How do you determine the exact buy pivot point of any stock breaking out of cup w/handle? (June 12, 2002)
The buy point is based on the theory of the pattern. The idea behind a base is that it weeds out those that do not want to hold the stock for the long term. As the stock works through the base more and more shorter term holders get out. As the stock makes its way back up to the old high, that forms the cup. Those that bought at that level and want to get out 'even' are excited; they may soon get their chance. Some are so eager they sell a bit early. Some more sell, and that starts the formation of the handle just below the prior high. Those wanting to get out even see the stock starting to fade from the old high where they bought. Instead of risking the stock falling on them further, they sell and get out as close as the can to 'even.' If volume is light in the handle that means there are not that many sellers. More are willing to hold even as the stock pulls back than sell. This is the final 'shakeout' of sellers. When there are no more sellers of a stock at a price, as soon as some buying demand comes in the price rises. The last overhead resistance is cleared when the stock beats that high in the handle; slightly above that level is the buy point because all of the overhead had been cleared, and if the base shows good accumulation weeks versus distribution weeks it has a very good chance of posting some very nice gains.
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