• The above chart of the JSE Gold index details my oft stated Elliott wave analysis for the index. I believe the period from 1998 to late 2000 was a large three year A-B base formation.



• The upside thrust to May of last year was the first major bull leg in a long term gold stock bull market.



• The drop from May 2002 to April this year was the first corrective phase in this long term bull run, the 1-2.



• Wave 3 that, according to Elliott, is rarely the shortest wave and should probably equal wave 1, commenced in April this year.

• The correction from May 2002 to April this year, the 1-2, fell exactly 61,8% of the up move of the closing price of the JSE Gold index in wave 1.



• The 11 month correction from May 2002 to April this year was also 61,8% of the time frame of 18 months of the bull run in wave 1.

• Upside Elliott projections are often made as a Fibonacci percentage of the corrective phase.



• There are three possibilities. First the 1,618% move to an index level of 4900. This is the most improbable as wave 3 is unlikely to be seriously shorter than wave 1.



• Second the 2,618% level for an index target of 6950. This is more feasible but it still leaves wave 3 shorter than wave 1.



• Finally the 4,236% move to an index of 9800, or almost five times its current value. This is more in keeping with the similar move by the JSE Gold index in wave 1.



• A tentative time frame would be around the end of 2004.

• There is another set of analyses that apply.



• The corrective phase from 1-2 mapped out a typical flag pattern (in brown).



• "Flags fly at half mast" is the old adage. This implies that the move into the flag will be repeated in the same direction out of the flag, as the flag is regarded a continuation pattern.



• This gives the 9000 level as the potential upside target on the JSE Gold index.



• In addition the Elliott way of analyzing forward counts and time frames, outside the Fibonacci relationship and traditional pattern analysis, is to draw a line parallel to the first upside thrust in (green) from the end of the correction at 2 and note where it cuts the top parallel commensurate with that drawn across the bottom of the move (in blue).



• This confirms the Fibonacci targets and the potential time frame as well as the flag projection.

So what is the gold price doing falling $20 overnight with the gold shares still fiddling around? Why is wave three, supposedly the longest and most dynamic movement, not getting cracking?

• After the JSE Gold index bottomed in April the upside move commenced. But it has been a stuttering start to what should be the dynamic third leg of the long term bull market.



• There was a move up to mid June followed by a correction to end July. This was followed by another up move to September and then the fall of the past three weeks.



• This two steps forward and three steps back waltz is not symptomatic of a proper bull market, especially the usually dynamic third wave.



• Judging by the sharpness of the recent sell off in bullion and the shares my conclusion is that the upward move from July to September was not a continuation of the bull run but the b wave of an a-b-c format typical of an Elliott Irregular or Unorthodox correction.



• We are currently finishing the c wave sell off in this minor corrective phase. As c is unlikely to move below a it signals a weak correction heralding a strong forward move.



• Note that the up move to the minor leg 1 from April to July, the start of the supposed big third wave, was a very short affair.



• This implies that the next leg to 3 will be an extended third wave that should be a strong movement. Probably to at least 5000 on the JSE Gold index.



• I would look for this leg to run through to the latter part of the first quarter of 2004.

• The chart of Harmony on the JSE confirms this analysis.



• The main 1-2 correction is shown. This stopped in April.



• The new wave 3 commenced but has failed to produce the upside dynamics expected in a large third wave.



• Note that the move up from a to b failed to force its way above 1.



• The b wave formed a double top with 1 prior to the recent sell off.



• This is a typical Elliott Flat Top pattern.



• Note that c is still well above a indicating a weak type of correction and heralding a strong forward move.



• In view of the c wave's relative weakness against the a wave buy divergences are unlikely to be signaled on the oscillators.



• Note that the top oscillators are all grouped together in the lower region buying range. This signals that the end of the c wave sell off is very close at hand.



• The current downside move from b to c is a fall of exactly 50% of the move up to 1. A 61,8% correction would see Harmony down to R90 from its current R95 level. This is not essential, just a possibility.



• Once again note that the move from April up to 1, the start of wave 3, was a relatively short affair and that an extended wave 3 inside the big wave 3 can be expected.

• This is my Elliott wave analysis of Harmony going forward.



• We are finishing the 1-2 minor correction in large wave 3.



• The next leg should be a strong wave up to 3 around the end of the first quarter of next year.



• This should take Harmony from its current R95 price to around R250 to touch the 1,618% Fibonacci upside target level.



• The 3-4 correction should last around five months to the middle of 2004 with the final fifth leg moving through to the end of 2004.



• This should take Harmony up to the 2,618% Fibonacci level at around R400.



• At this point we will be at the end of large wave 3 and a serious correction in wave 4 should occur to wipe out most of the gains in wave 4-5 prior to the start of the large final long term bull market move into wave 5 and the ultimate peak.



• I am looking for a 250% move in Harmony through to the first quarter next year with a total third wave of 420% to the end of 2004.



• I regard the current levels as low risk areas in which to take serious long term positions in leveraged vehicles such as quoted bullion options, Single Stock Futures or call warrants. I have already indicated my warrant choices in the daily Traders Alert.

I reiterate my oft stated analysis. THIS IS A BIG BULL MARKET IN GOLD STOCKS.

Dr. Clive Roffey

14 October 2003

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www.shareaction.co.za

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Gold Action is a fortnightly commentary on global gold markets produced by Dr. Clive Roffey who has been a leading independent commentator on gold markets since 1969.