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
|
