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Many Tech Stocks Forming 'Left Side of Cup' Pattern


Many technical analysts hunting for breakout candidates among stocks say there isn't much they'd buy at the moment.

As the Nasdaq Stock Market has faltered in the past week, many stocks that had been leading the market--particularly small-cap and mid-cap technology stocks--have been hit hard.

"Everything that was setting up [recently] and that broke out ended up failing," hedge-fund manager Greg Kuhn said.

Of course, some "old economy" stocks have suddenly rebounded over the last week. But those rebounds don't attract many classic "momentum" investors because the rallies were from deeply depressed levels. What's more, such "V"-pattern rebounds can end very quickly.

That's why many technical analysts would rather look for growth stocks that are fundamentally strong, and are signaling that they may be on the verge of sharp new upward moves.

But most tech stocks that soared in the last few months are now under selling pressure. In other words, they may be forming the left side of "cup-with-handle" patterns. (See main story.)

Thus, chart-watchers say, investors might best spend their time now looking for these stocks to form the right side of their cups whenever the Nasdaq market overall begins to recover. At that point, many of the stocks could be readying for potential breakouts.

Kuhn points to satellite communications and information-technology company Titan Corp. (ticker symbol: TTN). On Friday, it finished tracing the right side of an eight-week cup pattern, and now appears to be sketching a three-day "handle."

Kuhn is considering buying Titan in part because it trades on the New York Stock Exchange, and may not be so vulnerable to a continuing Nasdaq downturn.

One problem with the stock though: The handle pattern on its chart is drifting up, rather than down as technicians greatly prefer.

Still, Mark Forney, vice president at Ryan Capital Management in Santa Monica, bought into Titan recently, and believes it's holding up pretty well given the condition of the market.

Forney also owns shares of United Stationers (USTR), which broke out of a base last Tuesday and hit a 52-week high on Monday.

Investors looking for breakouts can check out a daily column written by Kevin Marder, editor in chief of ( Each day, Marder discusses stocks that are setting up for potential breakouts, but points out that he doesn't make specific recommendations.

Though he argued in his column Monday that "there's nothing worth buying today," a few stocks may be setting up for breakouts, he said.

Best Buy (BBY) may have completed an eight-month cup pattern on Friday, and appeared to be forming a handle on Monday. Marder also cited Automatic Data Processing (AUD), which formed most of the right side of a cup in only three days last week, and has begun a handle formation in the past two days, he said.

After completing an 11-month cup pattern, EBay (EBAY) has been forming a handle for the last four days, Marder said.

But whether those handles will give way to breakouts--or new declines--remains to be seen.

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