(2) Overall Market Conditions
It is one of the most common factors to identify strong base in cup and handle pattern. Overall market conditions can range from extremely bullish to bearish in nature. Sometimes, it can move even in a sluggish or choppy mode that goes nowhere.
An overall market condition can greatly influence the direction of individual stocks or bonds. It is perhaps the reason why bullish chart patterns like cup with handle pattern is more viable during bullish market conditions.
On the other hand, cup with handle pattern formed during extremely bearish market conditions are more likely to fail. Therefore, when base consolidation is taking place during bullish market conditions it is likely to be stronger in nature.
Thus, investors should never ignore the overall market trend when analyzing strength of base formation in technical charts.
(3) Industry Group Or Sector Of The Concerned Stock
It is one of the most popular factors to identify strong base in cup and handle pattern. Every company is involved in doing business activities belonging to one or more sectors. These stock-specific sectors can influence the overall business scenario of an organization.
Some of the business activities directly influenced include quarterly profit or profit margins, sales figure, competitiveness, sustainability, & many more.
If a sector is underperforming then the companies belonging to the sector will also underperform. On the other hand, when a sector is outperforming then companies belonging to the sector will also outperform in stock markets.
Thus, when the base formation in cup with handle pattern is taking place in a stock belonging to an outperforming sector then it is likely to be stronger in nature.
- Strong Base Formation: Shutterstock