Price began the session with downwards movement, which was expected, but the upwards move to end the session is much deeper than expected.
Summary: Monday may begin with a little upwards movement to at least slightly above 1,119.23, to a target at 1,121. Use the sideways violet channel on the hourly chart to show where upwards movement should find resistance and may end. This upwards movement should be over either during the morning of Monday or it may take the entire session, but it should not last longer than that. Thereafter, look out for a fifth wave down which can be swift and strong. The target for that is at 1,035.
To see weekly charts click here.
Changes to last analysis are bold.
MAIN 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.
I am moving the degree of labelling within the end of subminuette wave iii up one degree; subminuette wave iii looks like it is over at the daily chart level. Also, subminuette wave iii has a typical curved look to it at the daily chart level and this wave count has the right look.
The correction looks like subminuette wave iv, which may not move into subminuette wave i price territory above 1,157.14.
Draw a channel about minuette wave (iii) as shown (this is slightly different than yesterday’s channel that has not yet been breached). Use this orange channel on the hourly chart. Subminuette wave iv may have to overshoot this channel slightly to avoid a truncated C wave. This may happen on Monday.
When subminuette wave iv is complete, then subminuette wave v down should unfold. It may be swift and strong, typical of Gold. At 1,035 minuette wave (iii) would reach 4.236 the length of minuette wave (i). When subminuette wave iv is complete, then I can add to this target at a second wave degree and at that point the target may change or widen to a small zone.
At 957 primary wave 5 would reach equality in length with primary wave 1.
Upwards movement to end Friday’s session does not look like another second wave correction within a fifth wave down as per last analysis, because the movement is too high and too strong.
Downwards movement from the high labelled micro wave A to the low for Friday will not subdivide as a five, neither an impulse nor an ending diagonal, but it will subdivide as a three.
My conclusion has to be that Gold is in a multi-day correction against the trend that has turned up sooner than expected, and comes before price and RSI exhibited divergence at the daily chart level. Last analysis would have seen this as micro wave 4, but it would be unlikely that micro wave 4 would be more than four or five times the duration of micro wave 2. It is more likely that this correction is subminuette wave iv.
Ratios within subminuette wave iii are: there is no Fibonacci ratio between micro waves 1 and 3, and micro wave 5 is 3.83 longer than 1.618 the length of micro wave 3.
There is no Fibonacci ratio between subminuette waves i and iii. This makes it very likely submineutte wave v will exhibit a Fibonacci ratio to either of subminuette waves i or iii. When subminuette wave iv is over and the start of subminuette wave v is known, then the target of minuette wave (iii) to end can be calculated also at subminuette wave degree. At that stage, the target may widen to a small zone or it may change.
For now the target can only be calculated at minuette degree. At 1,035 minuette wave (iii) would reach 4.236 the length of minuette wave (i). Look out for the possibility that subminuette wave v downwards may be very swift and strong.
Subminuette wave ii was a relatively deep 0.58 zigzag. Subminuette wave iv is exhibiting some alternation as a regular flat correction. If subminuette wave iv reaches the target, then it would be less than 0.5 of subminuette wave iii and so would be shallower than subminuette wave ii. Subminuette wave iv is unlikely to reach the 0.618 Fibonacci ratio of subminuette wave iii at 1,135.
At 1,121 micro wave C would reach equality in length with micro wave A. Micro wave C should find resistance at the upper edge of the violet channel drawn about this regular flat of subminuette wave iv. Micro wave C is highly likely to move at least slightly above the end of micro wave A at 1,119.23 to avoid a truncation.
The target expects that subminuette wave iv will breach the best fit channel drawn about subminuette waves i, ii and iii. That’s okay, fourth waves aren’t always contained nicely within channels. If this happens, then the channel should be redrawn when subminuette wave iv is over using Elliott’s second technique. The redrawn channel may be useful to show where subminuette wave v downwards may find support and may end.
Subminuette wave iv may not move into subminuette wave i price territory above 1,157.14.
Yesterday’s alternate wave count would now see this correction as minuette wave (iv), one degree higher. I will not publish that idea again for three reasons:
1. Within minuette wave (iii) (if it was over at the low labelled subminuette wave iii), there would be no Fibonacci ratios between its actionary waves.
2. Minuette wave (ii) was a regular flat correction. Minuette wave (iv) would also be a regular flat correction. There would be no alternation.
3. Minuette wave (iii) does not have the right look at the daily chart level.
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 this week shows a strong increase. The fall in price is well supported by volume at the weekly chart level.
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: the low was seen one to six days later with divergence between price and RSI. I had expected this pattern to repeat with the price low to coincide with divergence on RSI, but it has not.
ADX is still clear at the end of the week. The ADX line is above 20 and still 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.
The Trend Is Your Friend. Trading against the trend may be possible for very experienced professionals, but for everyone else it is strongly advised to trade only with the trend. It is relatively easy to profit in a clearly trending market, but only if you trade with the trend.
Today I have added another likely trend line (in aqua blue) showing resistance.
This approach outlined here is just one trend following method of many.
There is a little positive bullish divergence this 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 supports the wave count which expects upwards movement for Monday (at least to start the session) and indicates that Monday may produce another green candlestick.
The long lower wick of Friday’s candlestick is another slight bullish indicator for the short term. It also completes a bullish engulfing pattern for the last two days.
This analysis is published about 06:51 p.m. EST.