In a recent blog I cautioned against trading Cup with Handle patterns in a market showing signs of topping. The two stocks I wrote about were $MPEL and $BIDU both with strong fundamentals and both were in a top Industry Group. They had just broke out of Cup with Handle patterns and showed early signs of being good performers when they were caught up in the news forecasting a slow down in the Macau, China hotel and gaming sector. Other leaders in this group included $WYNN, $MGM, and $LVS. The entire group has suffered a large drop off in recent days. In the past blog I stated it was necessary to watch for a turn around and if the price traded below the Pivot Point Trendline to use the Reversed Cup with Handle Strategy to enter a short position. This has proven to be the prudent thing to do. As I have stated many times, Cup with Handle patterns will fail in anything other than a good strong bull market.
As the Candlestick charts for $MPEL and $BIDU show the #ReversedCupWithHandleSE strategy would have entered a short position and would be in the process of making a good quick gain. Stocks in the Down Transition Phase of the Cup with Handle Cycle will make rapid gains as the move to the down side will be fast and short in most cases.
A close study of these Candlestick charts will give you the insight necessary to keep an eye out for this type of action in the future. With practice you will be able to see these coming. Many traders give up on the Cup with Handle pattern as not being dependable. It is the most consistent pattern available to those that know how to use the information it gives you. Stick with me and I will teach you everything you need to know to be a successful trader. Remember there are a total of eight trades you can use with the Cup with Handle Family.
As a side note, the last bar (today 3-27-2014) on the $BIDU chart ended up making a long legged dogi. Those of you familiar with Candlestick Charting know this to be a turn around indicator. It is highly reliable. Check it out tomorrow.
Another stock with strong fundamentals and appears to be a Cup with Handle in the process of doing the same thing is Comerica, Inc ($CMA). Keep a close watch on it as it is getting close to breaking down below the Pivot Point Trendline. Remember I am showing you these for educational purposes and not advising you to make an actual trade.