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CUP WITH HANDLE


Belgium iShares Challenging Resistance

12/07/05 07:55:25 AM
by Arthur Hill

The Belgium iShares formed a large bullish continuation pattern over the last nine months, and the stock is on the verge of a breakout.

Security:   EWK
Position:   Accumulate

For bullish continuation patterns to exist, they require a steady uptrend. To identify that necessary trend, I am using the 50-week simple moving average (SMA). This is the equivalent of a 250-day SMA or a one-year SMA (50 x 5 = 250). The Belgium iShares (EWK) bounced off this SMA in July and again in October. As long as this moving average holds, I will consider the long-term trend up. A close below 18.5 would be enough to reverse this trend.

FIGURE 1: CUP-WITH-HANDLE FOR EWK. There are three parts to this pattern: a bowl, a handle, and a rim. The Belgium iShares formed a classic cup-with-handle, only missing a breakout for the rim.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
The bullish pattern at work is a cup-with-handle (Figure 1), which was made popular by William O'Neil of Investor's Business Daily. There are three parts to the cup: a bowl, a handle, and a rim. The highs of the bowl established resistance around 19.5 in March and August. The handle represents a relatively shallow pullback that forms a reaction low above the low of the bowl. The handle completes with another move toward resistance. The third and final part is the rim, which marks resistance.

The Belgium iShares formed a picture-perfect cup-with-handle, and a breakout is the only missing ingredient. A move above the August high (19.65) would signal a continuation higher and project further strength to around 21.5. The depth of the cup is added to the breakout for a projection (19.5 - 17.5 = 2, 19.5 + 2 = 21.5). As long as support at 18.5 holds, I will expect a breakout and continuation higher.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Date: 12/07/05Rank: 4Comment: 
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