The main Elliott wave count expected downwards movement, which is what has happened for Monday.
Summary: The triangle is either over and a fifth wave down is unfolding (main wave count) or the triangle will continue sideways for another couple of days (new alternate wave count). The main wave count is in my judgement still about 80% likely. The first target at 1,071 may now be met in two days time. Until this fifth wave is over, I do not expect any new highs above 1,103.61. A classic technical analysis pennant pattern may still be completing. Use the lower trend line delineating the pennant and volume as indicators of a breakout; the breakout is extremely likely to be down, and should be underway when the line is breached and downwards volume shows an increase.
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Changes to last analysis are bold.
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. A new low below 1,080.14 would confirm subminuette wave iv as a complete triangle, and only when that happens can the invalidation point be moved down.
Subminuette wave iv was most likely 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 nine days. Zigzags are normally quicker than triangles, so some disproportion would be expected; the disproportion is now bigger but still acceptable.
Draw 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. Subminuette wave v may end midway within this channel so add a mid line. Along the way down, upwards corrections against the trend should find resistance at the upper edge of this channel.
At 1,071 subminuette wave v would reach equality in length with subminuette wave i. At this stage, this would be my preferred target because fifth waves to follow fourth wave triangles are sometimes surprisingly short. The target would avoid a truncation.
If price reaches this target and the structure is incomplete, or if price just keeps falling through it, then a second target may be at 1,035 – 1,038; at 1,035 minuette wave (iii) would reach 4.236 the length of minuette wave (i) and at 1,038 subminuette wave v would reach 0.618 the length of subminuette wave iii.
Extend the triangle trend lines outwards. The point in time at which they cross may see a trend change. Sometimes this is when the fifth wave to follow ends. Sometimes it is a trend change within the fifth wave. When this is done on the hourly chart, the triangle trend lines cross over in two days time (the hourly chart is on an arithmetic scale).
Once price is below 1,072, look for the structure of subminuette wave v to be a completed five wave impulse on the hourly chart. Once that is clear, a subsequent breach of the upper edge of this orange channel would provide trend channel confirmation that minuette wave (iii) would be over and minuette wave (iv) would have begun.
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. If it is a zigzag, then it may be quicker and sharp.
At 957 primary wave 5 would reach equality in length with primary wave 1.
MAIN HOURLY ELLIOTT WAVE COUNT
It is still most likely that the triangle is complete as labelled on the daily chart. The final E wave of the triangle overshot the A-C trend line; not as common as an undershoot, but the second likely way for an E wave to end.
If this fifth wave down ends when the triangle trend lines cross over, then at the hourly chart level that would be in two days time.
At 1,071 subminuette wave v would reach equality in length with subminuette wave i. This may be a more likely target because Gold sometimes exhibits short fifth waves following its fourth wave triangles.
If price keeps falling through the first target, or when it gets there the structure is incomplete, then the second target may be used. At 1,035 minuette wave (iii) would reach 4.236 the length of minuette wave (i) and at 1,038 subminuette wave v would reach 0.618 the length of subminuette wave iii. This second target would be several days away.
Subminuette wave v must subdivide as a five wave structure, and it looks like it may be unfolding as an impulse with an extended third wave. Within submicro wave (3), no second wave correction may move beyond its start above 1,097.90.
ALTERNATE HOURLY ELLIOTT WAVE COUNT
The last alternate now looks so unlikely I am discarding it. If subminuette wave iv is not over, then it is more likely that the triangle is continuing further sideways.
Micro waves A and B are the same as labelled on the daily chart and as labelled for the main wave count. Thereafter, it is possible that micro wave D ended at the last high at 1,103.61. Micro wave D would be a single zigzag with submicro wave (C) truncated by 1.57. The truncation reduces the probability of this wave count.
Micro wave D may not move beyond the end of micro wave B below 1,073.56, if this is unfolding as a regular contracting triangle (the most common type). If a barrier triangle is unfolding, then micro wave D may end slightly below this point as long as the B-D trend line remains essentially flat. The lower invalidation point is not black and white, the only Elliott wave rule with any grey area. When price gets down to 1,073.56, if downwards movement looks like a three wave structure and volume has not increased, then this may be a viable explanation.
My concern today is that although price is moving lower it is not supported by volume. Volume for Monday is light, and this does not support a downwards breakout.This may be resolved tomorrow with an increase in volume, and if that happens, then the probability of this alternate would reduce.
If volume remains light and downwards momentum does not strongly increase, then this alternate may increase in probability.
Daily Chart: The small pennant pattern is still overall working well: a new low was seen before the high and the high is not substantially above the upper pennant trend line.
The lower edge of the green channel is now providing resistance (previously the lower line provided support).
The lower green trend line is technically significant, shallow, and repeatedly tested. That line now should hold while the downwards trend remains intact.
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. Corrections do not offer good trading opportunities when they are at low wave degrees; trying to trade the small waves within a correction exposes your account to the potential for big losses.
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.
Monday’s candlestick is red, but a new low below Friday’s extreme has not been made and volume is light. If this is the start of a downwards breakout, then it is slow and unconvincing. This may be resolved if tomorrow produces another red candlestick on increased volume. The breakout to this small pattern is still expected to be very likely to be down, because volume within it is very clearly strongest for a down day and pennants are the most reliable of classic technical analysis continuation patterns.
It is possible that the pennant is not complete and is continuing; the pattern still looks like a pennant. I have redrawn the lower trend line for it. When price breaks below that lower line and downwards volume shows an increase, then the downwards breakout should be underway. This may offer an earlier indication of the breakout than the Elliott wave confirmation / invalidation point at 1,073.56.
This analysis is published about 04:54 p.m. EST.