Does a rounding bottom signal a rally?
The opposite, by a small margin. Since 1995, US stocks detected with a bullish rounding bottom beat the same day's median stock over the next week 48 times in 100; a coin flip gives 50. The shortfall held in 28 of 32 years, a proven relation against the pattern's call; over three months there was no measurable edge. Only 11 in 100 reached the target before the stop.
11 of 100 reached the drawn target before the stop
The paper
The full study: its data, method, robustness, limits and sources.
Opulence Alpha Research · Published Sep 25, 2026 · Data through Aug 21, 2026
Keywords: rounding bottom, rounding bottom pattern, saucer bottom pattern, does the rounding bottom work, rounding bottom success rate, rounding bottom backtest·JEL classification: G11, G12, G14, C12, C58
- Universe
- The same for every study: 1,767 US common stocks in the 11 GICS sectors, 422 of them since delisted; S&P 500 members since 1996 plus large and mid-sized companies outside the index
- Period
- Every Wednesday from Jan 4, 1995 to Aug 19, 2026: 1,550 Wednesdays across 7,959 trading sessions
- Sample
- n = 1,764 stocks of the 1,767-stock universe; 1,361,444 formation detections, a median of 906 per Wednesday
- Outcome
- Return over the next 5, 21 and 63 trading sessions against the same day's median stock; whether the drawn target was reached
- Inference
- Date-clustered intervals; t on non-overlapping dates; proven only when |t| ≥ 3
1Introduction
A rounding bottom, or saucer, is a slow, U-shaped turn: a long decline flattens, drifts sideways and curls back up. Chart manuals read it as a decline slowly exhausting itself and the start of a lasting advance. This study asks whether US stocks on which the pattern detector recorded a bullish rounding bottom went on to beat other stocks over the next week, month and three months, and how often they reached the target the pattern draws.
2Data and method
2.1Sample design
Population and frame. The population is US common stocks listed on the NYSE and Nasdaq; funds, ETFs, trusts, preferred shares, warrants and units are excluded. The sampling frame is a fixed universe of 1,767 companies, drawn once when the platform was built and not re-sampled since, in two strata. Stratum 1 is a census of the S&P 500: every company in the index at any time since 1996 whose price history could be recovered, 1,027 companies of which 413 have since delisted; it holds 76% of the index's members in 1996 and at least 96% in every year from 2010. Stratum 2 is 740 large and mid-sized companies outside the index, selected in proportion to the market's sector weights from the stocks that passed a minimum share price of $15 and a minimum average daily trading value of $25 million; 9 of them have since delisted.
Sample. The unit of observation is a formation detection: one stock on one Wednesday on which the pattern detector recorded a formation. Weeks the platform's regime model flags as a likely change of market regime are left out, as are bars flagged as bad data. This study's sample is n = 1,764 stocks of the 1,767: 1,361,444 detections on 1,550 Wednesdays from Jan 4, 1995 to Aug 19, 2026, a median of 906 stocks with a formation per Wednesday. 217,945 detections (16%) come from the 420 companies that have since delisted. Every detection and every Wednesday carries equal weight.
Representativeness. Table 1 gives the sample by GICS sector beside the S&P Composite 1500: 7.9% of companies would have to change sector for the two to match exactly. By latest market value, 55% of the active companies are large (at least $10bn), 38% mid ($2–10bn) and 6% small. Because Stratum 2 was chosen from companies listed at construction, its history carries survivorship bias. Section 4 reads the result by market volatility.
Companies in this study's sample, of them those since delisted, the size of the active companies, the sample's share of stock-weeks and the sector's share of the S&P Composite 1500.
| Sector | Sample | Delisted | Large | Mid | Small | Stock-weeks | S&P 1500 |
|---|---|---|---|---|---|---|---|
| Information Technology | 283 | 67 | 122 | 76 | 18 | 13.5% | 12.7% |
| Financials | 255 | 59 | 114 | 74 | 8 | 14.7% | 17.2% |
| Industrials | 255 | 52 | 126 | 67 | 11 | 15.9% | 17.5% |
| Health Care | 237 | 47 | 92 | 81 | 16 | 12.3% | 10.9% |
| Consumer Discretionary | 209 | 39 | 69 | 87 | 12 | 12.4% | 12.9% |
| Energy | 105 | 30 | 39 | 31 | 5 | 6% | 4.7% |
| Consumer Staples | 101 | 38 | 40 | 17 | 5 | 5.9% | 4.9% |
| Materials | 95 | 34 | 35 | 24 | 2 | 5.6% | 5.1% |
| Real Estate | 84 | 10 | 40 | 32 | 2 | 5.9% | 6.9% |
| Communication Services | 80 | 31 | 28 | 13 | 5 | 3.9% | 3.3% |
| Utilities | 60 | 13 | 35 | 12 | 0 | 4.1% | 4% |
| All sectors | 1,764 | 420 | 740 | 514 | 84 | 100% | 100% |
Sample: n = 1,764 of the 1,767 companies. Size by latest market value for the 1,338 active companies with one: large ≥ $10bn, mid $2–10bn, small < $2bn. S&P 1500 shares count the constituents of the S&P 500, MidCap 400 and SmallCap 600 (1,506 companies, lists read Sep 25, 2026). Sectors are each company's current GICS sector.
2.2Signals
| Signal | Definition | Since | Wednesdays |
|---|---|---|---|
| Rounding bottom | A U-shaped low: a decline that flattens and turns back up; recorded as a bullish formation, with a drawn target and stop, once price is back above the saucer's rim | Jan 4, 1995 | 1,550 |
2.3Measurement
Outcome. The return from the close on the detection's Wednesday to the close 5, 21 and 63 trading sessions later, in excess of the S&P 500, compared with the same day's median stock, so chance is 50 in 100 on every date; and whether the price reached the formation's drawn target before its stop.
Each detection is scored on its Wednesday: a bullish formation is a hit when the stock beat the same day's median stock, a bearish one when it trailed it. The detector also records whether the price reached the formation's drawn target before its stop (21 sessions for bullish formations, 42 for bearish).
The t-statistic uses non-overlapping dates only. A result is called proven when |t| is at least 3, it held in at least 60% of years and it is large enough to matter; with 1,470 tests across the studies, a looser bar would pass dozens by luck.
Full data and methods3Results
Figure 1 reads each horizon. Bullish rounding bottoms beat the median stock 48.3 times in 100 over the next week, 48.1 over the next month and 48.8 over the next three months. The week is a proven relation against the pattern's call (t = -5.2, interval 47.5 to 49.1); the month is faint, not reliable on its own, and over three months there is no measurable edge.
Share of detections that beat (bullish) or trailed (bearish) the same day's median stock. The line at 50 is chance; the grey band is the range chance produces for this sample (95%, clustered by date).
Share of detections that reached the drawn target before the stop, by the pattern's stage at detection.
The further away the drawn target, the less often it was reached.
Out of every 100 rounding bottoms, 11 reached the drawn target before the stop within 21 sessions, and 48 beat the median stock over the next week (Figure 2). Confirmed patterns, where price had moved well clear of the saucer's rim, reached the target 13 times in 100; patterns still marked forming, 6 (Figure 3). The hits took 12 sessions at the median.
The study does not test why. The detector records a bullish rounding bottom only once price has climbed back above the saucer's rim, so the stock arrives after a rise. Across US stocks, those that have just outpaced their industry over a few sessions have tended to trail other stocks over the following week, the relation the short-term reversal study measures. The shortfall may reflect that; this study does not separate the two.
4Robustness
Table 3 splits the month-ahead result by the market's volatility on the detection date. Year by year, rounding bottoms lagged the median stock in 28 of 32 years over the next week and in 28 of 32 over the next month; over three months, where there is no measurable edge, in 24 of 32.
Edge over 50 in points at 21 sessions, by the market's volatility regime on the detection date.
| Volatility regime | Detections | Edge, points |
|---|---|---|
| Low | 24.6K | -2.11 |
| Normal | 17.1K | -1.06 |
| Elevated | 9.4K | -3.19 |
| High | 3.6K | -0.49 |
| Extreme | 501 | -7.88 |
5Limitations
- The relation against the pattern is small and short-lived: proven over a week, faint over a month and not measurable over three months. It is a tendency across hundreds of stocks, not a forecast for any one of them, and the study counts how often stocks beat the median stock, not by how much.
- The detector marks a rounding bottom bullish only once price is back above the saucer's rim, so none is marked broken and Figure 3 has two bars.
- Before costs. Averages exclude trading costs, taxes and market impact.
- Same-close timing. Returns start at the close the signal is computed from; a real trade would start later.
- Survivors among smaller companies. The non-index names were chosen from companies listed when the universe was built; no delisting returns are added.
6Conclusion
The rounding bottom promises a slow, durable turn. Measured on the same day against the same day's median stock, stocks that showed one did slightly worse than other stocks over the following week, in most years, and no better over the following month or three months. Few reached the target the pattern draws. By the time a saucer is visible, the stock has already climbed back above its rim, and over the week that follows it has tended to trail other stocks slightly.
References
- Bulkowski, T. N. (2005). Encyclopedia of Chart Patterns, 2nd ed. Wiley.
- Lo, A. W., Mamaysky, H. and Wang, J. (2000). Foundations of Technical Analysis: Computational Algorithms, Statistical Inference, and Empirical Implementation. Journal of Finance 55(4).
- Jegadeesh, N. (1990). Evidence of Predictable Behavior of Security Returns. Journal of Finance 45(3).
- Benjamini, Y. and Hochberg, Y. (1995). Controlling the False Discovery Rate: A Practical and Powerful Approach to Multiple Testing. Journal of the Royal Statistical Society, Series B 57(1).
- Grinold, R. C. and Kahn, R. N. (2000). Active Portfolio Management, 2nd ed. McGraw-Hill.
- Harvey, C. R., Liu, Y. and Zhu, H. (2016). … and the Cross-Section of Expected Returns. Review of Financial Studies 29(1).
- Shumway, T. (1997). The Delisting Bias in CRSP Data. Journal of Finance 52(1).
Appendix A. Questions readers ask
- Does the rounding bottom pattern work?
- Not as a bullish signal. Since 1995, US stocks detected with a rounding bottom beat the same day's median stock over the next week 48 times in 100, against 50 for a coin flip; the shortfall is small but held in 28 of 32 years. Over three months there was no measurable edge in either direction.
- How often does a rounding bottom reach its target?
- Within 21 sessions and before the stop, 11 times in 100. Confirmed patterns, where price had moved well clear of the saucer's rim, reached it 13 times in 100; patterns still marked forming, 6. The hits took 12 sessions at the median.
- Why would a bullish pattern trail other stocks?
- The study does not test why. The detector records a bullish rounding bottom only once price has climbed back above the saucer's rim, so the stock arrives after a rise. Across US stocks, those that have just outpaced their industry over a few sessions have tended to trail other stocks over the following week, the relation the short-term reversal study measures. The shortfall may reflect that; this study does not separate the two.
- How was the rounding bottom measured?
- Every Wednesday from Jan 4, 1995 to Aug 19, 2026, each bullish rounding bottom the pattern detector recorded was compared with the same day's median stock over the next 5, 21 and 63 trading sessions, on the same universe of 1,767 US stocks every study uses.
Data availability and citation
Every figure in this paper is quoted from one frozen snapshot, published as JSON with the sample description, the robustness results and the test counts. The same snapshot feeds the research console, so the two cannot disagree.
Opulence Alpha Research (2026). Does a rounding bottom signal a rally? Opulence Alpha Studies, Sep 25, 2026. https://opulencealpha.ai/studies/rounding-bottom
Research, not advice. A measured tendency across hundreds of stocks is a nudge for any one of them, never a forecast of its price.