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A correction is expected to be unfolding. A red doji candlestick fits this idea well.

Summary: The trend may still be down although classic technical analysis indicates a low may be in place, and for that I have a new alternate today. A final fourth wave correction may last another one to two sessions and may end about 1,222 or 1,236. When the correction is complete, a final fifth wave down to a target at 1,183 would complete the Elliott wave structure.

New updates to this analysis are in bold.

To see last weekly charts click here.

DAILY ELLIOTT WAVE COUNT

Gold Elliott Wave Chart Daily 2016
Click chart to enlarge.

Intermediate wave (2) is not over.

Normally, the first large second wave correction within a new trend is very deep, often deeper than the 0.618 Fibonacci ratio.

Intermediate wave (2) may be an expanded flat correction. Minor wave A is a three, minor wave B is a three and a 1.28 length of minor wave A. This is within the normal range of 1 to 1.38.

At 1,183 minor wave C would reach 1.618 the length of minor wave A. This would be the most likely target. If price keeps falling through this first target, then the second target would be at 1,108 where minor wave C would reach 2.618 the length of minor wave A.

Intermediate wave (2) may not move beyond the start of intermediate wave (1) below 1,046.27.

There are two structural options for minor wave C: either an impulse or an ending diagonal. Minor wave C does not look at this stage like an ending diagonal. It looks like the more common impulse.

Minute wave iv has begun and so far shows up on the daily chart with one green candlestick and one red doji. It is likely to be longer lasting than this; the structure on the hourly chart is most likely incomplete.

Minute wave iv may not move into minute wave i price territory above 1,269.07.

Draw a channel about minor wave C as shown in pink: the first trend line from the ends of minute waves i to iii, then a parallel copy on the high labelled minuette wave (ii) so that all downwards movement is contained.

Minute wave iv may find resistance at the upper edge of the pink channel. It may also find resistance at the lilac trend line copied over from the weekly chart, if it gets that high.

For this main wave count, minute wave iii is 5.05 short of 2.618 the length of minute wave i.

There are no adequate Fibonacci ratios between minuette waves (i), (iii), and (v) within minute wave iii.

Ratios within minuette wave (iii) are: there is no Fibonacci ratio between subminuette waves i and iii, and subminuette wave v is 2.64 short of 2.618 the length of subminuette wave i. Subminuette wave ii is an expanded flat and subminuette wave iv is a zigzag.

MAIN HOURLY ELLIOTT WAVE COUNT

Gold Elliott Wave Chart Hourly 2016
Click chart to enlarge.

Minute wave ii was a quick deep 0.76 zigzag lasting 23 hours. Given the guideline of alternation, minute wave iv is most likely to be a shallow sideways structure and may be more time consuming than 23 hours. Minute wave iv is most likely to be a flat, combination or triangle. It is most likely to end about either the 0.236 or 0.382 Fibonacci ratios, so targets at 1,222 and 1,236 are reasonable.

If minute wave iv unfolds as an expanded flat (which is a very common structure), running triangle or combination, then it may include a new low below its start at 1,200.07. A new low below this point in the next one or two sessions does not mean minute wave iv is over; it would more likely be a part of minute wave iv.

At this stage, there are still multiple structural possibilities for minute wave iv. Alternate wave counts and flexibility while this correction unfolds will be essential. It is impossible to tell with certainty which structure will unfold, so it is impossible for me to give you an accurate road map for how price will move during this correction. Small corrections do not present good trading opportunities; they should be avoided. They present an opportunity to join the trend at their completion, so analysis over the next few days will focus on identifying if minute wave iv could be complete and what price points will confirm its completion.

So far a zigzag upwards may be complete. This is most likely minuette wave (a) of a flat or triangle, or minuette wave (w) of a double combination.

If minute wave iv is a flat correction, then the minimum requirement for minuette wave (b) is to retrace 0.9 the length of minuette wave (a) at 1,202.13. If price reaches down to this point, then the minimum requirement will be met; the rule that minuette wave (b) must be at least 0.9 the length of minuette wave (a) will be met. This is not the same as the normal range for minuette wave (b).

If minute wave iv is a flat correction, then the normal length of minuette wave (b) is 1 to 1.38 the length of minuette wave (a). This gives a normal range of 1,200.07 to 1,194.69.

If minute wave iv is a triangle, there is no minimum nor maximum for minuette wave (b); it must only be a three wave structure. It may make a new low below the start of minuette wave (a) at 1,200.07 as in a running triangle.

If minute wave iv is a double combination, then the first structure in the double may be a complete zigzag. Minuette wave (x) has no minimum nor maximum requirement; it must only be a corrective structure and would most likely be deep. It is possible today that minuette wave (x) could be complete at today’s low labelled subminuette wave w.

I do hope that the various possibilities outlined in this text for this first chart make it clear that the pathway price may take over the next one to two days cannot be predicted with any accuracy. There are too many structural possibilities for this correction. Choppy overlapping sideways movement with an upward bias should be expected.

ALTERNATE HOURLY ELLIOTT WAVE COUNT

Gold Elliott Wave Chart Hourly 2016
Click chart to enlarge.

It is also possible to see a zigzag upwards complete at the last high. This may be a zigzag for minuette wave (a) of a flat correction, or minuette wave (a) of a triangle. It may also be a zigzag for minuette wave (w) of a double combination.

If minute wave iv is to be a flat correction, then minuette wave (b) within it must retrace a minimum 0.9 length of minuette wave (a) at 1,202.08.

If minute wave iv is to be a flat correction, then the normal range for minuette wave (b) is from 1 to 1.38 the length of minuette wave (a) giving a range of 1,200.07 to 1,192.45.

If minute wave iv is to be a triangle, there is no minimum nor maximum requirement for minuette wave (b). It may make a new low below the start of minuette wave (a) at 1,200.07 as in a running triangle.

If minute wave iv is to be a combination, there is no minimum nor maximum requirement for minuette wave (x). It must only subdivide as a correct structure which may be unfolding as a zigzag. X waves within combinations are normally quite deep and may make a new price extreme beyond the start of minuette wave (w) below 1,200.07.

ALTERNATE DAILY ELLIOTT WAVE COUNT

Gold Elliott Wave Chart Daily 2016
Click chart to enlarge.

It is possible that intermediate wave (2) is over as a completed expanded flat. It would be a shallow 0.350 correction of intermediate wave (1) lasting 56 days, just one more than a Fibonacci 55. There would be no Fibonacci ratio between minor waves A and C.

For this alternate wave count, ratios within minor wave C are: there is no Fibonacci ratio between minute waves i and iii, and minute wave v is just 1.13 short of equality in length with minute wave i.

Within minute wave iii, there are no adequate Fibonacci ratios between minuette waves (i), (iii) and (v).

Ratios within minuette wave (iii) are: there is no Fibonacci ratio between subminuette waves i and iii, and subminuette wave v is 0.70 short of 0.618 the length of subminuett wave i. Subminuette wave ii is an expanded flat and subminuette wave iv is a regular contracting triangle.

On balance, there is no advantage for either wave count, this alternate or the main, in terms of Fibonacci ratios or alternation which would indicate one is more likely than the other.

What is problematic for this alternate is the structure of minuette wave (v): the fit on the hourly chart is not as neat for this alternate as it is for the main wave count. For this reason, in terms of Elliott wave, this alternate must be judged to have a lower probability. It requires confirmation with a new high above 1,269.07 before it may be used.

At 1,582 intermediate wave (3) would reach 1.618 the length of intermediate wave (1). No second wave correction may move beyond the start of its first wave below 1,200.07 within intermediate wave (3).

TECHNICAL ANALYSIS

WEEKLY CHART

Gold Technical Analysis Chart Weekly 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

On Balance Volume is breaking below a reasonably long held and clearly defined consolidation zone. It would be entirely reasonable to expect price to follow by continuing lower for a few weeks. This piece of evidence strongly supports the Elliott wave count.

Price has broken below and closed below support about 1,225. Price has fallen on increasing volume for four weeks in a row. This supports a downwards trend.

RSI is neutral. There is plenty of room for price to fall.

DAILY CHART

Gold Elliott Wave Chart Hourly 2016
Click chart to enlarge. Chart courtesy of StockCharts.com.

At this stage, classic technical analysis still looks like there may be a low in place. Yesterday’s green candlestick completed a hammer pattern at support. Today’s downwards movement is not supported by volume, so it looks to be corrective. This supports the alternate daily Elliott wave count.

It is entirely possible though that after the low of 31st May price could turn down to make one more final low as the main Elliott wave count expects. If that happens, then the next support line is about 1,190.

ADX still indicates a downwards trend is in place. ATR still disagrees which indicates this downwards movement from price over the last couple of weeks is more likely to be a counter trend movement than the start or continuation of a bear market.

On Balance Volume still has no useful nearby trend lines. Trend lines may be drawn and used after some more sideways movement from OBV. For now no divergence is noted between OBV and price.

RSI is not yet extreme and also exhibits no divergence with price. There is room for price to fall and RSI is not indicating a reversal here.

Stochastics has reached oversold and may be expected to return to neutral about here.

This analysis is published @ 08:53 p.m. EST.