Trading The Trend - A Cup And Handle Play

14th Aug '20 by Michael Taylor

21 comments 4279 reads

France has been added to the list if UK quarantined countries. Airliners took a hit on the news today, with Dart, easyJet (although there was an RNS this morning about leases), and IAG down.

I was surprised that Greencore also didn’t respond to the Coronavirus headlines of workers being infected. I shorted some on the bell and closed within minutes as it was clear there would be no quick reaction. However, I have since heard that the news was out before the close yesterday so this makes sense. I did a quick Google and the headlines were showing 12 and 13 hours ago at 7am this morning, however I realise now that is probably when the article was last updated.

Therefore, if trading from news articles, it makes sense to check when the story first broke and not when it was updated.

There is a lot of positivity around the Eat Out to Help Out 50% off scheme. I like eating out anyway, and I like to think of myself as a good person and so have tried to take advantage of this and support the local economy. ‘Tried’ being the key word – it is almost impossible unless you pre-book a table beforehand.

This is all good news for the month of August, and great for businesses getting bums on seats (although I am surprised that many seem not to have opted in. Why? Sharing too much information with the government?) – but here’s the problem with discounts: people generally don’t like paying more for the same product/experience once they’ve had it.

In this instance, prices of food and non-alcoholic beverages will double in September on Mondays to Wednesdays. So, people who have enjoyed a month of 50% off or saving £20 will now see the prices dramatically rise for the same food and experiences. I would be willing to bet the Monday to Wednesday trade will take a hit.

How many businesses have suffered from discounting? Hornby (LON:HRN) , Restaurant (LON:RTN) , Superdry (LON:SDRY) ... There are likely to be many more, because discounting creates addicts.

I haven’t checked the charts of hospitality and pubs recently, but there may a trade in them.

Purplebricks

Purplebricks is an online estate agent, which…

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Branoc

14th Aug '20

Thanks Michael. I used an online estate agent 2 years ago (eMoov) and found the whole process much better (mind you at £400 flat fee I couldn't see how they would stay in business and they didn't). I've been waiting to buy Purplebricks (LON:PURP) as it is now the only game left in town and also wanted them dispose of the overseas expansion first. I got in at 50p and now backed off a bit on stop loss as some profit is guaranteed and I can see a pullback coming at some point.

Chriskay

I am a relative newbie here and certainly not brave enough to consider Purplebricks (LON:PURP) even though the traditional estate agent model could certainly do with a challenge. What I really appreciate is your excellent explanation of the charts in your post Michael. It is an aspect of investment decision making and timing i need to better understand and I have learnt a lot. Thank you. Chris

Michael Taylor

15th Aug '20

Thank you Chris. I think it's important to note that this is a trading column and whilst I do speak a little about Purplebricks in general what I am mainly concerned about is the chart.

The equity behind the chart could be anything. It could be a fruit and vegetable delivery business or an incredible sketchy technology company, but if the chart is good then I am likely to trade it.

Bryan Slater

readable straightforward helpful

Swipeout

Great insights Michael.

I recall glancing at the Purplebricks (LON:PURP) chart on 8/8. It was on a shorter timescale so hiding the cup & handle setup... Another lesson learnt. My current demons are around entry points - I have a repeatable system for either waiting for a pullback that never happens, or getting stopped out whether entering on an initial strong move, or a pullback, or widening the SL... This breakout is a nice one; taking 4 days to gather steam before leaving the 63-64 level, with no more than a 0.25 retracement in sight. Yes, I'd be still waiting for the pullback to 63 that never happened ;-) This investing / trading / speculating has rather a hook, not least the web of dilemmas behind even the most benign looking decisions.

Yes Branoc, there will always be pullbacks. Ideally we want to place our stops to factor these in but not so far away that the trend is broken and we're running a stop as if it's a pullback.

For now my stop is underneath the breakout zone.

Silver Moon

I would like to be optimistic here Michael though the wider tide of domestic politics is running against the housing sector other than builders who can wait things out. I've no proof of course, only a gut feeling.

Silver

Snowbum

Hi Michael,

Would be interested on your take of potential shorts in the travel sector now we have extra quarantine in place again?

Thought the chart for Dart was looking interesting, possible bear breakout into channel forming with price at bottom of lower support zone going back a few years in a descending triangle formation.

Any feedback appreciated, cheers.

Forbsy.

STrades

17th Aug '20

Certainly looks to have flown out of the gates this morning. Where do you see any upwards resistance forming?

Neil W

18th Aug '20

Superb Michael. Look at PURP this week. Best commentator on here bar none

19th Aug '20

Thanks Bryan!

I tend to look at the charts from a six month to one year view. This gives an accurate representation of the trend I think. Viewing charts in one month timeframes and trying to find cup and handles is missing the bigger picture. You want to be on side with the longer term trend imo.

If you know your current demons that's great - now you're in a position to do something about them!

Fair enough Silver - it's a trade for me so don't much care for the fundamentals or longer term. If the price sours my stops will take me out. If it continues I hope to ride it up and not get shaken out too early.

20th Aug '20

Has Solgold (LON:SOLG) just formed a cup with a handle in the making?

Very kind Neil - thank you!

Although I definitely have to disagree - the quality of the editorial on Stockopedia is extremely high and the main reason I subscribe.

21st Aug '20

I see resistance at 31p Forbsy, so I'd likely want to see that tested first.

I thought the 200 EMA and MA might prove resistance but the stock smashed through them both. However, they may now be tested as support. I've been stopped out.

Hi Forbsy - I've not looked at shorts yet because there are so many potential longs, and this is, after all, a bull market. Trade the trend in my opinion and go where the herd is running.

That doesn't mean to say that there won't be cracking shorts in the travel and leisure sector though - I've just not been looking for shorts. I currently hold no short positions at the moment.

WillBarraclough

24th Aug '20

I am relatively new to charting, but it strikes me that Carclo (LON:CAR) is showing good signs of a strong breakout, following last week's RNS re new financing arrangements.

We see a golden cross around 12th August (note I'm looking at 50 and 150 day MAs), the 12p resistance has been broken, volume has increased, and I believe there is evidence of a cup from early April to mid-July and handle ending last week.

I'd appreciate any comments from more experienced chart viewers, and thanks in anticipation.

CamRaid

24th Oct '20

@Michael - I am new to technical analysis but see a triple bottom on the chart of Duke Royalty (LON:DUKE)

I’d welcome any thoughts.

Trading the Trend - a cup and handle play

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Michael Taylor

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