In each bull market, dozens of winning stocks can trace their success to a cup-with-handle base. This bullish chart pattern has a cousin, the saucer with handle, that is less common but also has a great track record.
The two base patterns share a U-shape that spans over many weeks. The main difference is that the saucer base has a shallower profile. Viewed on a stock chart, the saucer may resemble a gentle smile, while the cup with handle will remind you of, well, a deeper coffee cup.
Like other bases, the saucer with handle has some basic dimensions, which are outlined in IBD's Chart School online course. Its depth is typically 12% to 30%. The length is seven weeks or longer, and in rare cases about one year in length.
A saucer often has a handle area — a secondary price decline that happens in the final days before the stock jumps to new highs. The handle should be at least one week long and drift downward. Volume ideally dries up during this phase. The handle also must form in the upper half of the whole base.
The buy point is the highest price in the handle. If there is no handle, use the left-side high in the pattern for the buy point.
Don't Confuse With Flat Base Stock Charts
Saucer bases can be confused with flat bases. But remember that the latter pattern is no deeper than 15%; saucers can be twice as deep. Also, flat bases tend to be shorter, five weeks or more.
In addition, saucers are much less common. A screen of stocks that topped buy points in the past few weeks shows 35 companies had formed cup-with-handle patterns, and nearly 90 came out of flat bases. By comparison, only a few could be termed saucers.
A good way to illustrate the saucer with handle is with a textbook example. In 2017, Cisco Systems formed a saucer with handle that worked out well.
After meeting resistance around 34.50 for weeks, Cisco's stock chart started a price decline in May 2017 (1) that took it to a 12% drop at the August low.
In late September, Cisco's recovery stalled. That turned out to be a handle (2). It was a minor dip in light volume, exactly how a good handle should behave.
The breakout came Oct. 20 (3), as the stock rose above the 34.10 buy point in heavy volume. Cisco went on to advance 35% until it peaked in March 2018.
This article was originally published Nov. 23, 2021 and has been updated.
