The inverted cup and handle is considered a bearish reversal pattern in technical analysis. Here’s an explanation:

Structure:

The “inverted cup” resembles an upside-down “U” shape, indicating a prior upward trend that has peaked and begun to decline.

The “handle” forms as a temporary consolidation or slight upward retracement after the downward movement of the inverted cup.

Implication:

The pattern suggests a loss of bullish momentum and a potential continuation of the downward trend after the handle breaks lower. Confirmation:

The pattern is confirmed when the price breaks below the support level formed at the bottom of the inverted cup.

This is often accompanied by an increase in trading volume, signaling strong bearish sentiment.

Target Price:

To estimate the potential downside, measure the height of the inverted cup (from the peak to the support line) and project that distance downward from the breakout point.

Psychology Behind It:

The inverted cup represents the exhaustion of buying pressure after a strong rally.

The handle reflects weak attempts to regain momentum, but sellers eventually take over, pushing prices lower.

It’s a strong warning to traders that further declines could be imminent.