Cramer discussed 4 charts, and he thinks these 4 stocks, which form the acronym FANGs, are the new tech stocks to watch. Facebook ( FB ) has a ceiling of resistance at $32, and if it pulls back to $23, Cramer would buy, since FB is showing a formation. Amazon ( AMZN ) has roared out 10% from its formation. If the stock goes below its support of $250, it might be worth buying, particularly if it drops to $215. Netflix ( NFLX ) is in a pattern, but it has had a huge move, and the stock may move sideways for a while. Google ( GOOG ) has risen significantly, but may have 10% more upside.
As its name implies, there are two parts to the pattern: the cup and the handle. 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.
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.
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.
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.
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 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 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.
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.
6. Volume: There should be a substantial increase in on the breakout above the handle's resistance.
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.
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 . 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.
( CMF ): An oscillator that helps signal if a stock is undergoing accumulation or distribution. It is calculated from the daily readings of the Line. The CMF is unlike a momentum oscillator in that it is not influenced by the daily price change. Instead, the indicator focuses on the location of the close relative to the range for the period (daily or weekly). See ChartSchool article on .
Eating Crow herer ... nmike might be right on with FB. I'll add some possible predictions that may help us all with this stock. This is far stretch but possible. For this overall C&H to work and a handle to reach the lip of the cup extended resistance, we will need a smaller inverted H&S to show up in the next few days/weeks.