The analysis of Hengxin's chart prompted me to notice a common pattern that has emerged in the current week. Some of the stocks I monitor have displayed a common breakout pattern in the form of the cup and handle
The psychology of the cup and handle formation can be explained as such:
It is a good example of matching sentiment with chart patterns. It starts with a huge selldown from a peak. then it consolidates and subsequently runs up again till it hits the previous peak. This is the cup. After that, it goes into a sideways motion, often slightly downtrending. This is the handle. Finally it runs up again, completing the cup and handle formation.
Why will the price retreat into a sideways motion after hitting the previous high?
Ah, this is the memory of price
. buyers from the last peak and selldown finally saw that they can breakeven after holding for so long and starts to sell. This breaks the uptrend for a while as the buyers start to reconcile with the sellers until the sellers are satisfied with. Then, the uptrend resumes.
Here are some of the current charts displaying this formation:
This formation has been present in many of the china stocks. Open out your ChartNexus software and try to spot them!
Hope this helps!
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