IBD readers will be familiar with the classic cup-with-handle pattern. Though it won't get the benefit of a shakeout that a handle provides, the similar cup without handle pattern can still be the basis for significant gains. In fact, it set up Nvidia stock for its huge run this year.
The cup with handle shares many of the same characteristics with the cup without handle. Both should form a rounded, U-shaped bottom. A gradual decline and recovery follows a stock's previous run.
Cups without handles normally have a depth between 15% and 33%, though that percentage can extend all the way to 50% during bear markets.
Dimensions Of Cup Without Handle
The cup with handle needs at least seven weeks to form while the cup without handle can take shape in as little as six weeks. This difference is due to — you guessed it — the handle accounting for a little more time.
Instead of taking an extra week or two to shake out remaining investors via a handle, the cup without handle breaks out and cuts right to the chase.
However, patience is a virtue, and skipping the handle does add some risk. IBD's research shows that while cup bases certainly can advance without forming a handle, they have a better chance if they do.
Regardless, when looking at a breakout from any pattern, it should have the qualities of a sound base. Price action should be relatively calm with very few wide and loose bars, if any. The number of weeks up with above-average volume should be greater than or equal to the number of weeks down on volume. A symmetrical base is preferable to a lopsided one.
The buy point equals the prior high, i.e., the start of the cup formation.
Most importantly, the breakout should occur on above-average volume. Look for a volume spike at least 40% above the 50-day average volume for best results.
Nvidia Stock's Classic Cup Without Handle
Chip designer Nvidia spent the better part of 2022 below its 10-week moving average. After a bounce off the mid-October bottom, Nvidia stock paused again and began a six-week cup (1).
2023 was a near-immediate turnaround. Microsoft and Alphabet both declared a pivot to AI and inflation reports showed slowing price pressuresat the time. The stage was set.
In the week ended Jan. 27, Nvidia stock cleared the 187.90 buy point in volume 31% above average (2). It also triggered the eight-week-hold rule, hitting 20% profits within the first three weeks of the breakout (3).
Any investor who followed these rules is likely quite pleased. A complete reversal from the year prior, Nvidia has spent all but three weeks this year above the 10-week line. Currently it sits 142% above that last cup without handle base.
