
top of the handle (sets the buy point) and F = bottom of the handle.
Definition of a “Flat-Base” Price Structure
A flat base is another rewarding price structure. It is usually a second-stage
base that occurs after a stock has advanced 20% or more off a cup with han-
dle, saucer with handle, or double bottom. The flat base moves straight side-
ways in a fairly tight price range for at least five or six weeks, and it does not
correct more than 10% to 15%. Standard Oil of Ohio in May 1979, Smith-
Kline in March 1978, and Dollar General in 1982 are good examples of flat
bases. Pep Boys in March 1981 formed a longer flat base. If you miss a
stock’s initial breakout from a cup with handle, you should keep your eye on
it. In time it may form a flat base and give you a second opportunity to get
on board. Here are a few more recent examples: Surgical Care Affiliates,
CB Richard Ellis, and Deckers Outdoor.
Here’s a New Base We’ve Dubbed a Square Box
After moving up from a cup with handle or double bottom, this formation
typically lasts from four to seven weeks; doesn’t correct too much, usually
only 10% to 15%; and has a square, boxy look. I’ve noted this over recent
years, but finally we’ve studied, measured, and classified it. Here are some
examples: Lorillard, Korvette, Texas Instruments, Home Depot, Dell, and
Taro.
The E. L. Bruce pattern in the second quarter of 1958, at around $50,
provided a perfect chart pattern precedent for the Certain-teed advance
that occurred in 1961. Certain-teed, in turn, became the chart model that I
used to buy my first super winner, Syntex, in July 1963.
What Is a Base on Top of a Base?
During the latter stages of a bear market, a seemingly negative condition
flags what may be aggressive new leadership in the new bull phase. I call this
unusual case a “base on top of a base.”
What happens is that a powerful stock breaks out of its base and
advances, but is unable to increase a normal 20% to 30% because the gen-
eral market begins another leg down. The stock therefore pulls back in price
and builds a second back-and-forth price consolidation area just on top of its
previous base while the general market averages keep making new lows.
When the bearish phase in the overall market ends, as it always does at
some point, this stock is apt to be one of the first to emerge at a new high en
route to a huge gain. It’s like a spring that is being held down by the pressure
of a heavy object. Once the object (in this case, a bear market) is removed,
the spring is free to do what it wanted to do all along. This is another exam-
ple of why it’s foolhardy to get upset and emotional with the market or lose
your confidence. The next big race could be just a few months away.
Two of our institutional services firm’s best ideas in 1978—M/A-Com and
Boeing—showed base-on-top-of-a-base patterns. One advanced 180%, the
other 950%. Ascend Communications and Oracle were other examples of a
base on top of a base. After breaking out at the bear market bottom of
December 1994, Ascend bolted almost 1,500% in 17 months. Oracle
repeated the same base-on-base pattern in October 1999 and zoomed nearly
300%. Coming out of the Depression in 1934, Coca-Cola did the same thing.
Комментариев нет:
Отправить комментарий