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

Reliance Positional Head & Shoulder Pattern CMP is 787

Reliance is expected to take initial support @ 784 and further trading below Neckline support is seen @ 764 on closing basis. If this support is further broken then Head & Shoulder Pattern breakdown is confirm which will bring it to first target of 670 and then after short consolidation will bring it further down to test 588 which is the height of the head as the actual target after the break down. 

L&T Positional Target 940 CMP is 1380

L&T is forming symmetreical triangle formation where breakdown is seen @ 1390 and sustain below the same will bring to 970 - 940 on lower side and this is just 50% fall of the height of the triangle which is from point A - 1870 to Point B 970 bringing 900 Point as the height. 

INDIA - NIFTY Head & Shoulder Pattern Formation

Trading Call: NIFTY Sell CMP @ 6070 Stop Loss of 6250 closing basis Target of 5760 – 5640 - 5500.

As its name implies, the Head and Shoulders reversal pattern is made up of a left shoulder, a head, a right shoulder, and a neckline. Other parts playing a role in the pattern are volume, the breakout, price target and support turned resistance. We will look at each part individually, and then put them together with some examples.

1.        Prior Trend: It is important to establish the existence of a prior uptrend for this to be a reversal pattern. Without a prior uptrend to reverse, there cannot be a Head and Shoulders reversal pattern (or any reversal pattern for that matter).

2.        Left Shoulder: While in an uptrend, the left shoulder forms a peak that marks the high point of the current trend. After making this peak, a decline ensues to complete the formation of the shoulder (1). The low of the decline usually remains above the trend line, keeping the uptrend intact.

3.        Head: From the low of the left shoulder, an advance begins that exceeds the previous high and marks the top of the head. After peaking, the low of the subsequent decline marks the second point of the neckline (2). The low of the decline usually breaks the uptrend line, putting the uptrend in jeopardy.

4.        Right Shoulder: The advance from the low of the head forms the right shoulder. This peak is lower than the head (a lower high) and usually in line with the high of the left shoulder. While symmetry is preferred, sometimes the shoulders can be out of whack. The decline from the peak of the right shoulder should break the neckline.

5.        Neckline: The neckline forms by connecting low points 1 and 2. Low point 1 marks the end of the left shoulder and the beginning of the head. Low point 2 marks the end of the head and the beginning of the right shoulder. Depending on the relationship between the two low points, the neckline can slope up, slope down or be horizontal. The slope of the neckline will affect the pattern's degree of bearishness—a downward slope is more bearish than an upward slope. Sometimes more than one low point can be used to form the neckline.

6.        Neckline Break: The head and shoulders pattern is not complete and the uptrend is not reversed until neckline support is broken. Ideally, this should also occur in a convincing manner, with an expansion in volume.

7.        Price Target: After breaking neckline support, the projected price decline is found by measuring the distance from the neckline to the top of the head. This distance is then subtracted from the neckline to reach a price target. Any price target should serve as a rough guide, and other factors should be considered as well. These factors might include previous support levels, Fibonacci retracements, or long-term moving averages.

NIFTY is showing Head & Shoulder Pattern formation and Neck Line is coming at 5950, sustain trading below 5950 will confirm the Pattern Formation. Right shoulder has retraced by 61.8% retracement of the fall from 6235 to 5935 testing level of 6125 showing a reversal pattern and the expected target on lower side in this case will come to test 5640 which is 161.8% Fibonacci expansion level. Further on lower side if trading is seen below 5640 might move further to test 5550 level which was the base where the rally has initiated upside. This formation is only true till the time prices are sustaining below 6240 closing basis above which it becomes invalid pattern formation. 

Symmetrical Triangle Pattern Breakout in USDINR for target of 59.75

Trading Call: Buy at the level of 55.5 Stop Loss of 54.6 Target of 56.60 – 58.10 – 59.75 levels.

A symmetrical triangle pattern is relatively easy to identify. In addition, triangle patterns can be quite reliable to trade with very low failure rates. There is a caution concerning trading these patterns, however. As mentioned previously, a triangle pattern can be either continuation or reversal patterns. Typically, they are continuation patterns. To achieve the reliability for which the triangle is well known, technical analysts advise waiting for a clear breakout of one of the trendlines defining the triangle.

1. Occurrence of a Breakout - Technical analysts pay close attention to how long the triangle takes to develop to its apex. The general rule, as explained by Murphy, is that prices should break out - clearly penetrate one of the trendlines - somewhere between three-quarters and two-thirds of the horizontal width of the formation.6 The break out, in other words, should occur well before the pattern reaches the apex of the triangle. . Adherence to this rule is strongly advised by Yager, She adds that the closer the breakout occurs to the apex the higher the risk of a false breakout.

2. Price Action - Unlike ascending and descending triangles which give advance notice of their intentions, the symmetrical triangle tends to be a neutral pattern. Murphy advises that the symmetrical triangle is generally a consolidation pattern. This means an investor can look to see the direction of the previous trend and make the basic assumption that the trend will continue. However, many experts advise investors that because the breakout direction could go either way that they wait until the breakout occurs before investing in or selling the stock. Schabacker refers to a symmetrical triangle as a "picture of hesitation.

3. Measuring the Triangle - To project the minimum short-term price objective of a triangle, an investor must wait until the price has broken through the trendline. When the price breaks through the trendline, the investor then knows whether the pattern is a consolidation or a reversal formation. To calculate the minimum price objective, calculate the "height" of the formation at its widest part - the "base" of the triangle. The height is equal determined by projecting a vertical line from the first point of contact with the trendline on the left of the chart to the next point of contact with the opposite trendline. In other words, measure from the highest high point on one trendline to the lowest low point on the opposite trendline.

Both these points will be located on the far left of the formation. Next, locate the "apex" of the triangle (the point where the trendlines converge). Take the result of the measurement of the height of the triangle and add it to the price marked by the apex of the triangle if an upside breakout occurs and subtract it from the apex price if the triangle experiences a downside breakout.

For example, working with a symmetrical triangle, assume the highest high of the pattern occurs at 100 and the lowest low at 80. The height of the pattern is 20 (100 - 80 = 20). The apex of the triangle occurs at 90. The pattern has an upside breakout. Using the measuring rule, the target price is 110 (90 + 20 = 110).

4. Duration of the Triangle - As mentioned before, the triangle is a relatively short-term pattern. It may take up to one month to form and it usually forms in less than three months.

5. Forecasting Implications - Once breakout occurs, the symmetrical triangle tends to be a reliable pattern. Bulkowski calculates failure rates ranging between 2% and 6% for symmetrical triangles after a valid breakout.

To avoid mistaking a false move for a valid breakout, experts advise waiting a few days to see if the breakout is dependable. According to Murphy, minimum penetration criteria would be a closing price outside the trendline and not just an intraday penetration. Investors do have time once a breakout has occurred.18 According to Bulkowski, when considering symmetrical triangles, an investor will have over five months to reach the ultimate high after an upside breakout and less than half that time after a downside breakout

Because premature breakouts (where prices close outside of the trendline) are so common, don't dismiss the pattern if it has experienced such a breakout. According to Bulkowski, however, "premature breakouts do not predict the final breakout direction or success or failure of the formation."

USD/INR, working with a symmetrical triangle, the highest high of the pattern occurs at 56.5 and the lowest low at 51.85. The height of the pattern is 4.65 pips (56.5 – 51.85 = 4.65). The apex of the triangle occurs at 55.10. The pattern has an down side breakout. Using the measuring rule, the target price is 59.75 (55.10 + 4.65 = 59.75).

One Pager Report on AUDUSD Symmetrical Triangle Pattern Formation

Trading Call: Sell below the level of 0.9850 Stop Loss of 1.0200 Target of 0.9300 – 0.8750 – 0.8150 levels.

CMP is 0.9840

A symmetrical triangle pattern is relatively easy to identify. In addition, triangle patterns can be quite reliable to trade with very low failure rates. There is a caution concerning trading these patterns, however. As mentioned previously, a triangle pattern can be either continuation or reversal patterns. Typically, they are continuation patterns. To achieve the reliability for which the triangle is well known, technical analysts advise waiting for a clear breakout of one of the trendlines defining the triangle.

1.         Occurrence of a Breakout - Technical analysts pay close attention to how long the triangle takes to develop to its apex. The general rule, as explained by Murphy, is that prices should break out - clearly penetrate one of the trendlines - somewhere between three-quarters and two-thirds of the horizontal width of the formation.6 The break out, in other words, should occur well before the pattern reaches the apex of the triangle. . Adherence to this rule is strongly advised by Yager, She adds that the closer the breakout occurs to the apex the higher the risk of a false breakout.

2. Price Action - Unlike ascending and descending triangles which give advance notice of their intentions, the symmetrical triangle tends to be a neutral pattern. Murphy advises that the symmetrical triangle is generally a consolidation pattern. This means an investor can look to see the direction of the previous trend and make the basic assumption that the trend will continue. However, many experts advise investors that because the breakout direction could go either way that they wait until the breakout occurs before investing in or selling the stock. Schabacker refers to a symmetrical triangle as a "picture of hesitation.

3. Measuring the Triangle - To project the minimum short-term price objective of a triangle, an investor must wait until the price has broken through the trendline. When the price breaks through the trendline, the investor then knows whether the pattern is a consolidation or a reversal formation. To calculate the minimum price objective, calculate the "height" of the formation at its widest part - the "base" of the triangle. The height is equal determined by projecting a vertical line from the first point of contact with the trendline on the left of the chart to the next point of contact with the opposite trendline. In other words, measure from the highest high point on one trendline to the lowest low point on the opposite trendline.

Both these points will be located on the far left of the formation. Next, locate the "apex" of the triangle (the point where the trendlines converge). Take the result of the measurement of the height of the triangle and add it to the price marked by the apex of the triangle if an upside breakout occurs and subtract it from the apex price if the triangle experiences a downside breakout.

For example, working with a symmetrical triangle, assume the highest high of the pattern occurs at 100 and the lowest low at 80. The height of the pattern is 20 (100 - 80 = 20). The apex of the triangle occurs at 90. The pattern has an upside breakout. Using the measuring rule, the target price is 110 (90 + 20 = 110).

4. Duration of the Triangle - As mentioned before, the triangle is a relatively short-term pattern. It may take up to one month to form and it usually forms in less than three months.

5. Forecasting Implications - Once breakout occurs, the symmetrical triangle tends to be a reliable pattern. Bulkowski calculates failure rates ranging between 2% and 6% for symmetrical triangles after a valid breakout.

To avoid mistaking a false move for a valid breakout, experts advise waiting a few days to see if the breakout is dependable. According to Murphy, minimum penetration criteria would be a closing price outside the trendline and not just an intraday penetration. Investors do have time once a breakout has occurred.18 According to Bulkowski, when considering symmetrical triangles, an investor will have over five months to reach the ultimate high after an upside breakout and less than half that time after a downside breakout

Because premature breakouts (where prices close outside of the trendline) are so common, don't dismiss the pattern if it has experienced such a breakout. According to Bulkowski, however, "premature breakouts do not predict the final breakout direction or success or failure of the formation."

AUD/USD, working with a symmetrical triangle, the highest high of the pattern occurs at 1.1080 and the lowest low at 0.9380. The height of the pattern is 0.1700 pips (1.1080 – 0.9380 = 0.1700). The apex of the triangle occurs at 0.9850. The pattern has an down side breakout. Using the measuring rule, the target price is 0.8150 (0.9850 – 0.1700 = 0.8150).