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Nike Forms Cup With Handle

12/20/07 09:16:35 AM
by Chaitali Mohile

After one sideways move, the stock waits for a further bullish breakout to carry the rally ahead.

Security:   NKE
Position:   Buy

Nike Inc. had a long bullish rally and now forms a cup-with-handle formation near the 67 level. The cup-with-handle is a bullish continuation pattern formed as the stock comes to retest its previous high. In Figure 1, Nike was back to its prior high pivot at 67, forming a cup, and then dipping. The dip was formed due to the selling pressure by traders who bought near the higher level, reducing the volume here. The cup in the chart was formed in just one month and was not too deep or in a "V"-shape. In addition, the handle is also not too long. These traits qualify it as a valid cup-with-handle pattern.

FIGURE 1: NIKE, DAILY. The breakout of cup with handle pattern would hit a new level of 76. With RSI (14) holding its bullish support at 50, the breakout would be a good buying opportunity.
Graphic provided by:
The handle can resemble the flag & pennant formation, and this sideways move is the final consolidation before the breakout. In Figure 1, the breakout above 67 would see a new price level. The estimated level in a breakout is measured from the right peak to the bottom. The distance between this peak and bottom is added to the breakout level -- therefore, 67 (right peak) - 61 (bottom) = 6 + 76 = 73 is the next target on breakout.

The relative strength index (RSI) (14) also has a similar formation. The curve is formed with the support of 50 levels, rallying back to 70 and retracing to 50, forming the handle. Since the 50 level is held, the price breakout can very well be bought above 67 levels. The moving average convergence/divergence (MACD) (12,26,9) may turn bearish in positive territory, indicating a volatile breakout.

Traders should go long only on a confirmed breakout with heavy volume with the target of 73.

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
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Date: 12/20/07Rank: 5Comment: 

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