Morning all,
Some very telling price action in the last 48 hours. Thanks to T10 and Hudson for their analysis, both seem to present solid arguments for further price gains in the short term.
This morning I would like to provide some thoughts on a potential chart continuation pattern known as the
Cup and Handle.
The Cup and Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.
As each day passes, I am become increasingly confident that this relatively rare continuation pattern is forming on the XPE chart. However the below
conditions (in italics and courtesy of stockcharts) should be met before once can accurately identify / ascertain with a higher degree of probability when using TA to forecast future price movement. Thus I've added some comments in relation to the XPE chart specifically (without italics) and have provided a chart update (further below).
below source:
http://stockcharts.com/school/doku....s:chart_patterns:cup_with_handle_continuation
1. Trend: To qualify as a continuation pattern, a prior trend should exist. Ideally, the trend should be a few months old and not too mature. The more mature the trend, the less chance that the pattern marks a continuation or the less upside potential.
The trend on the XPE/RYG chart commenced in November, so is only 7 months old and thus definitely not mature.
2. Cup: The cup should be “U” shaped and resemble a bowl or rounding bottom. A “V” shaped bottom would be considered too sharp of a reversal to qualify. The softer “U” shape ensures that the cup is a consolidation pattern with valid support at the bottom of the “U”. The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.
XPE chart has a textbook "U" shape / rounding bottom. The cup itself is not technically perfect as it is angled or tilted, although there are numerous examples of Cup and Handle continuation patterns where both sides of the cup are not price equal i.e. causing the tilt.
3. Cup Depth: Ideally, the depth of the cup should retrace 1/3 or less of the previous advance. However, with volatile markets and over-reactions, the retracement could range from 1/3 to 1/2. In extreme situations, the maximum retracement could be 2/3, which conforms with Dow Theory.
XPE (as with most other junior tech plays) are relatively volatile by nature. The bottom of the proposed Cup (2.3 cents) represents a decline of between 1/2 and 2/3 of the previous advance (0.6c - 6.2c).
4. Handle: After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times it is just a short pullback. The handle represents the final consolidation/pullback before the big breakout and can retrace up to 1/3 of the cup's advance, but usually not more. The smaller the retracement, the more bullish the formation and significant the breakout. Sometimes it is prudent to wait for a break above the resistance line established by the highs of the cup.
The proposed handle on the XPE chart is 'textbook' in that it retraced to 7.9c, slightly less than 1/3 of the cup's advance (2.3c - 11c).
5. Duration: The cup can extend from 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 week to many weeks and ideally completes within 1-4 weeks.
The proposed cup on the XPE chart is just shy of 6 months in length (quite large but still within the typical timeframe on the daily chart and well within the ideal range on the weekly chart). The proposed handle is exactly one week in length (tick).
6. Volume: There should be a substantial increase in volume on the breakout above the handle's resistance. TBC. The likely catalyst being major chippie announcement or the big end of town entering beforehand IMHO. Either way, it would be wise to watch this space closely and be prepared.
7. Target: The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup.
The projected advanced (Xped target: 19.7 cents) can be estimated by measuring the distance from the right peak of the cup (11c) to the bottom of the cup (2.3c). The distance (8.7c) is then added to the right peak.
Summary: As with most chart patterns, it is more important to capture the essence of the pattern than the particulars. The cup is a bowl-shaped consolidation and the handle is a short pullback followed by a breakout with expanding volume. A cup retracement of 62% may not fit the pattern requirements, but a particular stock's pattern may still capture the essence of the Cup with Handle.
To summarise the XPE chart, all conditions for a classic Cup and Handle continuation pattern have been met, barring the breakout of the handle's resistance at 11 cents. Watch this space for a breakout above 11c on significant volume.
You can draw your own conclusions from all of the above and the chart below, as I never provide financial advice. DYOR.
View attachment 192685
GLTA
Cheers
Elpha
(20min delay)