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Breakout In GNK Fails

09/27/07 09:23:42 AM
by Chaitali Mohile

Genco Shipping & Trading Ltd. formed a strong bullish continuation pattern, but the breakout turned sideways.

Security:   GNK
Position:   N/A

In Figure 1 Genco Shipping & Trading Ltd. (GNK) has formed a cup with handle pattern. A cup with handle pattern is a reliable and strong continuation pattern that appears in an uptrend. This signifies the uptrend to continue after a breakout. GNK had an advance rally from 40 to 62 levels, and the cup formed is a reaction to this advance rally. With gap up, GNK made a high of 62 and corrected back around 12 points in a few weeks. As William O'Neil mentioned, GNK has formed a valid support around 50 before beginning the retest of the previous high.

The volume lowered as the trading range was developed near the bottom and increased with a pullback rally toward the previous high at 62. The "U" shaped cup formed and the volume satisfied the conditions specified by William O'Neil. Now, the handle is formed as the price dipped after a double top at 62. The traders can note that the handle in Figure 1 resembles flag & pennant sloping downward. The support established at the 50-day moving average (MA) helped to begin the bullish rally toward 62. The breakout on this pattern gives a strong upside rally above the prior high pivot accompanied with an increase in volume.

FIGURE 1: GNK, DAILY. The cup with handle breakout moved sideways instead of rocketing out.
Graphic provided by:
The bullish rally with 50-day MA support, moved sharply to hit resistance at 62, and later as the breakout was on edge, the price turned sideways. This may have surprised traders as the breakout on the cup with handle reached new highs. GNK failed to give a successful breakout above 62. This may hold back the traders till the confirmed breakout happened.

The relative strength index (RSI) (14) was highly overbought at 62 levels. The decline also shows a cup with handle formation (see Figure 1). The bullish strength that came in with a 50 support level was reluctant to move. Therefore, the breakout turned sideways and the RSI (14) tipped down (still holding bullish force). The MACD (12,26,9) is positive, supporting a continuation pattern. The average directional movement index (ADX) (14) above 15 is indicating the consolidation phase instead of an upside rally.

Thus, the breakout of the cup with handle pattern has failed and is likely to remain sideways, according to the indicators. The breakout target can be estimated, measuring the height of the cup from the right peak to bottom.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address:

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