![]() After the decline from 29 1/2 to 25 1/2, the stock rebounded, but failed to reach potential resistance from the apex. Chaikin Money Flow declined past -30% and volume exceeded the 60-day SMA for an extended period. ![]() The break occurred with an increase in volume and accelerated price decline. Even at this point, the direction of the breakout was still a guess and its was prudent to wait. After points 5 and 6 formed, the price action moved to the lower boundary of the pattern. While it is preferable to have an ideal pattern develop, it is also quite rare. The breakout occurred a little over 2 weeks later, but proved valid nonetheless. The red square marks the ideal breakout time-span from 50% to 75% of the pattern. There was some increase in volume in late June, but the 60-day SMA remained in a downtrend as the pattern took shape. After the gap up from point 3 to point 4, volume slowed over the next few months. The stock traded within the boundaries for another 2 months to form the last 2 points. After the first 4 points formed, the lines of the symmetrical triangle were drawn. The low at 22 was probably an over-reaction, but the long-term trend was down and established for almost a year. The stock declined from 50 in Mar-98 to 22 in Oct-98 before beginning to firm and consolidate. Regardless of the type (reversal or continuation), falling wedges are regarded as bullish patterns.Ĭonseco (CNCEQ) formed a rather large symmetrical triangle over a 5-month period before breaking out on the downside. As a reversal pattern, the falling wedge slopes down and with the prevailing trend. As a continuation pattern, the falling wedge will still slope down, but the slope will be against the prevailing uptrend. The falling wedge can also fit into the continuation category. However, this bullish bias cannot be realized until a resistance breakout. In contrast to symmetrical triangles, which have no definitive slope and no bias, falling wedges definitely slope down and have a bullish bias. This price action forms a cone that slopes down as the reaction highs and reaction lows converge. The Falling Wedge is a bullish pattern that begins wide at the top and contracts as prices move lower. When this pattern is found in an uptrend, it is considered a bullish pattern, as the market range becomes narrower into the correction, indicating that the downward trend is losing strength and the resumption of the uptrend is in the making. When this pattern is found in a downward trend, it is considered a reversal pattern, as the contraction of the range indicates the downtrend is losing steam. The falling wedge pattern is characterized by a chart pattern which forms when the market makes lower lows and lower highs with a contracting range. A Retest of previous resistance is not required to touch or come within several ticks of the old high however, the further the top of the handle is away from the highs, the more significant the breakout needs to be. Volume - Volume should decrease as prices decline and remain lower than average in the base of the bowl it should then increase when the stock begins to make its move higher, back up to test the previous high. Avoid handles which are overly deep also, as handles should form in the top half of the cup pattern. Depth - Ideally, the cup should not be overly deep. It is worth considering the following when detecting cup and handle patterns: Length - Generally, cups with longer and more "U" shaped bottoms provide a stronger signal. A cup and handle is considered a bullish continuation pattern and is used to identify buying opportunities. As a stock forming this pattern tests old highs, it is likely to incur selling pressure from investors who previously bought at those levels selling pressure is likely to make price consolidate with a tendency toward a downtrend trend for a period of four days to four weeks, before advancing higher. A subsequent breakout from the handle's trading range signals a continuation of the prior advance. ![]() As the cup is completed, a trading range develops on the right-hand side and the handle is formed. The cup forms after an advance and looks like a bowl or rounding bottom. As its name implies, there are two parts to the pattern: the cup and the handle. It was developed by William O'Neil and introduced in his 1988 book, How to Make Money in Stocks. This pattern is a bullish continuation pattern that marks a consolidation period followed by a breakout.
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