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A Future Cup & Handle

10/09/12 08:29:36 AM
by Koos van der Merwe

Patterns can be reliable, so keeping your eyes open for a probable pattern is always necessary.

Security:   IGD
Position:   Accumulate

A cup & handle pattern is a pattern where a share falls in price from a high and slowly forms a solid bottom before gradually recovering at the same rate it fell.

Graphic provided by: AdvancedGET.
Figure 1 is a chart of the ING Global and Equity Dividend and Premium Opportunity Fund (IGD) and shows how the price fell from a high of 9.86 on February 3, 2012, to a low of $5.50 by June 1. From that date, the share price has gradually risen with the odd major correction to a high of $9.09 by September 14 and on rising volume, a sign of strength. From that high, the price fell to $7.84 by September 28 on falling volume, a sign of weakness, suggesting that the price could rise and test the $9.09 level. Should it break above this level, it will give a major cup & handle buy signal, suggesting a target of $12.68 (9.09 5.50=3.59+9.09=12.68).

FIGURE 2: IGD. Here's a price of IGD showing yield.
Graphic provided by: AIQ.
Figure 2 shows that the yield of the share is 11.10% per annum at the price of 9.09. This yield makes the share price even more interesting, and with the cup & handle formation and the possibility of a break above $9.09 and a target of $12.68, the share looks very tempting.

This is a share I would watch, although with the relative strength index (RSI) starting to turn up, and with volume starting to rise as the price recovers, I would even be a buyer at the present price.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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