Even the biggest stock market winners have to catch their breath at some point. So, one of the most common shapes etched during constructive price pullbacks is the cup-with-handle pattern.
But sometimes a dynamic moneymaker is in too much of a hurry to form a handle before blasting up to new highs. So savvy investors also need to know how to spot a cup-without-handle base.
Yes, investing is mostly about fundamentals. This means a CAN SLIM-type investor also pays tremendous attention to a company’s profits, revenue, profit margins, return on equity and other metrics of growth.
But don’t look at fundamentals in a vacuum. When it comes to winning the stock trading game, precise timing is of the essence. So it’s dangerous and actually foolish to ignore technical analysis, which is just a fancy term for rolling up your sleeves and studying a stock’s behavior via a simple chart.
William J. O’Neil, MarketSmith India’s founder and chairman, has said that about 80% of investing is fundamentals, while 20% has to do with chart analysis. At other times, O’Neil has called it 70% fundamentals, 30% technicals. Whatever the precise recipe of factors, if you ignore price-and-volume action, you are clearly missing out on a significant factor in what makes certain stocks great.
Ignoring the “technicals” means you disregard the all-powerful forces of supply and demand that drive a stock’s price day in, day out, and over much longer time periods.
How The Cup Takes Shape