For Tea Lovers
By Saghir Aslam
Rawalpindi, Pakistan

 

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)

The price base should span no less than seven weeks from a stock's last intraday high before its correction through the end of the handle. Shorter bases tend to fail.

Most cup-with-handle bases run 10 to 12 weeks, a trait that seems to correspond with the 13-week quarterly reporting period. Many of the biggest advances tend to spring from bases in the 20- to 30-week range. And some price bases can take a year or more to complete. Such long bases usually coincide with bear markets or severe corrections within market sectors.

A normal stock declines 20% to 30% from the pre-correction intraday high to the absolute low of the cup. Steeper declines suggest weakness. During full-blown bears markets, you might accept a 40% or 50% decline if the stock made a huge prior advance.

The downward phase, or left side, of the cup should take at least a couple weeks. You want the correction to really scare out weak shareholders.

Trading volume should drop off during the lows of the cup. That's a sign that selling has dried up. The correction has chased out most everyone who is going to sell. A spike in volume with stock refusing to budge much lower is also a good sign. It indicates buyers are stepping in to support the stock.

Volume should pick up as the stock rebounds, then dry up as it forms the handle, again signaling that selling has abated.

A stock should trade in a fairly tight price range during the handle. The handle should angle downward. The handle should not drift upward or move straight sideways, as marked by the daily price lows. Such upward-wedging handles are failure prone.

The handle should form in the upper half of the cup. You can calculate the midpoint by adding the pre-correction high to the absolute low. Then divide by two. The middle of the handle should be above the cup's midpoint.

Try Investors Business Daily. I love this paper. It is easy to read. It has terrific ideas and is always on top of the market. Naturally there are other charting services available including your internet.

All of this information is available in Investors Business Daily. IBD does a terrific job. It may sound like a commercial but Investors Business Daily has helped me a lot in my Investing on both major ways to invest: Technical and Fundamental.

Search, Research and some more Research then start. I pray that almighty God helps us succeed in this world as well as in the hereafter.

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)

 

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Editor: Akhtar M. Faruqui
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