|XLNX Daily Chart|
The top of the handle formed at a very strong resistance line, marked with a dotted tan line on the chart. Yesterday's session signaled a test of that resistance, with a very strong candle on high volume. The setup has potential of an imminent breakout with a price target of 57.39 for the overall pattern. There is some overhead resistance at the top of the double top as well as at the 52-week high, so be careful in the early stages of the breakout. That setup could just as easily produce a triple-top bull trap, so proper risk management is essential.
Here's how we're playing this one:
- Since there is the potential for a bull trap and the cup and handle pattern is flawed, we're reducing our position size by 1/3.
- If the stock breaks to the upside, we'll go long with a 57.39 price target. Our stop will be just below the low of the handle.
- If the handle breaks down and the stock moves to the downside on high volume, we'll attempt to catch a short position with a price target of 49.54. That represents a major support line formed by the bottom of the cup as formed by the true bodies of the candles at the low.
- There's not enough evidence on the chart to play a triple-top short since that would require a breach of that 49.54 support level. That's a major support line, so we'll have to watch for confirmation before entering a short at that point.