Golden Wave - One Pager Positional Report

Gold Cup & Handel Formation from 1996 – 2006 – 10Years Move.

Cup with Handle (Continuation)

The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. As its name implies, there are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right hand side and the handle is formed. A subsequent breakout from the handle's trading range signals a continuation of the prior advance.

1.       Trend: To qualify as a continuation pattern, a prior trend should exist. Ideally, the trend should be a few months old and not too mature. The more mature the trend, the less chance that the pattern marks a continuation or the less upside potential.

2.       Cup: The cup should be "U" shaped and resemble a bowl or rounding bottom. A "V" shaped bottom would be considered too sharp of a reversal to qualify. The softer "U" shape ensures that the cup is a consolidation pattern with valid support at the bottom of the "U". The perfect pattern would have equal highs on both sides of the cup, but this is not always the case.

3.       Cup Depth: Ideally, the depth of the cup should retrace 1/3 or less of the previous advance. However, with volatile markets and over-reactions, the retracement could range from 1/3 to 1/2. In extreme situations, the maximum retracement could be 2/3, which conforms with Dow Theory.

4.       Handle: After the high forms on the right side of the cup, there is a pullback that forms the handle. Sometimes this handle resembles a flag or pennant that slopes downward, other times it is just a short pullback. The handle represents the final consolidation/pullback before the big breakout and can retrace up to 1/3 of the cup's advance, but usually not more. The smaller the retracement, the more bullish the formation and significant the breakout. Sometimes it is prudent to wait for a break above the resistance line established by the highs of the cup.

5.       Duration: The cup can extend from 1 to 6 months, sometimes longer on weekly charts. The handle can be from 1 week to many weeks and ideally completes within 1-4 weeks.

6.       Volume: There should be a substantial increase in volume on the breakout above the handle's resistance.

7.       Target: The projected advance after breakout can be estimated by measuring the distance from the right peak of the cup to the bottom of the cup.

In 1996 GOLD has tested higher level of 418$ which was all time high at that level and then slowly it went in to side way to down side move testing the level of 250$ in 1999 and 2001 year. There after slight upside move was seen gradually where the top resistance was tested at 430$ where the CUP formation is seen and there after Handel formation was seen where breakout was at 420$ level. Height of the CUP is 180 points and after the breakout point gold gave sharp rise after slight consolidation where it tested the level of 730$ mark. This rise was 161.8% rise from the breakout point of 420$ where the target of 711$ was tested. [(180*161.8% = 291 points) – (Breakout @ 420$ + 291 Points = 711$)]

Elliott Wave Theory was developed by R.N. Elliott and popularized by Robert Prechter. This theory asserts that crowd behavior ebbs and flows in clear trends. Based on this ebb and flow, Elliott identified a certain structure to price movements in the financial markets. The article serves as a basic introduction to Elliott Wave Theory. A basic 5-wave impulse sequence and 3-wave corrective sequence are explained. While Elliott Wave Theory gets much more complicated than this 5-3 combination, this article will only focus on the very basics.

There are two types of waves: impulse and corrective. Impulse waves move in the direction of the larger degree wave. When the larger degree wave is up, advancing waves are impulsive and declining waves are corrective. When the larger degree wave is down, impulse waves are down and corrective waves are up. Impulse waves, also called motive waves, move with the bigger trend or larger degree wave. Corrective waves move against the larger degree wave.

From the above chart Gold has started its upside rally from the level of 410$ and tested the level of 1032$ which was the starting of the Wave Theory and it was the I Wave. There after minor correction was seen from 1032$ to 682$ in the form of wave II  which was just near to 50% retracement of wave I, there after it enter in wave III. Looking at the wave III it tested the higher level of 1920$ and it has retraced by 200% of wave I from the bottom of wave II, and exactly tested the higher level of 1920$ and started its correction in the form of wave IV. Currently it is in the continuation of the wave IV where it is forming a-b-c pattern, wave b has corrected by 61.8% of wave a and is trading below 100% expansion of a-b from c indicating 161.8% expansion of 1168$ is expected to test on lower side. Wave IV if we calculate on retracement level is expected to retrace by 61.8% of wave III which also brings to 1150$ in same line of a-b-c pattern. It is clear that the wave IV is expected to test level anywhere between 1162$ to 1150 where 1150$ is the 61.8% retracement of wave IV from 682$ to 1920$. From the lower range of 1162$ to 1150$ reversal in prices are expected and entering in the V impulsive wave on higher side Gold can move and test the level above 3034$ which is 300% retracement of wave I from bottom of wave IV. Concluding to the above theory any dip near the range of 1162$ to 1150$ will be the positional entry level for the target of 3000$ and above in near to medium term.

Three Guidelines

There are numerous guidelines, but this article will focus on three key guidelines. In contrast to rules, guidelines should hold true most of the time, not necessarily all of the time

Guideline 1: When Wave 3 is the longest impulse wave, Wave 5 will approximately equal Wave 1.

Guideline 2: The forms for Wave 2 and Wave 4 will alternate. If Wave 2 is a sharp correction, Wave 4 will be a flat correction. If Wave 2 is flat, Wave 4 will be sharp.

Guideline 3: After a 5-wave impulse advance, corrections (abc) usually end in the area of prior Wave 4 low.

Wave Count flow chart

Year	Start	Finish	Difference	% retrace
May 2005	410	1032	622	100 Base
March 2008	1032	682	350	56%
October 2010	682	1920	1238	200%
September 2011	1920	1168	752	161% expansion a-b-c
September 2011	1920	1150	770	121% retracement
Expected 2013 end	1150	3034	1866	300% retracement of wave I from wave IV