Point and Figure Charts

Cup and Handle Chart Pattern

The cup and handle pattern was popularized by William J O'Neil (How to Make Money in Stocks) though some would also fit the definition of a large ascending triangle. Criteria for the pattern are:

• It must occur in an up-trend; and
• The handle should not be more than half the depth of the cup.

The cup and handle on the Australian All Ordinaries is the largest such pattern that I have encountered, lasting almost 10 years. The cup runs from [A] to [C] and the handle from [C] until the breakout at [E].

Some observations:

1. The handle pulls back less than half-way, to successfully test support at the mid-point of the cup [B];
2. There is a brief consolidation [D] to [E] below the major resistance level: a bullish sign before the breakout [E];
3. The breakout at [E] is immediately followed by an intermediate pull-back to test the new support level; and
4. A further, longer-term pull-back follows a year later at [F].