Grab a Cup-and-Handle

The cup-and-handle pattern is one of the more reliable technical patterns and presents a trading setup with a good risk/reward ratio. The rim line as an entry point is clearly defined, and the stop-loss level is closely positioned under the handle of the formation. As the rally in the broader market continues unabated, stocks that have spent time going through a normal basing/consolidation process and are now testing breakout levels are in good position to play catch-up. Here are three stocks that have completed cup-and-handle formations and are testing rim-line resistance levels.

The chart of property and casualty insurer ACE (ACE) shows the stock coming off a double top late last year, then breaking below previous support near $98 and continuing lower in January to test its 200-day moving average. In February it returned to the support-turned-resistance level and its 50-day moving average, in the process forming a cup-and-handle pattern. The Relative Strength Index has been holding above its centerline, and daily moving average convergence/divergence, which is overlaid on a weekly histogram of the indicator, is tracking higher and showing that the short- and intermediate-term trends are in agreement. Overall volume is below the 50-day moving average of volume, which is normal during a consolidation phase, but money flow as a measure of that volume reflects accumulation....186 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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