The NASDAQ Composite has formed a double-top. The double top is the inverse of a double bottom and will be bearish if the index falls below the pivot at 2958 . With 'fiscal cliff' talks apparently going nowhere, the probability of further decline seems high while uncertainty continues. The outlook could reverse quickly though if a deal is reached, and that seems the most likely eventual outcome. An alternative scenario is that we will see a range bound market as the mood shifts from pessimism to optimism and back again.

Despite the overall loss for the NASDAQ, our breakout stocks performed quite nicely with all of them closing in the black on Friday. The stand out was Infinity Pharmaceuticals Inc.(INFI) which broke out twice this week with a gain of 14% after the first breakout on Monday. How can a stock breakout twice in one week? We examine how that works below.

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Understanding When Stocks Appear/Disappear on CwH Watchlist

A common misunderstanding is when and how stocks appear on the CwH watchlists and what happens after a breakout.

INFI, which broke out this week provides a good example of the rules we use. In the chart below we show how INFI formed two CWH patterns with the second one coming just two days after the first.

INFI was listed on our CwH watchlist on November 28, two days after it set its 1st pivot point at 26.01. The two days is important because that is the minimum length we require for a handle. The CwH listing continued until Friday, 12/7. The stock then broke out dramatically on Monday, 12/10, on 7 times average volume and set its second pivot at 27.6. Note that the 2nd pivot was just 2% higher than the former left cup. Because we allow pivots to be up to 5% higher than the left cup, this new pivot effectively lengthened the base of the previous pattern. After this breakout the stock did not appear on the CwH watchlist until 12/12, two days after setting the new pivot. It then immediately broke out again on Thursday, 12/13, and continued to rise on Friday.

We sent an alert on Thursday as the second breakout started because the stock had reappeared on the watchlist on Wednesday evening. If Thursday's breakout had instead occurred on Wednesday we would not have sent an alert because we were not monitoring the stock in real time because it was not on any of our watchlists for that date.


For a fuller analysis of the cup-with-handle (CwH) pattern, see Anatomy of a Cup-with-Handle Chart Pattern.