Monday, September 10, 2007

Cup & Handle - VMware, Inc. (Public, NYSE:VMW)

VMW is a watch list stock and it was on the Briefing.com gapper list this morning. Around midday, I noticed what looked like a NR7 bar developing on the 15 minute timeframe. The pattern looked similar to a cup & handle but it was hard to distinguish, so I drilled down to the 5 minute timeframe for a closer look.

The five minute timeframe was much easier to distinguish the C&H characteristics. This pattern often develops on gapper stocks. It takes a long time to develop because the base or the cup portion is often quite wide as is the case with VMW. It's very easy to write these patterns off because we just get tired of waiting for something to happen and often give up and move on to something else. However, when the handle portion of the C&H pattern develops it becomes crystal clear that this could set off a momo move. The main characteristic of the handle is a shallow base on reduced volume which gives the NR7 effect.

Normally, the pattern can be expected to deliver a 100% Fibonacci extension from the low of the cup to the base. Refer to the AAPL example below for the normal extension. In the case of VMW, which is trading just below its all time high, we don't want to limit the gain to 100% if it succeeds in taking out the daily pivot high - blue sky.

I took a very low risk entry on the break of the handle. When price started to come back in after breaching the daily pivot high, I booked a partial profit. It consolidated briefly and continued higher, so I let the balance ride until it carved out a tweezer top late in the session.




The AAPL pattern looks like a doubled handled C&H pattern. That's why it's important to wait and observe the low volume on the second handle before anticipating an entry.

16 comments:

Jim said...

Sweet! Thanks for sharing that.

Jamie said...

Welcome Jim

Bubs said...

Great trades Jamie, I can't believe I missed VMW. Was on my radar all day but couldn't pull the trigger.

Jamie said...

Bubs,

I hear ya, these patterns take so long to develop, they can put you to sleep.

Just to clarify, I did not trade AAPL, only VMW. Used the AAPL chart for example purposes only.

greytrader said...

Great trade. I removed VMW from my watch list after the 9th 15' bar.
Do you trim your watch list as the day goes on or you keep scanning the original list all day ?

bl said...

Jamie,
Nice one(s). There were 12 on the Briefing list >$20. I added oih qqqq fxi aapl.That was a nice list of candidates for Briefing eyeballs. That list might not be the best one could put togethor at the open few bars but keeps one from getting lost in data overload. I have 12 screens per page 15", and even the 30" charts work well on gappers. I have been trying to weed my away from my naz $>40 list and just watch the briefing list unfold without scrolling around in different other layout pages. It's a process!

Jamie said...

Thanks GT,

I assume you mean the gapper watch list. I start trimming the gappers on the open. I'm only interested gappers that open above/below the previous day high/low. After that I don't trim too much because usually there's not much left from the Briefing list. If the list is too short, I run a scan at 10:00.

Lunch time is a good time to review the whole list for NR7 and developing chart patterns.

Jamie said...

Thanks BL,

It is a process. I'm trying to put together a separate wide screen of mini QT charts as well, but it is a job and I'm only half finished. QT is a little cumbersome to work with, but like a turtle, I'll get there.

Glenn said...

Jamie, I use different layouts saved in QT, a micro layout 16 per screen, my reg layout 4 per screen, a swing scan day, 60 min 10 day side by side full screen and the last if I wish to scroll through a list, one screen for my lists, one for a large 30 min chart two small charts for 5 and 1. Each layout is saved under the File menu and loaded from there in seconds. I've found lack of focus with too many charts to watch at once so I gave up my micro layout.

OONR7 said...

all together now... damn, Jamie. VMW is a great chart showing the cup and handle. Nice explanation.

Jamie said...

Thanks for the info Glenn. I will work on saving different layouts.

Jamie said...

Thanks OONR7

Prospectus said...

Just reading this again, and you must have made almost 20R on this VMW trade. Phenomenal! You really set the bar, Jamie. Thanks for sharing.

I follow the reasoning about the partial. However, I would have bailed at the ~14:30 mini-tweezer. What made you decide to stick with it after that point?

Jamie said...

Prospectus,

Once I've booked a partial, there's less pressure. Stocks that take out the all time high can easily keep on going. I prefer to partial out when price extends too far from 5 ema. I'm aware that price will consolidate at even $ numbers and I watch carefully, but like to stay in as long as 5 ema is not breached on a closing basis.

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