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Tuesday, January 24, 2012

COH

Now that the heart of earnings season is here, we are going to start seeing some earnings breakouts. COH was the one most notable that I saw today. This is a long cup and handle pattern, with a handle that formed a small double bottom base, making the breakout point a little confusing, but it really didn't matter since you really didn't want to get into this before earnings. Most notable here is a weak price relative line, which puts the strength of this breakout into question.
 
When I looked at the weekly chart, I noticed something that has been one factor of the O'Neil system that I have not been able to figure out: base counting. One thing I see here is that the low of the current base undercut the low of the prior base (assuming that they are two separate bases), which resets the base count. Normally after the 3rd base, subsequent bases have a lower probability of successful breakouts, and stocks normally top after the 5th base. If this is a reset, then we are back to the early stage bases, where the biggest gains are normally made.

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