Learn To Spot A Saucer, Cousin To The Cup Base

Investor's Business Daily

It's important to know the cup-without-handle base and cup-with-handle base, two classic stock chart patterns.

Chartists also need to make sure they're familiar with a related structure, which IBD has dubbed the saucer base.

As you might guess, the saucer is a shallower pattern than the cup. You might see a correction of about 12% to 20%, while a typical cup can run as deep as 35%.

Sometimes a stock will tack on a to its saucer base. Other times it's in a hurry, and the stock breaks out to without sketching a handle.

What about length? A proper saucer takes at least seven weeks to develop. You also could have saucers that are a year long or more.

For a good example of a saucer base, check out Ross Stores ' (ROST) action in 2010.

The Pleasanton, Calif.-based discount clothing and home goods retailer began to etch the saucer in mid-June 2010, as it slid toward its 10-week line. (1)You could also view the saucer as starting in late April, and that would give roughly the same left-side high for the pattern.

Ross established a bottom for this saucer in August 2010, and then it proceeded to build the base's right side. The pattern featured a correction of 16% — or 17%, if you viewed the pattern as starting in late April.

Ross appeared to add a handle to its saucer in late September and early October. (2) However, wasn't strong as the stock moved past that handle pattern. A better interpretation is just to view Ross' consolidation as a simple saucer.

In mid-to-late October, the stock edged past a 56.72 handle and out of that saucer (the weekly chart reflects a 2-for-1 split in December 2011). In the Nov. 1 IBD, Ross held an 88 Composite Rating, a 97 EPS, 74 RS and an A grade for SMR.

Then in the week ended Nov. 5, big volume kicked in, and Ross really charged ahead. (3)Sometimes volume can kick in a bit late with a , but the move still works out.

Note this breakout occurred not long after the Sept. 1, 2010, follow-through day that signaled a fresh market uptrend. That means if you bought the stock, you benefited from a positive general environment.

Ross rose 144%, building new bases along the way, until it peaked in August 2012.

Rates

View Comments (0)