So I’ve been trading $HD from basically the bottom of the handle based on an IBD alert. The cup and handle pattern has proven, to me at least, to be a reliable and easy to read pattern that is awesome for swinging. You really know where to put your stops and can expect a decent run from the pattern. The following criteria is based on Bulkowski’s The Pattern Site (http://www.thepatternsite.com/cup.html).
Here’s a description of the pattern:
|Price trend||Upward leading to the pattern. Price should rise by at least 30% leading to the cup.|
|Shape||A rounded turn that looks like a cup with a handle on the right.|
|U-shaped cup||The cup should be U-shaped, not V-shaped.|
|Handle||The cup must have a handle on the right.|
|Cup duration||From 7 to 65 weeks|
|Handle duration||1 week minimum but usually lasts 1 to 2 weeks.|
|Handle||Forms in upper half of cup.|
|Cup||Cup rims should be near the same price level.|
So let’s analyze $HD in this regard.
- Price trend: Check
- Shape: check
- U-shaped cup: check
- Handle: check
- Cup duration: 131 days check
- Handle duration: 19 days, check
- Handle: check
- Cup: check
The cup is the one place where I do not see the rims of the cup being at the same price. Typically, the right side rim is lower, but within a close margin of, the left rim. IBD also agrees with this logic but Bulkowski wrote the book on patterns so I won’t argue with him either.
What I found most interesting after reading Bulkowski’s analysis on the pattern is the fact there are often cups within the cup. This is definitely true for $HD and there were a couple small but powerful breakouts that occurred inside the cup which presented good trading opportunities! They are highlighted below, see what you think.
As far as my progress, I am up over 80% on HD calls that I still have a few weeks left on. I’ll hold a few more days to wait on the breakout but if not I’ll roll these to longer expirations. My price target is 220.