DEFINITION of Inverse Saucer

Inverse saucer is a technical chart formation that indicates the stock's price has reached its high and that the upward trend has come to an end. An inverse saucer is characterized by a steady flattening of the uptrend to such a degree that the market at one moment enters a sideways range, but then slowly starts to fall and finally accelerates downward. This rare formation provides no clear price target but usually implies a large potential danger since 50% or more retracements of the preceding uptrend have been noted in inverse saucer patterns. Also known as "rounded top."

Inverse Saucer
Image by Julie Bang © Investopedia 2020

BREAKING DOWN Inverse Saucer

Inverse saucers occur as expectations gradually shift from bullish to bearish. The gradual yet steady shift forms a rounded top. Volume during inverse saucers often mirror the bowl-like shape of prices during a saucer - volume, which was high during the previous trend, decreases as expectations shift and traders become indecisive. Volume then increases as a new weakening trend downward is established.

An inverse saucer pattern can portend a more serious breakdown of the price of the security (a stock or currency, etc.) in a short time frame, or it can be followed temporarily by what is known as a handle, which pictorially reflects a partial recovery of price from its decline before the price descends again. These types of patterns have been repeatedly observed, but there is no guarantee, naturally, that they always occur. Generally speaking, though, inverse saucers are bearish indicators, and traders who put faith in these technical charts make moves to protect long positions by setting stop losses, for example, or by shorting these vulnerable securities.