A channel breach on the hourly bull Elliott wave count indicated a small correction may have arrived.
Summary: Friday should see a little upwards movement most likely to end about 1,188. Thereafter, another five down should begin. If it makes a new low below 1,162.80, then the bear wave count would be strongly favoured. Warning: the bear wave count sees a small second wave correction ending, which is close to the middle of a big third wave, and it is possible it could end quickly and be followed by a very strong move down.
To see the bigger picture and weekly charts go here.
Changes to last analysis are italicised.
Bull Wave Count
The bull wave count sees primary wave 5 and so cycle wave a a complete five wave impulse on the weekly chart.
1. The size of the upwards move labelled here intermediate wave (A) looks right for a new bull trend at the weekly chart level.
2. The downwards wave labelled intermediate wave (B) looks best as a three.
3. The small breach of the channel about cycle wave a on the weekly chart would be the first indication that cycle wave a is over and cycle wave b has begun.
1. Within intermediate wave (3) of primary wave 5 (now off to the left of this chart), to see this as a five wave impulse requires either gross disproportion and lack of alternation between minor waves 2 and 4 or a very rare running flat which does not subdivide well. I have tried to see a solution for this movement, and no matter what variation I try it always has a major problem.
2. Intermediate wave (5) of primary wave 5 (now off to the left of the chart) has a count of seven which means either minor wave 3 or 5 looks like a three on the daily chart.
3. Expanding leading diagonals (of which intermediate wave (A) or (1) is) are are not very common (the contracting variety is more common).
4. Volume does not support this bull wave count.
For volume to clearly support the bull wave count it needs to show an increase beyond 187.34 (30th April) and preferably beyond 230.3 (9th April) for an up day. Only then would volume more clearly indicate a bullish breakout is more likely than a bearish breakout.
Within cycle wave b, primary wave A may be either a three or a five wave structure. So far within cycle wave b there is a 5-3 and an incomplete 5 up. This may be intermediate waves (A)-(B)-(C) for a zigzag for primary wave A, or may also be intermediate waves (1)-(2)-(3) for an impulse for primary wave A. At 1,320 intermediate wave (C) would reach equality in length with intermediate wave (A) and primary wave A would most likely be a zigzag. At 1,429 intermediate wave (3) would reach 1.618 the length of intermediate wave (1) and primary wave A would most likely be an incomplete impulse.
Intermediate wave (A) subdivides only as a five. I cannot see a solution where this movement subdivides as a three and meets all Elliott wave rules (with the sole exception of a very rare triple zigzag which does not look right). This means that intermediate wave (B) may not move beyond the start of intermediate wave (A) below 1,131.09. That is why 1,131.09 is final confirmation for the bear wave count at the daily and weekly chart level.
Intermediate wave (C) is likely to subdivide as an impulse to exhibit structural alternation with the leading diagonal of intermediate wave (A). This intermediate wave up may be intermediate wave (3) which may only subdivide as an impulse.
Minor wave 2 is over here. Minute wave c is just 2.7 longer than 1.618 the length of minute wave a. At 1,288 minor wave 3 would reach 1.618 the length of minor wave 1.
Within minor wave 3, no second wave correction may move beyond its start below 1,162.80.
A new high above 1,232.49 would eliminate the bear wave count and provide full confidence in the targets.
Hourly Bull Wave Count
Again, as yesterday, both of the ideas presented on the hourly charts work in the same way for bull and bear wave counts. Today this first idea has a higher probability because the second idea includes a truncation which reduces its probability.
An impulse may have ended at 1,176, labelled minuette wave (a). A correction may have begun there, unfolding as a flat.
Subminuette wave a subdivides as a three. Subminuette wave b may be an almost complete triangle. When it is done, then subminuette wave c upwards may end about the 0.382 Fibonacci ratio of minuette wave (a) about 1,188. Subminuette wave c is extremely likely to make at least a slight new high above the end of subminuette wave a at 1,180.42 to avoid a truncation and a very rare running flat.
Minuette wave (b) may not move beyond the start of minuette wave (a) above 1,205.89.
Bear Wave Count
This wave count follows the bear weekly count which sees primary wave 5 within cycle wave a as incomplete. At 957 primary wave 5 would reach equality in length with primary wave 1.
1. Intermediate wave (1) (to the left of this chart) subdivides perfectly as a five wave impulse with good Fibonacci ratios in price and time. There is perfect alternation and proportion between minor waves 2 and 4. For this piece of movement, the bear wave count has a much better fit than the bull wave count.
2. Intermediate wave (2) is a very common expanded flat correction. This sees minor wave C an ending expanding diagonal which is more common than a leading expanding diagonal.
3. Minor wave B within the expanded flat subdivides perfectly as a zigzag.
4. Volume at the weekly and daily chart continues to favour the bear wave count. Since price entered the sideways movement on 27th March it is a downwards week which has strongest volume, and it is downwards days which have strongest volume, five of them.
5. On Balance Volume on the weekly chart recently breached a trend line from back to December 2013. This is another bearish indicator.
1. Intermediate wave (2) looks too big on the weekly chart.
2. Intermediate wave (2) has breached the channel from the weekly chart which contains cycle wave a.
3. Minor wave 2 is much longer in duration than a minor degree correction within an intermediate impulse normally is for Gold. Normally a minor degree second wave within a third wave should last only about 20 days maximum. This one is 44 days long.
4. Within minor wave 1 down, there is gross disproportion between minute waves iv and ii: minute wave iv is more than 13 times the duration of minute wave i, giving this downwards wave a three wave look.
Minor waves 1 and 2 are complete. Minute wave i within minor wave 3 may be incomplete on the hourly chart.
Minute wave ii may not move beyond the start of minute wave i above 1,232.49.
At this stage, a new low below 1,162.80 would provide a lot of confidence in the bear wave count. Further confidence would come with a new low below 1,142.82 and final confidence would come only with a new low below 1,131.09.
Minute wave ii is now very likely to be over here. If it moves any higher, then it should find strong resistance at the blue trend line.
Hourly Bear Wave Count
Again this second idea works in exactly the same way for both bull and bear wave counts, because A-B-C of a zigzag and 1-2-3 of an impulse subdivide in exactly the same way.
It is possible that the downwards impulse ended at Thursday’s low with a truncated fifth wave. The truncation reduces the probability of this wave count.
However, while price remains below 1,178.18, it may also be possible that subminuette wave v is not over and will move lower, and may resolve the problem of a truncation. A new high above 1,178.18 would indicate for both hourly chart ideas that the correction is completing upwards.
I am labelling subminuette wave v over here because the channel about minuette wave (i) is now slightly breached, and the sideways movement which breached the channel does not look like part of subminuette wave v.
Minuette wave (ii) may end only about the 0.382 Fibonacci ratio of minuette wave (i). There should be a strong downwards pull exerted from the middle of intermediate wave (3), at this stage, forcing second wave corrections to be brief and shallow.
Minuette wave (ii) may not move beyond the start of mineutte wave (i) above 1,205.89.
Weekly Chart: Overall volume still favours a downwards breakout eventually. During this sideways movement, it is still down days and a down week which have higher volume. On Balance Volume breaches a trend line (lilac line) which began in December 2013, and the breach is significant.
While price has made higher lows, On Balance Volume has made lower lows (green trend lines). This small rise in price is not supported by volume, and it is suspicious.
At the weekly chart level, volume consistently favours a bearish breakout: over the last three weeks, the two up weeks have lower volume than the prior down week; and, this pattern was also seen for prior moves within this sideways range, with the four down weeks from 29th March to 26th April stronger than the following two up weeks.
Daily Chart: ADX still indicates there is no clear trend. A range bound trading system would be better employed than a trend following system. Trading in a range bound market, as Gold has been in since the 27th of March, is inherently more risky than trading a trending market. Careful money management rules are essential to avoid wiping out your account. A good rule to follow would be to invest no more than 2% of the equity in your account on any one trade.
The range bound system illustrated here uses horizontal lines of support and resistance along with fast Stochastics to illustrate overbought and oversold. The idea is to expect the end of one swing and the start of another when price is at support or resistance and Stochastics is at oversold or overbought.
Stochastics reached overbought six days ago, but price did not reach resistance and has turned strongly down. Again, this illustrates why trading this market is so risky when using this method, because it is impossible to tell exactly where one swing ends and the other begins; it is only possible to get a general idea.
Eventually Gold will break out of this range it entered on 27th March; a breakout is 100% certain. What is uncertain is what direction the breakout will be. When the breakout comes, then this range trading system will be expecting a move in the opposite direction and the final swing will never come. Additionally, ADX may be slow to indicate the existence of a trend when it finally arrives, which again illustrates why trading this market is so risky.
Gold has been within this range now for 64 days. The longer price remains in this range the closer the breakout will be and the risker it is to expect the sideways swings to continue.
The weight of volume indicators is pointing to a downwards breakout as more likely. This is not definitive and only is indicative. Extreme caution is advised, particularly with any trades to the upside at this stage.
Upwards movement is finding resistance as expected at the lower blue line. Very slightly lower volume for Thursday’s session indicates a small correction may be unfolding, which fits perfectly with the Elliott wave counts. If price breaks through resistance at the lower blue line, it may then find resistance at the lower lilac line.
Stochastics is not yet oversold, so this range trading system would expect an upwards swing to not quite be ready to begin.
This analysis is published about 05:41 p.m. EST.