Price has broken out of a consolidation upwards.
The correction continues as expected.
Slow sideways movement was expected.
I have a new hourly Elliott wave count today which fits recent movement perfectly.
A correction was expected to most likely continue, which is what has happened.
A small inside day leaves both Elliott wave counts valid.
More downwards movement was expected.
Only one wave count is left now.
Downwards movement was expected, but price breached the invalidation point on the hourly chart first providing much confusion with the wave count.
Sideways movement was expected for Monday.
Price has moved lower, not sideways, remaining just above the invalidation point on the hourly chart.
A small red candlestick on light volume indicates a correction unfolded during Tuesday’s session.
Price still has not clarified the situation, and both bull and bear Elliott wave counts remain valid.
Overall downwards movement was expected mid term for both Elliott wave counts.
The short term structure favours the idea presented on the hourly bear Elliott wave count.
Movement below 1,119.23 has invalidated how the bull wave count was labelled for most recent movement and reduced the probability overall of that count.
At this stage, I now have a bull and bear count which have about an even probability. Price should tell us which one is correct.
Upwards movement was expected for Monday.
The Elliott wave count remains the same.
A breakout is still expected to come very soon.
Summary: The triangle is still completing, taking its time and testing our patience. I am still confident that when it is done the breakout will be downwards to move at least slightly below 1,072. The target for this final push up to end the triangle is again calculated at 1,099, but as soon as price reaches above 1,094.98 the breakout may arrive. Thereafter, the breakout downwards may be surprisingly swift and short lived. A new low below 1,081.10 would confirm price is breaking out downwards, especially if it comes on a day with higher volume. In the first instance, now a new low below 1,087.42 may provide earlier confirmation of a breakout.
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Changes to last analysis are bold.
ELLIOTT WAVE COUNT
Cycle wave a is an incomplete impulse.
Within primary wave 5, the daily chart focuses on the middle of intermediate wave (3). Within intermediate wave (3), minor wave 3 now shows a slight increase in momentum beyond that seen for the end of minor wave 1 at the left of the chart. Third waves for Gold usually have clearly stronger momentum than its first waves, so I still expect to see a further increase in downwards momentum. The strongest downwards momentum may appear in a fifth wave somewhere within minor wave 3, maybe the fifth wave to end minuette wave (iii) or minute wave iii, or that to end minor wave 3 itself.
Subminuette wave iii looks like it is over at the daily chart level. Subminuette wave iii has a typical curved look to it at the daily chart level and this wave count has the right look.
Subminuette wave iv may not move into subminuette wave i price territory above 1,157.14.
Subminuette wave iv is a regular contracting triangle. The structure is clear on the daily and hourly charts. Subminuette wave ii was a relatively deep 0.58 zigzag lasting two days, and subminuette wave iv exhibits perfect alternation as a shallow 0.29 triangle lasting thirteen days. Zigzags are normally quicker than triangles, so some disproportion would be expected; the disproportion is just acceptable.
I am removing the channel about minuette wave (iii) in favour of the bright aqua blue trend line, because this line shows nicely where price is finding resistance when it previously provided support. The triangle may now end when price touches that trend line which would see micro wave E fall short of the A-C triangle trend line, the most common look for the E wave of a contracting triangle.
At this stage targets are approximate. When the triangle is complete it will be known at which point the fifth wave begins, then targets can be calculated more accurately for it to end. It is most likely to reach equality in length with subminuette wave i about 1,071.
If price reaches the first target and the structure is incomplete, or if price just keeps falling through it, then a second target may be at 1,035 – 1,038; at 1,035 minuette wave (iii) would reach 4.236 the length of minuette wave (i) and at 1,038 subminuette wave v would reach 0.618 the length of subminuette wave iii.
Extend the triangle trend lines outwards. The point in time at which they cross may see a trend change. Sometimes this is when the fifth wave to follow ends. Sometimes it is a trend change within the fifth wave.
Once price is below 1,072, look for the structure of subminuette wave v to be a completed five wave impulse on the hourly chart. Once that is clear, a subsequent breach of the bright aqua blue trend line would provide some confirmation that minuette wave (iii) would be over and minuette wave (iv) would have begun.
Minuette wave (iv) may be very shallow because minuette wave (ii) was relatively deep at 0.52. Minuette wave (ii) lasted three days and was an expanded flat. Minuette wave (iv) may exhibit alternation as another triangle or a zigzag most likely, and may last about five to eight days. If it is a zigzag, then it may be quicker and sharp.
At 957 primary wave 5 would reach equality in length with primary wave 1.
The final wave of micro wave E still looks incomplete. This triangle really is taking its time, but then that is what they do.
Triangles normally adhere very well to their trend lines; sometimes they have small overshoots, but generally they do not have breaches of their trend lines. Because of this tendency, I expect submicro wave (B) is over since it found support at the B-D trend line.
Submicro wave (C) is very likely to end at least slightly above the end of submicro wave (A) at 1,094.98 to avoid a truncation. As soon as price reaches above this point, look out for a quick end to this sideways triangle.
Micro wave E is subdividing as a zigzag. Within micro wave E, submicro wave (B) may not move beyond the start of submicro wave (A) below 1,081.10. A new low below this point may not be a continuation of micro wave E, so at that point downwards movement would very likely be the downwards breakout we are waiting for. At that stage, the lower B-D trend line of the triangle would also be breached.
Submicro wave (C) must be a five wave structure, and is unfolding as an impulse. Within submicro wave (C), minuscule wave 4 may not move into minuscule wave 1 price territory below 1,087.42. If minuscule wave 4 is over now, then at 1,099 minuscule wave 5 would reach equality in length with minuscule wave 1, and submicro wave (C) would reach equality in length with submicro wave (A). This target would see the A-C trend line of the triangle overshot.
The final E wave of contracting triangles end with either an undershoot or overshoot of the A-C trend line. An undershoot is more common, but in this instance at this stage the target expect an overshoot.
Because a new low below 1,087.42 could not be a fourth wave correction within submicro wave (C), this price point may be used as the very first confirmation point of a breakout. A new low below 1,087.42 could not be part of submicro wave (C), so at that stage submicro wave (C) would be very likely to be over. At this late stage with this consolidation very mature, that would also mean the probability of the whole correction for subminuette wave iv is also over.
The downwards breakout should be swift, very strong, and possibly also very short lived. Subminuette wave v is very likely to make at least a slight new low below the end of subminuette wave iii at 1,072.09 to avoid a truncation. As soon as price reaches below that point, if the structure is a clear five wave impulse, then it could be over. Fifth waves following fourth wave triangles for Gold are sometimes surprisingly short in both price and time.
Micro wave E may not move beyond the end of micro wave C above 1,103.61. If upwards movement were to invalidate the triangle, then subminuette wave iv may be morphing into a combination. They too are sideways movements, so substantial upwards movement would not be expected. At this late stage, because the triangle looks right, I expect price will not move above 1,103.61.
The small pennant pattern continues to unfold. Pennants are smaller versions of triangles. This classic technical analysis pattern is the most reliable continuation pattern, particularly when it turns up in a clearly defined trend and unfolds on declining volume as this one does. During the unfolding of this pennant pattern, it is a downwards day which clearly has the strongest volume providing further indication that the breakout of this pattern is likely to be downwards. When price breaks below the lower trend line of the pennant, and when volume shows an increase, then a downwards breakout should be expected to be underway.
Pennants can last up to three weeks. This one is within its second week. If the pennant ends tomorrow, then it will still be a pennant pattern. To become a classic technical analysis triangle it would need to continue into next week.
ADX continues to rise during the formation of this consolidation. Despite price drifting sideways the trend continues to strengthen and remains down.
A trend following strategy should be used. Trading with the trend is advised. A mean reverting system which allows trades against the trend should only be used by the most experienced professional traders, and for all others it is strongly advised to never trade against the trend.
The simplest system for a downwards trend like this is to use resistance lines: each time price touches resistance that represents an opportunity to enter in the direction of the trend. Trades may be held until price either reaches support, a target, or if the trade is held for one day if you are a day trader. Depending upon your trading style, your risk management, and management of the equity in your account, stops as always are essential: they may be money management stops, they may be just above lines of resistance (allow for small overshoots), or they may be Elliott wave invalidation points.
Corrections against the trend offer an opportunity to join the trend at a good price. Corrections do not offer good trading opportunities when they are at low wave degrees; trying to trade the small waves within a correction exposes your account to the potential for big losses.
This approach outlined here is just one trend following method of many.
There is a little positive bullish divergence last week: the low for 23rd July did not move below the prior low of 17th July, but On Balance Volume did make a new low. OBV moved lower while price did not. This bullish divergence indicates a correction against the trend to unfold, which is what has been happening. This correction should resolve this divergence.
Today’s candlestick is very small and comes with even lower volume. Price is now squashed between the aqua blue trend line and the lower pennant trend line. The breakout is now very close indeed. The Elliott wave target at 1,099 would see the aqua blue line overshot. An overshoot is acceptable, if price returns quickly back below the line. It may be that if the aqua blue line is overshot price may find resistance at the upper pennant trend line.
I am redrawing the trend line to match that on the daily Elliott wave count. That trend line previously showed where price found support, and now shows where price is finding resistance. It is reasonably shallow and repeatedly tested, so it is reasonably technically significant. While price remains below that line and ADX indicates a downwards trend, then that line may be used as an opportunity to join the trend each time price touches it.
This analysis is published about 05:19 p.m. EST.