Price has moved lower exactly as expected.
Summary: The target for the next third wave to end, which may be met tomorrow, remains at 1,060. The following fourth wave may show on the daily chart, but it may not. The target for minute wave iii to end remains at 1,023 and a multi-day correction is still expected to arrive about there. Downwards momentum still needs to show an increase at the daily chart level for the wave count to have the right look, so the strongest downwards move is still ahead. It may turn up in a fifth wave to end one or more of these third waves. Expect any more surprises to be to the downside.
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Changes to last analysis are bold.
DAILY 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 has yet to show an increase in momentum beyond that seen for the end of minor wave 1 at the left of the chart. This is why I still expect to see more downwards movement to show a further increase in downwards momentum. The strongest downwards momentum may turn up in a fifth wave somewhere within minor wave 3, maybe the fifth wave to end minute wave iii or that to end minor wave 3 itself.
Draw a base channel about minuette waves (i) and (ii) as shown (green trend lines). If the steeper violet channel is breached then look for the lower green trend line to provide resistance. Only if the upper green line is breached would I consider the wave count to be wrong.
Draw a best fit channel about subminuette wave iii as shown (violet lines) and use that channel on the hourly chart.
Micro wave 4 (if it continues further) may not move into micro wave 1 price territory above 1,147.26.
At 957 primary wave 5 would reach equality in length with primary wave 1.
HOURLY ELLIOTT WAVE COUNT
Gold often exhibits swift strong fifth wave extensions, and they usually turn up to end its third waves. We saw this to end micro wave 3. It is entirely possible, and should be expected, that it may happen again to end one or more of subminuette wave iii, minuette wave (iii), minute wave iii, minor wave 3 and maybe even intermediate wave (3). Look out for any more surprises on the way down to be to the downside.
There is no Fibonacci ratio between micro waves 1 and 3. This is important and means that micro wave 5 is more likely to exhibit a Fibonacci ratio to either micro waves 1 or 3. At 1,060 micro wave 5 would reach 0.618 the length of micro wave 3. This fifth wave down for micro wave 5 will complete subminuette wave iii impulse. So far subminuette wave iii has lasted twelve days and may end in one more day to total a Fibonacci thirteen.
Submicro wave (5) to end micro wave 3 was a swift strong extended fifth wave. Sometimes when a movement is “too far too fast” a fifth wave truncation turns up. It is possible that my target of 1,060 is too low. Today this target looks entirely reasonable though because micro wave 5 now needs room to the downside to complete a five wave impulse structure.
Within micro wave 5, there may now be three overlapping first and second waves: submicro waves (1) and (2), followed by minuscule waves 1 and 2, and now nano waves i and ii (brown circle). This suggests an increase in downwards momentum should arrive when the middle of the third wave and then the fifth wave unfolds.
Create a parallel copy of the mid line of the violet channel. Place it on recent highs as shown. Use that trend line to show where upwards corrections should find resistance. When the mid line is breached an increase in downwards momentum may occur; this may be the middle of the third wave. If the lower edge of this channel is breached, then momentum may increase substantially, but it is also possible subminuette wave iii may end at the lower edge of this channel.
At the daily chart level, micro wave 3 now has a curved look to it (very typical for Gold’s third waves). We may see this curved look for one or more of subminuette, minuette or minute degree third waves too. This happens often because Gold’s second wave corrections are often more time consuming than its fourth waves; because it has swift strong fifth waves, they tend to force the fourth wave corrections to be relatively swift and shallow.
For now I will focus on looking for the end of subminuette wave iii. When subminuette waves iii and iv are complete, then I will use multiple degrees to calculate the target for minuette wave (iii). I will not provide a target again for it until I can do so at more than one wave degree.
When minuette waves (iii) and (iv) are both complete, then the target for minute wave iii to end may be recalculated and may change. For now I can only calculate that at one wave degree.
At 1,023 minute wave iii would reach 2.618 the length of minute wave i. Minute wave iii has now lasted 24 days and its structure is incomplete. If minute wave iii totals a Fibonacci 34 days, then it may end in another 10 days. If that expectation is wrong, then minute wave iii may be too long in duration, may not exhibit a Fibonacci duration, and may end quicker than this.
Weekly Chart: The lilac trend line on On Balance Volume has been breached, which is a longer term bearish indicator.
OBV is now breaking below the shorter green trend line, another bearish indicator.
Volume for recent downwards weeks has shown an increase which comes after the consolidation showed a typical decline in volume as it matured.
OBV has this week breached the shorter held green trend line, another bearish indicator.
RSI is usually a fairly reliable indicator of lows. At the weekly chart level, RSI is well above 30 indicating there is room yet for Gold to move lower.
Daily Chart: What is quite stark on this daily chart is the strong volume for Monday. This strong downwards movement was supported very well by volume. There is nothing suspicious about it.
I have looked back again at the ends of third and fifth waves within primary wave 3 during April, May and June 2013. During that downwards movement there were a few strong down days with volume spikes, similar to what we have seen this week for Monday. Each time this happened it was not the temporary price low. A brief discussion of some of those important down days follows.
The strong days of 12th and 15th April, 2013, (a Friday and Monday, so consecutive trading days) saw one more day down after that to reach the low on 16th April. At the low price diverged with RSI: price made a new low while RSI turned up. That low ended minute wave iii within minor wave 5 within intermediate wave (3) within primary wave 3.
There was a series of strong down days culminating in a volume spike on 16th May, 2013. The price low happened the following trading day on 20th May and was again seen with divergence between price and RSI on that day. That low ended a truncated fifth wave (the third wave prior was the strongest move; too far too fast) for minor wave 5 within intermediate wave (3) within primary wave 3.
The strong downwards day of 19th June, 2013, was impressive with a price range of 27.65 for the day and the strongest volume spike of them all at 124.9K. But that was not the end of the fall. The low came six days later on 27th June 2013. Only that last day with the final low for primary wave 3 saw a divergence between price and RSI. The final day also produced a new low but a green candlestick and a strong bullish engulfing candlestick pattern. That was the end of primary wave 3 and the start of primary wave 4.
With this analysis we should expect the pattern to be repeated again within primary wave 5. At the price low for yesterday’s strong downwards day to 1,072.09, there is no divergence between price moving lower and RSI also moving lower. The short term / mid term low may not be seen for another one to five days yet. This analysis fits nicely with the Elliott wave count and potential Fibonacci durations (with the exception of another eleven days before the low for minute wave iii; another reason that duration may be too long).
A correction may be expected soon, but not quite yet.
ADX is still clear. The ADX line is above 20 and rising indicating a strengthening trend. The -DX line (red dashed) is above the +DX line (solid green) indicating the trend is down. A trend following trading system should be used.
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.
This approach outlined here is just one trend following method of many.
This analysis is published about 05:07 p.m. EST.