Another strong downwards day was not expected to break below a support line that extends back to December 2016. Price action today suggests the weekly alternate count, or a variation thereof, now is more likely.
Summary: The outlook is now fairly bearish. Expect a little sideways movement to complete a small correction today, to be followed by another wave down which may be about 13.18 in length. After a new low, then look out for a deep bounce that may offer an opportunity to join the new downwards trend, and it may offer some profit to the upside.
New updates to this analysis are in bold.
Grand SuperCycle analysis is here.
MAIN ELLIOTT WAVE COUNT
The large downwards wave from September 2011 to December 2015 will fit as a five wave impulse.
Within the impulse, primary wave 3 ends with a truncation. This is acceptable, it came after a movement which may be described as “too far, too fast” for the middle of the third wave.
There is alternation between the double combination of primary wave 2 and the brief zigzag of primary wave 4. Zigzags are usually more brief structures than combinations, so this disproportion is acceptable.
Primary wave 5 is an ending contracting diagonal, meeting all rules for diagonals.
If the downwards wave labelled cycle wave a is a five, then the correction cannot be over there. This also suggests that the correction is a zigzag, or the first wave within it is a zigzag. Because of the expected duration of Grand Super Cycle wave IV, it looks best if Super Cycle wave (a) is seen as an incomplete zigzag.
The problem now becomes what to make of cycle wave b? Three possibilities are presented below in order of probability, labelled I, II and III.
It is most likely that cycle wave b is not over. It looks most likely that the first wave up within it was a zigzag, so cycle wave b may be either a combination, triangle or double zigzag. Due to structure of recent upwards movement labelled intermediate wave (A) subdividing best as a three and very poorly as a five, we can all but eliminate a double zigzag for cycle wave b. This leaves a combination or triangle.
WEEKLY CHART I
Combinations are very common structures. Cycle degree waves normally last one to several years, and B waves do tend to be more time consuming waves than all other waves. Given these tendencies the most likely scenario at this point may be that cycle wave b is an incomplete double combination.
The first structure in the double labelled primary wave W fits as a zigzag. This upwards movement will subdivide as either a three (zigzag) or a five (impulse). It does have a three wave look to it.
The double is joined by a deep three in the opposite direction labelled primary wave X, which is a 0.77 depth of primary wave W. X waves within double combinations are normally very deep; this one looks right.
The second structure in the combination may be either a triangle or a flat correction. Both of these structure have A waves which subdivide as threes.
At this stage, the upwards wave from the low in December 2016 does now look best and subdivide best as a completed zigzag. This may be intermediate wave (A) of a flat correction or a triangle. Because a triangle for primary wave Y would look essentially the same as the second weekly chart below, only a flat correction is considered here. The most common two structures in a double combination are a zigzag and a flat.
This wave count follows the most common scenario and has the best fit.
Within the flat correction of primary wave Y, intermediate wave (B) must retrace a minimum 0.9 length of intermediate wave (A) at 1,140.27. The most common length for intermediate wave (B) is from 1 to 1.38 times the length of intermediate wave (A), giving a common range from 1,123.08 to 1,057.77.
Intermediate wave (B) may subdivide as any corrective structure, but the most common structure for B waves within flats is a zigzag. At this stage, on the hourly chart it looks like a five down is almost complete, which would indicate intermediate wave (B) is a zigzag subdividing 5-3-5.
The daily and hourly charts will follow this weekly chart. That does not mean the other two weekly charts aren’t possible, they are, but the number of charts must be kept reasonable on a daily basis.
WEEKLY CHART II
What if cycle wave b is a triangle? This is also entirely possible. Triangles are not as common as double combinations, but they are not uncommon. This wave count will be followed but not published daily. If it begins to diverge from the first weekly chart, then it will be published daily.
Within the triangle, primary waves A, B and C are all single zigzags. One of the five subwaves of a triangle normally subdivides as a more complicated multiple, usually a double zigzag. This may be what is unfolding for primary wave D.
Primary wave D of a regular contracting triangle may not move beyond the end of primary wave B below 1,123.08.
Primary wave D of a regular barrier triangle should end about the same level as primary wave B at 1,123.08, so that the B-D trend line is essentially flat. What this means in practice is that primary wave D may end slightly below 1,123.08 and the triangle would remain valid. This is the only Elliott wave rule which is not black and white.
Thereafter, primary wave E should unfold upwards and would most likely fall a little short of the A-C trend line. If not ending there, it may overshoot the A-C trend line.
WEEKLY CHART III
It is possible that cycle wave b is a complete zigzag, correcting to 0.376 the depth of cycle wave a.
If this is correct, then cycle wave c downwards has begun.
Cycle wave c must subdivide as a five wave structure and it would be extremely likely to make at least a slight new low below the end of cycle wave a at 1,046.27 to avoid a truncation. Two targets are given for cycle wave c.
Cycle degree waves usually last one to several years. Here, cycle wave b may have lasted only seven months and would be more brief than cycle degree waves usually are. However, flexibility is essential regarding B waves. They do exhibit a huge variety, so all possibilities must be considered.
This weekly chart has a lower probability due to the brevity of cycle wave b. It also must ignore what looks like a triangle (noted on the chart) because intermediate wave (2) may not be seen as a triangle. This also slightly reduces the probability of this wave count.
DAILY CHART – DETAIL
The upwards wave labelled here primary wave W will fit neatly as a zigzag.
The downwards wave labelled here primary wave X does fit best as a zigzag. This allows a triangle to be seen in the position labelled intermediate wave (B).
Now the upwards wave from the low of December 2016 to the last high on the 17th of April fits best and looks like a zigzag. This indicates primary wave Y is most likely subdividing as a flat correction.
Within the flat correction of primary wave Y, intermediate wave (B) must retrace a minimum 0.9 length of intermediate wave (A) at 1,140.27. The most likely corrective structures to achieve the deep correction required for B waves within flats are single or multiple zigzags. These begin with a five, then a three in the opposite direction. So far a five down looks close to completion; when complete, it should then be followed by a three up.
Minor wave B, when it arrives, may be deep but may not move beyond the start of minor wave A above 1,294.96.
When minor wave A is complete and is confirmed so by a breach of the channel on the hourly chart, then the 0.382 and 0.618 Fibonacci ratios will be used as targets for minor wave B.
When minor waves A and B are complete, then a target may be calculated for minor wave C downwards to end the zigzag of intermediate wave (B), using the Fibonacci ratio between minor waves A and C. That cannot be done yet.
A new low below 1,195.22 by any amount at any time frame would invalidate the alternate wave count below and provide confirmation of this main wave count (all three weekly versions of it).
2 HOURLY CHART
This downwards movement so far looks very much like an impulse. Fibonacci ratios at minute and minuette degrees are noted.
A small correction for minute wave iv may be unfolding today. So far it looks like a small triangle. When it is complete, then a final fifth wave down may unfold.
Because it is not known where minute wave iv ends and so where minute wave v begins, no target may be calculated for minute wave v to end minor wave A. Minute wave v would most likely be about equal in length with minute wave i, which was 13.18.
The best fit channel is very important. Add a mid line. Expect price to continue down while price remains within the lower half. When price breaks into the upper half, it would most likely be the end of minor wave A and the start of minor wave B. A breach of the upper edge of the channel would provide strong indication that minor wave A is over.
Minute wave iv may not move into minute wave i price territory above 1,282.01. However, Gold’s fourth waves are typically very shallow; minute wave iv is not expected to get anywhere near the invalidation point.
This hourly chart shows more detail of the end of minute wave iii.
If members are choosing to enter short here, then stops may be placed just above the mid line of the channel. Understand though that the short side may be somewhat limited: the next wave down may be only just a bit longer than $13. The risk / reward ratio may not be acceptable to all traders.
Gold often exhibits swift strong fifth waves, but this is much more common for its fifth waves to end third wave impulses and not very common for its fifth waves to end A wave impulses. Minute wave v may be a strong extension, but that is not very likely.
ALTERNATE MONTHLY CHART
Up until today this was the main wave count, but today it is switched to an alternate.
It is possible that Super Cycle wave (a) is already complete as a double zigzag. This downwards wave has a very good fit as a double zigzag and the problem of a small truncation on the main wave count is avoided.
If the first wave of Super Cycle wave (a) is a three, then Grand Super Cycle wave IV may be either a flat, combination or triangle. It may not be a zigzag.
However, a combination may be eliminated if the first wave is a multiple. The maximum number of corrective structures within a multiple is three, so to label multiples within multiples increases the number of structures beyond three and violates an Elliott wave rule.
Grand Super Cycle wave IV may be only a flat or triangle. Within both of these structures, Super Cycle wave (b) may make a new high above the start of Super Cycle wave (a) as in an expanded flat or running triangle. Super Cycle wave (b) would be very likely to be a very deep correction. It would most likely be a zigzag to achieve the depth required for a flat correction, but it may also be an expanded flat. If it is a zigzag, then cycle wave a would have to subdivide as an impulse.
ALTERNATE WEEKLY CHART
If cycle wave a is subdividing as an impulse, then it should now be entering the middle of its third wave. The strong breach of the lower edge of the base channel substantially reduces the probability today that a big third wave is imminent.
It does not have a good fit to try and see intermediate wave (1) over at the high labelled minor wave 1; to see the upwards wave from the low in December 2016 to the last high in April as a completed five wave impulse is very forced. I would not want to publish such a wave count; it would be publishing what is wanted not what looks right.
SECOND ALTERNATE WEEKLY CHART
It is also possible that cycle wave a is subdividing as a double zigzag. The upwards wave from the low of December 2016 may be the second zigzag in a double.
The problem here is not a base channel, although it is drawn the same. The problem here is price has now substantially and clearly broken below the lower edge of the Elliott channel, which should provide strong support for primary wave Y as it moves higher.
Although technically cycle wave a could be labelled as complete at the April high, that would look very wrong. The purpose of the second zigzag in a double is to deepen the correction when the first zigzag does not move price deep enough. This second zigzag has not reached beyond the end of the first. This would not correctly be termed a truncation but the effect is the same. Here, it would be too severe for reasonable consideration.
ALTERNATE DAILY CHART – DETAIL
There is now a full daily candlestick below and not touching the lower edge of the base channel (or Elliott channel). This daily candlestick is a clear strong downwards day, not at all sideways. This now substantially reduces the probability of this alternate wave count.
This wave count will remain technically valid while price remains above 1,195.22. It will be followed but not published again on a daily basis.
Click chart to enlarge. Chart courtesy of StockCharts.com.
There are a lot of assumptions out there about Gold and its relationships to various other markets. Happily, there is a quick and easy mathematical method to determine if Gold is indeed related to any other market: StockCharts have a “correlation” option in their indicators that shows the correlation coefficient between any selected market and the one charted.
The correlation coefficient ranges from -1 to 1. A correlation coefficient of 1 is a perfect positive correlation whereas a correlation coefficient of -1 is a perfect negative correlation.
A correlation coefficient of 0.5 to 1 is a strong positive correlation. A correlation coefficient of -0.5 to -1 is a strong negative correlation.
Any two markets which have a correlation coefficient that fluctuates about zero or spends time in the 0.5 to -0.5 range (shown by highlighted areas on the chart) may not be said to have a correlation. Markets which sometimes have a positive or negative correlation, but sometimes do not, may not be assumed to continue a relationship when it does arise. The relationship is not reliable.
For illustrative purposes I have included the correlation coefficient between Gold and Silver, which is what strong and reliable correlation should look like.
Volume for last week suggests the downwards movement is a pullback, and it may still continue further as volume remains fairly heavy.
Gold has made a series of higher highs and higher lows since the low in December 2016, the definition of an upwards trend. Assume the trend remains the same until proven otherwise.
This weekly chart still remains mostly bullish with some neutrality.
Click chart to enlarge. Chart courtesy of StockCharts.com.
A strong gap down below prior support at 1,240 is bearish. The increase in volume is bearish. This could be either a selling climax, or a strengthening downwards trend.
On Balance Volume is looking less bullish and may find support at the yellow line.
If RSI reaches oversold and then exhibits divergence with price, then we should expect a low is in. That is not the case yet.
This chart is looking very bearish.
Click chart to enlarge. Chart courtesy of StockCharts.com.
This chart is still very bearish. The only concern would be flat ATR not supporting the trend.
A new low below the low for the 9th of March is important.
The gap down today may be a breakaway gap from a prior small consolidation. Using the measured rule gives a target about 17.94. If this gap is a measuring gap, it should offer resistance; measuring gaps are not normally closed for the short nor mid term. If the gap is closed, then it would be correctly labelled an exhaustion gap. If that happens, expect the downwards trend is over for now.
This analysis is published @ 10:09 p.m. EST.