Sideways movement in a small range fits the Elliott wave count very nicely.
Summary: A sideways consolidation is very mature; the breakout is now very close and most likely to be downwards. A new low below 1,086.57 would confirm a downwards breakout is underway, the target for it to end would be at 1,066. A new high above 1,105.18 would confirm a short (false?) upwards breakout is underway to a short term target at 1,121, which should then be followed by a longer fifth wave down to 1,035.
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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 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, or maybe the fifth wave to end minuette wave (iii) or 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 orange 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.
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.
Draw a channel about minuette wave (iii): draw the first trend line from the ends of subminuette waves i to iii then place a parallel copy now on today’s high. Do the same on the hourly chart. The upper orange trend line is now slightly overshot at the hourly chart level. When this fourth wave is complete, then redraw the channel using Elliott’s second technique with the first trend line from the ends of the second and fourth waves and a parallel copy on the end of the third wave. This may show where the final fifth wave ends at the lower edge of that redrawn channel.
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.
HOURLY CHART – TRIANGLE
At this stage, it still looks like a triangle is the most likely structure for subminuette wave iv to be completing. At the daily chart level, the structure looks like a triangle (which would see a smaller overshoot of the upper edge of the orange channel) that is indicated now by MACD hovering about the zero line.
Only one of the five sub waves of a triangle may be a more complicated and time consuming wave. Sometimes this is wave D or E which unfolds itself as a triangle, which may be what is happening today. This means that wave B must be seen as a single zigzag which does not have as good a look as a double. The flat correction can see this wave down as a double zigzag, which actually has a better fit.
A new low below 1,086.57 at this stage would invalidate the flat correction idea and provide some confirmation of this triangle idea. At that stage, subminuette wave v down should be underway.
Fifth waves following triangles are often (not always) more swift and brief than expected. If subminuette wave v reaches equality in length with subminuette wave i, then it may end about 1,066. It is highly likely that submineutte wave v would move at least slightly below the end of subminuette wave iii at 1,072.09 to avoid a truncation, but it may not move too far below that point.
The final wave of the triangle for micro wave E may already be over, or it may now be over very soon indeed. It may not move beyond the end of micro wave C above 1,105.18.
HOURLY CHART – FLAT
It is still possible that subminuette wave iv is completing as a regular flat correction.
Within a flat, both waves A and B must subdivide as threes and B must retrace a minimum 90% of A. Here micro wave A is a zigzag. Micro wave B may have been a double zigzag, which has a better look than seeing this downwards movement as a single. It retraced 97% of micro wave A indicating a regular flat correction.
Regular flats have C waves which most commonly reach close to equality in length with their A waves. Micro wave C would reach equality in length with micro wave A at 1,121.
Regular flats normally fit nicely within their channels. At the target, micro wave C would come to find resistance at the upper edge of the violet channel and very likely end there.
Micro wave C must subdivide as a five wave structure, and is currently unfolding as an impulse. Within micro wave C, submicro wave (4) may be a regular contracting triangle. Submicro wave (4) may not move into submicro wave (1) price territory below 1,086.57.
A new high above 1,105.18 would invalidate the first hourly wave count and provide confirmation for this second hourly wave count.
This idea would see a reasonable overshoot of the upper edge of the orange channel. While that is entirely possible because fourth waves are not always contained within their channels, it does have a lower probability than seeing only a very small overshoot which is what the first wave count expects to see.
Within micro wave C, submicro wave (4) is now much longer in duration than submicro wave (2), 7.4 times the duration. Triangles are more time consuming structures than zigzags, so some disproportion would be expected but this is becoming extreme. When the disproportion between a second and fourth wave within an impulse is too extreme, then it causes the five wave impulse to look like a three wave movement at higher time frames; the more the disproportion causes this three wave look the less likely an impulse is unfolding.
If this second idea is confirmed, then it may look like price is breaking out of the consolidation upwards. However, this may be a false breakout before the downwards trend resumes.
At 1,035 minuette wave (iii) would reach 4.236 the length of minuette wave (i).
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.
As price falls volume is increasing and OBV is moving lower. This fall in price is supported by volume at the weekly chart level.
RSI is usually a fairly reliable indicator of lows. At the weekly chart level, RSI is still above 30 indicating there is room yet for Gold to move lower.
Daily Chart: Today volume is clearly declining and the trading range narrowing. This sideways movement looks like a fairly good pennant which is a reliable continuation pattern (pennants are smaller versions of triangles). 90% of pennants are characterised by a downtrend in volume, and they usually occur after a strong trend. Volume and the trend support this pattern. From Dahlquist and Kirkpatrick: “Two types of failures can occur. First, a breakout in the opposite direction from the previous trend can occur. Second, a failure can occur after the breakout. Because a flag or a pennant is usually a continuation formation, the breakout should be expected in the direction of the preceding trend, provided it is steep and sharp. When the breakout goes opposite to that trend, the failure invariably returns to the earlier trend, but only after a few heart palpitations have occurred first and a few protective stops have been triggered.” (“Technical Analysis”, second edition page 330).
Despite six days now of sideways movement, ADX continues to strengthen indicating the trend remains strong. The -DX line remains well above the +DX line indicating the trend is still down.
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. Corrections against the trend offer an opportunity to join the trend at a good price.
The aqua blue trend line may show where this correction finds resistance.
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.
The tiny doji for Tuesday indicates indecision, a balance of bulls and bears. With ADX so clear and volume during this small consolidation strongest for a down day, a downwards breakout is indicated as more likely than upwards.
This analysis is published about 06:52 p.m. EST.