For the past couple of months, I've watched with great interest the development of a possible bullish cup with handle (CwH) formation on the gold price chart, perhaps one of the most reliable and readily identifiable in the entire pantheon of chart patterns. Whole websites are dedicated to screening for and taking advantage of this pattern, so you can imagine my keen interest in this discovery on the second most traded commodity on the planet. Over the past few weeks, the development on the GLD index has been "textbook" relative to the example and so I thought I'd share my findings with you, my colleagues here on SafeHaven. Perhaps I've missed someone else's observation of this specific pattern and if so, then I am repeating what someone else has already discussed, but to my knowledge, no one has yet written of this particular chart pattern on gold.
I now reveal all I have perceived about this powerful pattern's evolution to date and its likely imminent upward blast off to target, estimated to reach its target by mid-March 2015. Of course take the following information with the standard caveat that this is purely for entertainment purposes and any action on your part based on the content of this missive is purely of your own volition. Technical chart patterns are notorious for flopping over on themselves and dashing hopes which fortunately really do spring eternal, however sometimes they work like a charm which is what I expect here. Call me an idealist.
I first noticed this potential as gold formed a base in December, did a visual comparison with many patterns using a standard Google image search (GIS) and quickly realized the StockCharts example of Jabil Circuits (JBL) had an interesting correlation to the left side of the cup. Here is a recreation of the chart with the 50 day moving average (DMA). Note on both of the charts a brief dip through the 50 DMA and briefly consolidating before the move higher as seen by the third green arrow on the right. Also consider the MACD histogram turning up on today's chart and at the same relative area on the example chart.
Compare to today's GLD chart:
Relative to today's GLD chart, the base and development of the right side of the cup was not quite as closely developed due to a dip in the price in mid-December, however shortly thereafter it quickly moved to a relative target level above 125 which established a cup. Now, with the fully formed cup in place, the handle required a decline from that level which would slightly violate the 50 DMA and then shortly thereafter bobble around it before rocketing higher. So far, the chart has progressed exactly as expected, hence the timing to release this notification now because after all, financial gain from forecasting using reliable patterns is the name of the chartist's game. All that's missing is the imminent last move up.
Do be aware that the majority of traders and even hard core gold bugs will not believe the speed and intensity of the rise in gold price should it rocket to target. Sometimes the most fundamental basics of TA are all you really need to make a profitable call and hopefully play out as expected.
Specifically, the CwH target for this move on the GLD is 16 points higher than today's 50 DMA which would take it to roughly 134 and the gold price to around $1,400, a gain of $170/oz. from today's levels. We'll see whether gold pops from Valentine's Day through St. Patty's day as the pattern indicates. Good luck and expect fireworks soon in the precious metals!
