Sideways movement again fits the preferred hourly Elliott wave count.
We may now have some confidence about what should happen next.
Summary: A fourth wave triangle has most likely ended. The classic technical analysis equivalent to a triangle is a pennant, which is a very reliable continuation pattern. The breakout should be beginning now and should be down. The short term target is at 1,071. Fifth waves to follow fourth wave triangles are sometimes surprisingly short, which is why my target is so close. But if I’m wrong, then it may not be that short and my target may not be low enough.
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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.
It is now very likely that subminuette wave iv has just completed as 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 seven days. Zigzags are normally quicker than triangles, so some disproportion would be expected.
Redraw the channel about minuette wave (iii) using Elliott’s second technique: draw the first trend line from the ends of subminuette waves ii to iv, then place a parallel copy on the end of subminuette wave iii. Because the fourth wave is a triangle the fifth wave may have a tendency to be relatively short. At 1,071 subminuette wave v would reach equality in length with subminuette wave i. It 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 and the target would see it just do this.
When minuette wave (iii) is a complete five wave structure then minuette wave (iv) should unfold sideways. It 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.
At 957 primary wave 5 would reach equality in length with primary wave 1.
HOURLY CHART – TRIANGLE
Micro wave D of the triangle did not itself unfold as a triangle but was a zigzag with a complicated B wave within it. This means that micro wave B may again be seen as a double zigzag which has a better fit.
The triangle for subminuette wave iv fits nicely within its trend lines. The lines will cross over in the next 24 hours, which may be when subminuette wave v ends. This cross over change sometimes works, so look out for it, but keep in mind that it does not always work. If it does not work here, then subminuette wave v may last longer than just one day.
Micro wave E to end the triangle overshoots the A-C trend line. E waves to end triangles most commonly undershoot the A-C trend line, but sometimes they overshoot as in this case. They do not normally end right at the trend line.
If micro wave E continues any higher, then it may not move beyond the end of micro wave C above 1,105.18. A new high above 1,105.18 is less likely today, but if it happens we may use the alternate below.
HOURLY CHART – FLAT
It remains technically possible today that subminuette wave iv is not over and may complete as a regular flat correction. This idea today has a reduced probability and should only be used if it is confirmed with a new high above 1,105.18.
The flat subdivides 3-3-5. Micro wave C must be a five wave structure and should look reasonably like a five. Today, because of the gross disproportion between its second and fourth waves, micro wave C no longer looks like a potential five and looks strongly like a three. This substantially reduces the probability of this idea.
Submicro wave (4) no longer fits the rules for a contracting triangle. Because MACD is right at the zero line for this piece of movement, and because the first wave count sees a triangle ending there, these also reduce the probability of this idea. There was a triangle in that position, but this wave count cannot see it.
There is no longer alternation between submicro waves (2) and (4). Both are zigzags. This further reduces the probability of this wave count.
If this idea is confirmed with a new high above 1,105.18, then the target remains at 1,121 for micro wave C to reach equality in length with micro wave A.
Thereafter, submineutte wave v down should unfold and may be long, swift and strong. 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: Yesterday’s 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. The breakout should be expected to be in the direction of the trend. Pennants are such reliable continuation structures that some traders base their trading strategy on them. At this stage, I would no longer expect a false breakout. The Elliott wave count for the triangle is supported by this classic technical analysis pattern and volume.
Today volume shows a slight increase for a very small green doji. This may signal the end of the correction. A classic technique would be to wait to see which of the pennant trend lines price breaks out of, with the expectation that down is more likely, before having confidence the trend has returned. Overall during the formation of the pennant, it was a down day which has stronger volume supporting the idea that a downwards breakout is more likely.
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.
The aqua blue trend line may today be showing about 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 last two days have completed two small doji. This indicates indecision, a balance between bulls and bears. This fits with the idea of a small fourth wave correction completing.
This analysis is published about 06:19 p.m. EST.