POINT AND FIGURE LIBRARY

The Chart Formations
TheCatapult

The catapult, in contrast to the bull trap, is a bullish formation, which means that its similarity to and potential confusion with the bull trap is most unhelpful. A.W. Cohen was of the view that this formation occurred about 50% of the time after a triple top breakout. That statistic is probably not true of today’s markets. Just like the bull trap, the market breaches a triple top and then has a pullback. The breach may advance by between 1 and 3 boxes usually (although A.W.Cohen says up to 7 boxes). There is then a pullback, usually into the base from which the share has just broken out. In other words, it looks just like the bull trap at that point, as shown in fig 1.

It follows that you a buy on the first print at 770p (first blue X- on the breach of a triple top), you sell for a loss and sell short on the red O (bull trap), and you cover your short for a loss and go long on the second blue X (bullish catapult). Not a recipe for happiness, you may think.

In the past I have tried to distinguish between the bulltrap and the bullish catapult by calling a formation a bull trap if the share advances just one box and reverses, and by assuming that it is a catapult if it advances 2 or more boxes before pulling back. Unfortunately that distinction doesn’t always work. I’ve seen bull traps that have advanced 2 boxes and catapults which have started after 1 box.

As a result, in general, I attach no weight to the 3 box reversal after the breach of the triple top. It may be a bull trap (bearish). It may turn out to be a bullish catapult (bullish). I make no assumptions. I let the market unfold. Eventually it tells me. For obvious reasons then I will not cover the bearish catapult.

Next: The Long Tail Down

Back to Table of Contents