One skill in a successful investor's arsenal should be basic chart-pattern identification. With only a handful of tried-and-true chart patterns to master, the cup-with-handle base and a variation called the cup-without-handle base should be at the top of your list.
Chart patterns can identify a stock before it makes a major advance, and they can pinpoint a precise entry for maximum profit. As with other stock chart patterns, these two similar bases form after a stock has run up at least 20% to 30% and takes a needed break.
The cup-without-handle base is a form of the more commonly found cup-with-handle base. Both have a U-shape, but the cup-without-handle base powers higher without pausing on its way to new highs.
In contrast, the cup-with-handle base stops its recovery short of new highs and pulls back for at least a week, creating the handle portion.
IBD research shows the cup-without-handle base can have a higher failure rate than its cousin. Yet, in any given bull market, dozens of winning stocks get their start with a cup without handle.
Cup Without Handle Stock Charts
A proper cup without handle must be at least six weeks long, though it can last for months. The cup should be no deeper than 33% from top to bottom.
The buy point is the stock's prior high before it forms the U-shape, almost always at the beginning of the base. As in other base breakouts, the buy zone goes from the buy point to 5% above it.
In addition, the breakout volume should be at least 40% above the stock's average over the past 50 days.
IBD MarketSurge pattern recognition identifies both types of bases on daily and weekly charts.
American Superconductor's Stock Chart
American Superconductor formed a cup-without-handle chart pattern from March through May (1), crafting a smooth U-shape with a 25% decline.
Shares broke out past the 15.24 buy point on May 22 (2) in volume that was more than double its average (3).
The stock powered higher four more weeks from the breakout until taking a break in mid-June. To a peak on July 16, shares soared 114% from the breakout.
American Superconductor has multiple businesses, including design of wind-power turbines. It helps manage the electric grid and provides ship propulsion and power-management systems. The company had its first annual profit in the fiscal year that ended in March.
Follow Kimberley Koenig for more stock market news on X/Twitter @IBD_KKoenig.
