The Cup with Handle is a relatively new technical pattern, the innovation of IBD founder, William O’Neil. There are many who claim for and against the pattern, but we like it for the potential it offers when grouped with other techniques as part of a more comprehensive analysis. The Cup and Handle is a consolidation pattern that indicates a breakout is imminent.

Let’s walk through the details of the Cup with Handle using a number of charts that currently exhibit the pattern.

To start, take a look at PepsiCo’s (NYSE:PEP) last six months trading. Here we see the first of many conditions met: that the pattern unfold over a period of between seven weeks and a year. In Pepsi’s case roughly six months was required.

From a technical standpoint, there are a number of other reasons why we like PepsiCo here.

1. It bottomed on July 1st, a full two weeks before the rest of the market, and has been rising ever since.

2. On that same day it evinced a bullish, candlestick engulfing pattern – followed by a more convincing “Three Outside Up” pattern, from which it has never looked back (circled on chart).

3. The break above the handle’s high point was made on convincing volume – at least 50% greater than the average daily trade.

4. The move above the handle also coincided with a break above the 200 DMA (day moving
average), and all the trade since has been above that former line of resistance. Even the Lehman induced 500 point Dow sell off couldn’t disturb PepsiCo’s equilibrium.

5. RSI shows healthy strength for the move already from May of this year. At that time this represented a positive divergence for the stock – an equally healthy sign.

PepsiCo looks dandy enough. But let’s push on.

Read the rest of this article for more profit opportunities… Click HERE to become a Charts of the Week member