• The Cup & Handle is a bullish continuation pattern that starts with the stock pulling back after a bullish trend and forming a rounded bottom that resembles a cup.  It then ascends to form the backside of the cup and consolidates into a flag or handle.  The handle should ideally form at the level of the beginning of the downtrend on the front side of the cup but it is still a valid pattern even if the back lip of handle of the cup forms lower than the front lip.
• The entry point is the high of the handle and the upside potential is usually measured by the depth of the cup added to the breakout point.
• After pulling back and trading in a relatively tight pattern and forming a rounded bottom and then ascending to the consolidation handle, profit taking begins to appear as the stock flattens on deceasing volume.
• The continuation of the bullish move occurs when the stock breaks above the high of the handle with increasing volume.
• An astute trader will realize that the bearishness is temporary and the breakout represents the investment communities’ continuing participation in the longer term upside move.

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The INDU, SPX and COMPQ all formed Cup & Handle Chart Patterns and broke to the upside with gusto out of that pattern.  The volume was not impressive which leads me to believe that we could stall and possibly retrace.  All three indexes broke above the 50 SMA and a logical retracement target could be back to test the moving average.  The COMPQ formed a double top which give further credence to the thought that the index will consolidate and possibly retrace.  If the COMPQ breaks above the double top, I must see that happen on increased volume to confirm the breakout.

DOW

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S&P 500

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Nasdaq

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The Dow Jones Industrial average, SPX and COMPQ are all forming Cup & Handles.

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• This Pattern is the inverse of the Ascending Triangle and is a bearish continuation pattern.

• The stock has formed consistent support as evidenced by several touches on the lower and basically horizontal trend line as the upper trend line posts consistently lower highs.

• The selling pressure is evident as the trend lines converge and the breakdown point is the breach of the lower horizontal trend line on increasing volume.

• The stock has repeatedly challenged the lower horizontal trend line which acts as support but has not breached the level.

• Selling pressure is present as evidenced by the lower highs and are depicted by the converging upper trend line.

• Eventually, the stock will usually break through the support n increasing volume and will continue its downside move.

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The INDU continues to move to the upside but will probably retrace soon.

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