Some downwards movement was expected for the new wave count in the short term, which is what has happened. Movement was choppy and overlapping and moved lower for Monday.
Today I will expand on three different ideas for the new wave count at the weekly chart level. Also, I will rank each idea in order of probability.
Summary: The new wave count expects a primary degree C or Y wave is unfolding upwards. Also, the new wave count expects this sideways movement is a minor degree fourth wave correction. The alternate bear wave count is still less likely, but today is slightly supported by a volume spike for a down day. Short term I expect Gold is most likely consolidating. When the blue trend line is breached on the daily chart with upwards movement, then look for a throwback and that shall be the end of the correction; the next movement thereafter should be an upwards impulse. The alternate wave count requires downwards movement below 1,119.23 for confirmation.
Changes to last analysis are bold.
MAIN ELLIOTT WAVE COUNT – EXPANDED FLAT
The bigger picture at super cycle degree is still bearish. A large zigzag is unfolding downwards. Along the way down, within the zigzag, cycle wave b must unfold as a corrective structure.
At this stage, there are three possible structures for cycle wave b: an expanded flat, a triangle or a combination. The expanded flat is shown above which may be the most likely structures of the three. I would judge it to have a 50% probability.
Expanded flats are very common. The only thing that is uncommon about this one is the depth of primary wave B, which is 1.89 times the length of primary wave A, so longer than the maximum common length of 1.38 times, but less than the maximum convention of twice the length of A.
The other biggest problem with this bullish wave count (bullish at cycle degree) is the small truncation at the end of cycle wave a. Primary wave 5 was truncated by 2.66. The truncation is small, but it does exist. A fifth wave truncation comes after a third wave that moves price “too far too fast”. The end of primary wave 3 had a very strong fifth wave extension which may fit the description of “too far too fast”. This wave count is slightly reduced in probability due to the truncation, but still looks overall more likely than the alternate bear wave count.
Within the expanded flat, primary wave C would reach 2.618 the length of primary wave A at 1,400.
Along the way up, a new high above 1,232.49 would eliminate the bear alternate and a new high above 1,308.10 would eliminate the triangle wave count. If upwards movement is a five and not a three, then the combination would also be eliminated.
Because cycle wave a was a five wave structure, cycle wave b may not move beyond its start above 1,912.57.
MAIN ELLIOTT WAVE COUNT – RUNNING TRIANGLE
The second possible structure for cycle wave b would be a big running triangle. Running triangles are seen in about 40% of triangles, so this structure is less common than an expanded flat. I would judge this idea to be about 20% likely.
Within both a contracting and barrier triangle, C may not move beyond the end of A above 1,308.10. This invalidation point is black and white. C may end about 1,260 where it would be about 80% of B, a common length I have found over the years for triangle sub waves. C must be a zigzag or zigzag multiple.
Because the first wave of primary wave A is an expanded flat correction, all the remaining triangle waves must be zigzags and one may be a more complicated time consuming zigzag multiple.
For a contracting triangle D may not move beyond the end of B below 1,072.09. For a barrier triangle D may end about the same level as B as long as the B-D trend line is essentially flat. What this means in practice is that D may end slightly below 1,072.09. This invalidation point is not black and white; this is the only Elliott wave rule which involves any grey area.
The final sub wave of primary wave E would most likely fall short of the A-C trend line, and it must be a zigzag or zigzag multiple.
MAIN ELLIOTT WAVE COUNT – COMBINATION
The third possibility for cycle wave b at this stage would be a combination. Combinations are very common structures, but normally their X waves are not this deep. For this reason I would judge this idea to have about a 20% probability.
The first structure in the combination was an expanded flat labelled primary wave W. The two structures are joined by a “three” in the opposite direction, a zigzag labelled primary wave X. The second structure in the combination may be a zigzag labelled primary wave Y, or may also be another flat correction so that this structure for cycle wave b is a double flat.
The purpose of combinations and double flats is the same (also the purpose of triangles): to take up time and move price sideways. In order to achieve this purpose the second structure in the double normally ends close to the same level as the first. Primary wave Y may be expected to end about the same level as primary wave W at 1,308.10.
If primary wave Y is a flat correction, then it may include a new low below its start at 1,072.09. This is the most important feature of this idea to note: a new low below 1,072.09 does not eliminate a bull wave count for cycle wave b. If that happens, then careful attention to structure and detail would be required to see if this idea may be unfolding.
MAIN WAVE COUNT – DIALY
This daily chart works for all three ideas at the weekly chart level. After today I will publish just the daily chart each day, and revisit the weekly chart level just once a week.
For all three ideas a five up should unfold at the daily chart level. This is so far incomplete.
Upwards movement is finding resistance at the upper edge of the blue channel and may continue to do so. Use that trend line for resistance, and if it is breached, then expect a throwback to find support there.
Minor wave 3 was 4.42 short of 2.618 the length of minor wave 1.
Minor wave 2 was a very deep double zigzag. Given the guideline of alternation minor wave 4 may be expected to be a shallow flat, combination or triangle. Minor wave 4 may end about the 0.382 or 0.236 Fibonacci ratios, with each ratio equally as likely. Movement should be choppy and overlapping.
Minor wave 2 lasted a Fibonacci three days. Combinations, flats and triangles are all longer lasting structures than zigzags, so minor wave 4 may likely total a Fibonacci five or eight days. So far it has lasted only two.
Minor wave 4 may not move into minor wave 1 price territory below 1,119.23 (this price point is taken from the hourly chart level).
Draw a channel about this upwards movement: draw the first trend line from the ends of minor waves 1 to 3, then place a parallel copy lower to contain all this movement. If minor wave 4 is time consuming enough, then it may find support finally at the lower edge of that channel.
Although an expanded flat correction moving sideways is now complete, because the overall structure completed too quickly then it is unlikely to be a complete structure for minor wave 4. This is most likely only minute wave a within minor wave 4.
Minor wave 4 at this stage may still continue as either a flat, combination or triangle. All three of those structures begin with a “three” for the first wave.
The next expectation for all three possibilities would be a three up, most likely a zigzag. This may be minute wave b within a bigger flat for minor wave 4, or minute wave b within a triangle for minor wave 4, or minute wave x within a double for minor wave 4. If this next wave up reaches a minimum 90% of minute wave a at 1,166.15, then a flat correction for minor wave 4 will be possible. If it does not reach that price point, then a flat may be eliminated.
Overall this structure is incomplete and multiple possibilities remain. There are 23 possible structures a fourth wave may unfold as, and here we can only eliminate three (zigzag, double zigzag and triple zigzag). As this structure unfolds the wave count within it may change. My focus over the next few days will be to see when it is over, and then provide price points and trend lines to use as confirmation of the end of this consolidation.
Gold is most likely within a correction, and it should be noted that trading small corrections is best left only for nimble and very experienced traders. For the rest of us (myself included), the wisest approach to a consolidating market is to wait for the consolidation to be over and a clear trend to re-emerge before re-entering.
ALTERNATE ELLIOTT WAVE COUNT
I would judge this alternate wave count to have about a 10% probability at this stage.
This wave count is now an alternate, because it has the following problems which the new wave count resolves neatly:
1. Intermediate wave (2) is much bigger in size than an intermediate correction within Gold’s impulses normally are.
2. The maroon channel has been breached on the daily chart twice. This is an early indication that cycle wave a may be over.
3. Minor wave 2 is much longer in duration than a minor degree correction within Gold’s impulses normally are.
4. Gold often exhibits very short fifth waves to follow its fourth wave triangles.
*Note: today volume does support this wave count.
A new low below 1,119.23 in the short term would confirm this wave count. Full and final confirmation would come with a new low below 1,072.09.
If primary wave 5 reaches equality with primary wave 1, then it would end at 957.
This wave count now sees a series of three overlapping first and second waves: intermediate waves (1) and (2), minor waves 1 and 2, and now minute waves i and ii.
The blue channel is drawn in the same way on both wave counts. The upper edge will be critical. Both wave counts expect some downwards movement from here to bounce down from resistance about the upper blue trend line. Here the blue channel is a base channel drawn about minor waves 1 and 2. A lower degree second wave correction for minute wave ii should not breach a base channel drawn about a first and second wave one or more degrees higher. If this blue line is breached by one full daily candlestick above it and not touching it, then this alternate wave count will substantially reduce in probability.
Minute wave ii may not move beyond the start of minute wave i above 1,232.49.
A slight new high for this alternate idea may only be a continuation of minuette wave (c).
There is more than one way to label the subdivisions within subminuette wave v. No matter how it is labelled, if a fourth wave triangle is seen as labelled for micro wave 4, then there will be gross disproportion between micro waves 2 and 4. Here micro wave 3 is just 0.47 short of equality with micro wave 1 and there is no Fibonacci ratio between micro wave 5 and either of 1 or 3.
A fourth wave triangle may have ended for micro wave 4. This structure does not look typical because the triangle trend lines are not perfectly adhered to. Triangles normally sit well within their trend lines; the occasional overshoot sometimes happens, but here the B-D trend line is slightly overshot three times. Normally price touches the trend lines perfectly.
Within minute wave iii, no second wave correction may move beyond its start above 1,170.19. A new high above that point would invalidate the labelling here of minute wave ii and may only be a continuation of minute wave ii. The invalidation point on the daily chart is the final invalidation point for this wave count at 1,232.49. However, if the blue base channel on the daily chart is fully breached by a daily candlestick above it and not touching the trend line, then this alternate may be discarded.
Click chart to enlarge. Chart courtesy of StockCharts.com.
It is concerning that today completes a red candlestick with much higher volume. Volume at the daily chart level today supports the old bear wave count, not the new bull wave counts. If the blue trend line on the daily Elliott wave charts hold, then the alternate wave count must seriously be considered and will remain viable.
While price has been rising last week volume has supported this rise in price. Overall that still indicates this upwards movement is not a correction but part of a new trend, and that favours the bull wave counts and not the alternate.
ADX is slightly rising and is above 30. The green +DX line is above the -DX line indicating there is a new trend and it is up, which favours the bull wave counts.
On Balance Volume has breached its pink trend line and has come down to find support there. If this trend line holds, then that shall be quite bullish.
RSI is returning from a high, and did not manage to reach overbought. There is still room for price to rise, and if a few days of sideways movement see RSI move lower, then that shall allow further room for price to rise.
Stochastics is returning from overbought. I would expect a small consolidation to see Stochastics return to normal before the new trend continues.
Overall this regular technical analysis supports the bull wave count (main) more than the bear (alternate), but the volume spike for a downwards day on Monday may be an early indicator that price may break strongly lower. The situation is a little unclear and should be resolved in a few days.
This analysis is published about 09:03 p.m. EST.