The Cup and Handle pattern was made popular by William O’Neil of Investors Business Daily. It is an integral part of the CANSLIM Style of trading and is very often found during bull markets.

For this stock chart of ESI first take note that it is a weekly chart showing the last two years of trade history. Next look at the Grey #1 and follow the line to see a raw outline of the Cup and Handle pattern leading up to the proper buypoint at Grey #5. This is what we are focusing on.

1. The Cup and Handle Formation – By following the Grey line a general outline of a cup and handle can be seen. Note this pattern took over a year to form in its entirety.

2. Volume increases on the back end of the cup – After bottoming a strong rally should take place with several key accumulation volume weeks. Heavy volume, the number of shares traded per day, tells us that institutions were buying into the rally and gives the stock new life. ESI peaked out at $106.75 before beginning its formation of the handle.

3. Uncertain investors are shaken out to begin forming the handle -Volume increases naturally as ESI pulls back after its huge rally from $42 to $106. This begins the formation of the handle and is a key shake out area for investors who were holding the stock “long” way back when the stock was trading over $100 in mid 2008.

4. Volume declines leading into the breakout – Critical to the pattern volume consistently declines as the right side of the handle forms. This can be seen as the calm weather just before the storm. Investors are satisfied with the current prices.

5. ESI breaks out on heavy volume – By looking closely at a daily chart ESI actually failed its first breakout attempt when it pushed above $92.50 due to lack of volume. But the stock came storming back to claim higher highs the very next week (first week in January 09) with surging volume. The stock ran over 40% from here over the next month. Point #5 was the proper buypoint for this pattern.

6. A new base begins to form – By looking at the red line of resistance we can see that ESI has found resistance around the $132 price level which is where the stock peaked in in October 2007. Moving forward ESI will need to form a fresh base over the next several weeks. Keep close watch as a heavy volume move back above $132 is the next buy point for investors looking to get in.

More stock chart examples and lessons below.

—> Next Chart, Dryships (DRYS)

Navigation:

• Example 18: ITT Educational Services (ESI) <–- Currently Viewing
• Example 17: Dryships (DRYS)
• Example 16: Crocs (CROX)
• Example 15: General Motors (GM)
• Example 14: Google (GOOG)
• Example 13: Apple (AAPL)

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Commodities were red hot throughout 2006 and 2007 and analysts believed every investor should have exposure to this trend. Like all trends though the party eventually ended and many once leaders were crushed alongside the overall market.

By referring to the weekly stock chart of Dryships below the stock offers five critical lessons about technical analysis and investing in trends.

1. Trends are fast moving and powerful – The run from under $10 in June 2007 to $131 in October 2008 (1200%+) was no coincidence. Institutions were heavily accumulating this dry bulk carrier as commodities continued to soar. Catch a trend right and the profits can be staggering. Furthermore, never fight the trend.

2. Some technical patterns are prone to failure – This “W” shaped pattern for example was considered a faulty base because the 2nd dip was not lower than the first. This is important as it allows the stock to shake out any uneasy holders before moving back up in price.

3. Heavy distribution or accumulation identifies new trends – The two heavy distribution weeks in May and June 2008 were key turning points for the stock. These reversals signaled the end of DRYS’s rally.

4. Tight price consolidation often signals a big move is coming – For over two months DRYS and other stocks in the same group (GNK and EXM for example) traded sideways in a fairly predictable price range. Once the stock broke down below this range though heavy selling quickly followed. Price consolidations can work in both the bulls and the bears favor.

5. Know when to sell and walk away – Any investors holding onto DRYS shares thinking the stock was going to comeback were in for serious trouble. Buying even at $80 would leave the investor down 90%+ now three months later. Either use stop losses or be disciplined enough to walk away from losers before they get too big.

More stock chart examples and lessons below.

Navigation:

• Example 17: Dryships (DRYS) <–- Currently Viewing
• Example 16: Crocs (CROX)
• Example 15: General Motors (GM)
• Example 14: Google (GOOG)
• Example 13: Apple (AAPL)
• Example 12: Washington Mutual (WM) Bankruptcy
  

By applying simple technical analysis traders can view key buy and sell signals, resulting in smarter and more profitable investment decisions.

In two years CROX ran from $15 to over $75 all the way down to under $5. Take a look at the following stock chart of Crocs (CROX) which highlights its breakout and then read through the numbered points for an added explanation.

1. CROX breaks out past $28 to start its huge run and after four days gaps to $35 a share after blowing out earnings.

2. CROX sets up a small bull flag and breaks above $40 offering investors a 2nd key entry point.

3. What was originally resistance at $40 a share becomes support as the stock finds support before running to new highs at $50.

4. CROX sets up a small bull flag and breaks out past $50 resistance. The stock hit another new high above $60 just four days later.

5. CROX first major sell signal as the gap range was tested between $52 and $54. The stock soon after collapsed back into its base and found support at $44 before running back up to $60. Investors would have another chance to enter the stock with the next breakout (6).

6. CROX breaks past $61 resistance in late September and starts its last leg up towards its ultimate high of $75.21 which was reached on 10/31. The very next day though sour earnings sent the stock crashing back below $50 a share (7).

7. Any long position should have been automatically exited at this point. The massive gap down is a great example of something unexpected and out of investors control. Traders that accepted any losses and walked away would be happy they did so in the long run.

8. CROX breaks down out of a small bear flag sending the stock under $40 and key support. Over the next year CROX fell all the way under $5 a share. The rise and fall of Crocs officially concludes.

Navigation:

• Example 16: Crocs (CROX) <–- Currently Viewing
• Example 15: General Motors (GM)
• Example 14: Google (GOOG)
• Example 13: Apple (AAPL)
• Example 12: Washington Mutual (WM) Bankruptcy
  
• Example 11: Lehman Brothers (LEH) Bankruptcy

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By applying simple technical analysis traders can view key buy and sell signals, resulting in smarter and more profitable investment decisions.

Regardless if GM declares bankruptcy there is a lot to learn. Take a look at the following stock chart of General Motors (NYSE: GM) and then read through the numbered points for an added explanation.

Note: Some of these patterns may be hard to see (1,5,9 specifically) so I advise pulling up another chart of GM on your own and taking a closer look.

1. The blue 1 is was arguably the beginning of the end. GM stock broke through huge multi-year resistance and surged above $38. Within five days though GM had already collapsed back under, a bearish sign. This eventually lead to a tumble towards $29 support (2).

2. The blue 2 shows where GM fell below key $29 support.

3. The blue 3 is a great example of how this once support line became resistance as GM rallied back to $29. The rally failed to materialize.

4. The blue 4 shows how GM attempted one more rally which met its end at $29 resistance.

5. The blue 5 shows a small bear flag as GM fell below short term support at $25.50, rallied back to it but could not continue momentum, eventually leading to the stock to fall all the way below $18 in mid March.

6. The blue 6 shows a critical line of support that once broken led to the next big leg down for GM stock. Once the stock fell back below $20 it went on to lose over 50% of its value in just under two months. The stock bottom at $8.81 on July 15th.

7. The blue 7 is the last rally GM pulled together as the stock shot up above $12. It wasn’t but a few days later that GM had fallen back and tested $10 support once again.

8. The blue 8 is where critical $10 support fails as the stock fell on heavy volume to close at $8.51 on September 29th.

9. The blue 9 though hard to see is the latest bear flag which has lead GM to its latest move below $5. It was the last key chance investors had to walk away from the stock.

Further Examples:

• Example 15: General Motors <– Currently Viewing
• Example 14: Google (GOOG)
• Example 13: Apple (AAPL)
• Example 12: Washington Mutual (WM) Bankruptcy
  
• Example 11: Lehman Brothers (LEH) Bankruptcy
• Example 10: Fastenal (FAST)

Make $42 Million Trading Stocks! Learn technical analysis with Dan Zanger, World Record Holder who turned $15,000 into $42 million. Click here to learn how.

The big advantage to technical analysis is the ability to apply its lessons today and anytime in the future. Professional investors such as Dan Zanger have mastered the basics and as a result are multi millionaires today.

Take a look at the following stock chart of Google ( NASDAQ:GOOG ) and then read through the numbered  points for an added explanation.

1. The purple 1 is a descending channel identified in a previous post of Google.

2. The blue 2 is where Google gapped through $475 resistance and opened above $525 a share in mid April. This was earnings related.

3. The blue 3 was a small bull flag with $560 as resistance. Google ran to $600 in three days following the break, peaking at $602.45.

4. The blue 4 shows how a series of lower highs formed over several months. $540 support held through this time period until point 5 where bears to back control of the stock.

5. The blue 5 identifies when Google broke below its key $540 support. The stock tried to rally and made it back above $550 but quickly fell back below. This ultimately lead to lower prices below $520.

6. The blue 6 shows how once Google had fallen through $500 this price level became heavy resistance. A rally in mid August quickly ran out of juice which lead to lower prices once again.

7. The blue 7 shows key support line at $465 which could not hold up when being tested for the third time.

8. The blue 8 identifies the latest ascending channel that was formed in September and lead to lower price back below $425. Ascending channels are a common bearish pattern seen in downtrends and almost always result in lower prices.

—> Next Chart, General Motors (GM)

Navigation

• Example 15, General Motors (GM)
• Example 14, Google (GOOG) <–- Currently Viewing
• Example 13, Apple (AAPL)
• Example 12, Washington Mutual (WM)
• Example 11, Lehman Brothers (LEH)

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2007 was a year of continuous all time highs for Apple. After peaking at a new high of $202.96 on December 27th, 2007 the stock tumbled over 40% in January alone as the overall market tanked. Since then Apple rallied back above $190 in May but has struggled since.

Below are both a weekly and a daily look at Apple (AAPL) which will be broken down below:

1. The blue 1 shows where Apple broke out of base in September to claim fresh all time highs above $148. This break out eventually lead to the stock breaching $200 a share in December.

2. The blue 2 shows a very key breakdown in the stock as it fell back into its base below $196 for the 2nd time in three weeks.. This sell signal was critical for long term investors as Apple went on to lose over 40% in January.

3. The blue 3 shows where the bulls took control back of the stock after establishing a small base from January through March. The breakout above $140 to fill the gap on 1/23/08 was the start of a fresh rally that would lead the stock all the way back to the $190 level.

4. The blue 4 shows a small bull flag that was setup in early April. Apple stock ran another 25% from the time it broke free from this small setup.

5. The blue 5 shows where Apple later found key resistance at $180 a share. In fact we posted on Apple’s $180 resistance back in August. This $180 level was never broken and eventually lead to the stocks next big price slump.

6. The blue 6 shows where Apple could not hold up at $154 support and fell below claiming lower lows. This was another key sell signal for the stock.

7. The blue 7 shows how Apple has tumbled over 40% in September and now has gapped below long term support at $120 which can be more clearly seen in the weekly chart.

Apple’s stock chart is a great example of the effects that a souring economy and crummy stock market can have on a once big tech high flier. It offers stock chart education that is priceless for any investor.

—> Next Chart, Google (GOOG)

Navigation

• Example 15, General Motors (GM)
• Example 14, Google (GOOG)
• Example 13, Apple (AAPL) <–- Currently Viewing
• Example 12, Washington Mutual (WM)
• Example 11, Lehman Brothers (LEH)
• Example 10, Fastenal (FAST)

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The answer is yes. Washington Mutual offered nine different sell signals for investors on the way down. This post will show them all.

The following stock chart of Washington Mutual (NYSE:WM) offers a great example of how technical analysis can be used identify potential buy and sell points on a stock chart.

Note: This chart of Washington Mutual is a 15 month daily stock chart:

1. The blue 1 shows where Washington Mutual had its first major price breakdown with a gap down below its key support at $32 a share. Volume was over 300% above its daily average meaning institutions were selling off.

2. The blue 2 shows where resistance was later found at around $22 a share and could not be broken. A sign the bulls could not regain control.

3. The blue 3 shows where the next key support line at $13 a share was broken.

4. The blue 4 shows how key support line #3 turned into resistance. This is very commonly seen and happens both ways, for example once a stock breaks above resistance the resistance line turns into support.

5. The blue 5 shows how Washington Mutual formed a horizontal channel also known as a flat base and eventually broke to the downside. This was yet another key sell signal for the stock.

6. The blue 6 shows how a wedge pattern formed as price volatility increased substantially through July and early August. Eventually in mid August this pattern also broke to the downside.

7. The blue 7 shows how a support line was established at $3 a share and on the 3rd sell off into it failed to hold up. WM stock quickly fell to $1.50 thereafter.

8. The blue 8 shows once again how support line #7 ended up turning into resistance. This was the last push for the bulls which failed to materialize into a rally.

9. The blue 9 shows where Washington Mutual closed under its lats key support line under $2, and today (not shown) the stock opened up trading for pennies after bankruptcy was officially announced.

—> Next Chart, Apple (AAPL)

Navigation

• Example 15, General Motors (GM)
• Example 14, Google (GOOG)
• Example 13, Apple (AAPL)
• Example 12, Washington Mutual (WM) <–- Currently Viewing
• Example 11, Lehman Brothers (LEH)
• Example 10, Fastenal (FAST)
• Example 9, Potash (POT)

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Lehman Brothers is a good stock chart to observe for both new and seasoned investors because the recent Lehman bankruptcy offered three key sell signals for investors on the way down.

Note: This chart of Lehman Brothers is a 16 month daily stock chart:

1. The blue 1 show us how at the end of February Lehman stock fell through its first key support trendline at $50. This was a big sign that the bears had control of the stock and longs should get out.

2. The blue 2 shows us where Lehman eventually collapsed below its 2nd major support trendline at $35. This was another key sign for investors to get out of the stock.

3. The blue 3 shows the tipping point for Lehman before it moved to pennies. The break below $12 a share was the last major support Lehman had, and the stock never recovered. Bankruptcy shortly followed.

—> Next Chart, Washington Mutual (WM)

Navigation

• Example 14, Google (GOOG)
• Example 13, Apple (AAPL)
• Example 12, Washington Mutual (WM)
• Example 11, Lehman Brothers (LEH) <–- Currently Viewing
• Example 10, Fastenal (FAST)
• Example 9, Potash (POT)
• Example 8, Research in Motion (RIMM)

Make $42 Million Trading Stocks! Learn technical analysis with Dan Zanger, World Record Holder who turned $15,000 into $42 million. Click here to learn how.