Zak Mir on Cup & Handle Versus an Angry Cat

I have been sitting on a couple of charting patterns since the start of the week on two stocks which may be familiar to many fans of speculative situations.

The first is Quindell (QPP) the troubled – allegedly, insurance outsourcer, and heavy metal free quantum dots maker Nanoco (NANO). But for the sake of this article it is actually best to put one’s side. This is because it is very often the case that the biggest moves for stocks or markets tend to come in the wake of the greatest disconnect between the perceived fundamental and charting positions.

Starting off with what is apparently the bullish setup, and we have what looks to be a clear Cup & Handle formation on the daily chart of Quindell. This is in theory one of the most positive price patterns around if not in reliability (alas), but in terms of the potential upside when it does kick in.  I have the statistics to back this up courtesy of www.thepatternsite.com.

The average rise here is as great as 34%. But even putting the pattern to one side we have the message from the daily chart that above the latest support at 70p, the logical upside on a purely support and resistance basis would be a return to the 160p plus post October resistance zone. That said, after all this disappointments associated over the past couple of years at this stock it would be perfectly understandable if some traders preferred to sit this one out.

There is logic in terms of why I have paired Nanoco (NANO) with Quindell (QPP), even though the calls are in different directions. The reason is that the double top or “angry cat” formation on the Nanoco chart, which is now starting to breakdown as anticipated, is exactly the same pattern which broke down Quindell shares in such a brutal way in April. This took the stock down 50% in quick time, and given the typical power of such formations, and the way the stock has already broken neckline support / the 200 day moving average at 110p, one would be assuming a decline of this magnitude could be forthcoming.

Looking at the detail of the Nanoco chart it can be seen that apart from the initial near vertical plunge for January from just below 150p and below former September / October resistance in the form of a double top, the first phase down was towards the December support at 117.5p. But what we have seen since then is a mid move consolidation taking the shares back to the 200 day line, with the implication that the delivery of a couple of sessions wholly below this feature could accelerate the downside for Nanoco and hints at a November 2013 support line.

Indeed, we now actually only have the former summer resistance between 100p – 100p and former autumn support in this zone holding up this stock. But what will be most interesting is if the ultra bearish set up of the angry cat does kick in to undermine shares of Nanoco. Once again, it should be emphasized that for both this stock and Quindell above, it is only the technical and not the fundamentals we are focusing on to make the respective charting calls.