Technical Sunday: Xcel Energy

Mike Zaccardi, CFA, CMT

Being a Chartered Market Technician, I pay attention to the charts. Xcel Energy (XEL) features an interesting setup on its daily chart. One of the more powerful patterns is the cup and handle.

William O’Neil, author of the famous “How to Make Money in Stocks”, made the cup and handle formation famous. It makes all the sense in the world from a technical point of view as to why it is such an important pattern.

The stock rallies up to a level where sellers finally push the stock lower. A rather sharp decline takes place followed by a similarly solid advance. That is the cup. You can see it in the 1-year daily look of Xcel Energy. Then comes the all-important ‘handle’. The handle is key because it is comes after sellers have initially brought the price back down from the noted resistance level from when the cup began.

The handle can also be described as a bullish flag (usually) as it is a consolidation of a prior advance. Bull flags typically have lower volume than the prior advance as well. Technicians love to look at volume of course. The big more for bulls is the breakout above the horizontal resistance line from the start of the cup through the handle.

The breakout can have a price target attached to it be taking the difference from the horizontal resistance line (breakout level) from the low of the cup, then adding that difference to the breakout level. So it really is a nice pattern since it tells you how to trade it. Also, a stop-loss can be placed after the breakout, below the breakout point. Beware of false breakouts! From false moves come fast moves, as we technicians say!

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Chart used with permission from TradingView.com