A breakout of this consolidation is expected to occur on Monday.
Summary: The triangle is most likely complete. Subminuette wave v down should unfold next week to either 1,068 (more likely) or 1,036 – 1,038 (less likely). If the first target is correct, then it may be reached within one to three days. If the second target is correct, then it may be met in five or eight trading days. The upper edge of the pennant pattern is providing resistance. Each time price touches that trend line or the bright aqua blue trend line it should find resistance and a bounce down should be initiated. As long as price remains below 1,099.61 this scenario will be preferred; a new low short term below 1,082.77 would provide confidence in a downwards breakout. If Monday completes a red candlestick with increased volume, then a downwards breakout would be strongly indicated.
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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, maybe the fifth wave to end minuette wave (iii) or minute wave iii, or that to end minor wave 3 itself.
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.
Subminuette wave iv is 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 0.27 triangle lasting fourteen days. Zigzags are normally quicker than triangles, so some disproportion would be expected. This disproportion is a little unusual for Gold. Sometimes this happens, but not often. It does also mean that this main wave count should be preferred over the alternate because the alternate requires the disproportion to be even greater.
The bright aqua blue trend line has been overshot. That’s okay because price is returning below it. Once price is again below that line, it should again show were upwards corrections find resistance. At the daily chart level, it looks like micro wave E to end the triangle ends perfectly at the A-C trend line, but on the hourly chart this is overshot (the charts are on different scales).
At 1,068 subminuette wave v would reach equality in length with subminuette wave i. This target is more likely because Gold’s fifth waves to follow fourth wave triangles are sometimes surprisingly short. If price reaches the first target and the structure of subminuette wave v is incomplete, or if price just keeps falling through the first target, then the second target would be used. At 1,036 subminuette wave v would reach 0.618 the length of subminuette wave iii, and at 1,038 minuette wave (iii) would reach 4.236 the length of minuette wave (i).
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.
Within the final fifth wave of subminuette wave v no second wave correction may move beyond its start above 1,099.61.
At 957 primary wave 5 would reach equality in length with primary wave 1.
Four of the five sub waves of a triangle must be zigzag or zigzag multiples. Within this triangle, it was micro wave B which fits best as a double zigzag. Only one of the triangle sub waves may be a multiple.
This main wave count has two small problems:
The first problem is within the zigzag of micro wave C (to the left of the chart). There is a truncation: submicro wave (C) was 1.57 below the end of submicro wave (A).
All of the triangle sub waves must subdivide as corrective structures. One of them may be a structure different to a zigzag or zigzag multiple. Micro wave E fits as a regular flat correction, which meets the rules for a triangle. Within the flat correction of micro wave E, submicro wave (B) is just 90% of submicro wave (A) (it is 89.928). I would round this up to 90%, but it is on the borderline of acceptability, so this is the second problem for this wave count.
A new low below 1,082.77 would provide some confidence in a downwards breakout of the triangle. At that stage, if it comes on a downwards day with clearly stronger volume, then that would increase the probability a downwards breakout is underway. If the structure of downwards movement is unfolding as a five and not a three, then that would increase the probability for this wave count.
I will be looking carefully at how the next wave down unfolds to determine if the alternate below can be discarded or not.
ALTERNATE ELLIOTT WAVE COUNT
With the end of the triangle for the main wave count looking slightly odd and the two small problems within it (as outlined above), I want to consider all possibilities.
Triangles are very tricky structures. The difficulty comes with figuring out exactly where they begin and end. What if the triangle began later than the main wave count expected?
If subminuette wave iv is to continue sideways as a combination, then the second structure within it may only be a flat correction (only one zigzag is allowed within a combination and micro wave W is already taking that). A flat correction for micro wave Y would need at least three days to unfold, and probably longer. This would see subminuette wave iv absolutely huge in terms of duration compared to the three days for subminuette wave ii. The disproportion for the main wave count is already extreme; for it to continue has a very low probability.
The triangle would be seen here as micro wave X, a “three” to join the two structures of a double combination.
Subminuette wave iv may not move into subminuette wave i price territory above 1,157.14.
If the triangle was micro wave X, then within it submicro wave (A) subdivides as a double zigzag.
There is a truncation too within this triangle: within the zigzag of submicro wave (E), minuscule wave C is 1.67 above the end of minuscule wave A.
Apart from the big problem of disproportion, there is another significant problem with this wave count: the wave down labelled minuscule wave C must be seen as a five wave structure, which is very difficult, even on the one minute chart.
Micro wave Y may only subdivide as a flat correction. Within the flat, submicro wave (A) must be a three wave structure, so it cannot be over at the high labelled minuscule wave A because that subdivides as a five. Submicro wave (A) would be unfolding as a zigzag, and within it, minuscule wave B may not move beyond the start of minuscule wave A below 1,082.77.
A new high above 1,099.61 would invalidate the main wave count and provide confirmation for this alternate.
When submicro wave (A) is a completed three wave structure, then submicro wave (B) must retrace a minimum 90% of submicro wave (A) and it must do so as a three wave structure. Submicro wave (B) at that stage may move beyond the end of submicro wave (A) as in an expanded flat. B waves within flats are most commonly between 1 to 1.38 times the length of the A wave.
The purpose of double combinations is to take up time and move price sideways. To achieve that purpose the second structure in the double normally ends close to the same level as the first structure. Micro wave Y may be expected to end about 1,110 because that is where micro wave W ended.
Overall I would judge this alternate to have a very low probability, maybe as low as 5%. But I want to consider all possibilities no matter how unlikely. Sometimes a low probability outcome does occur, and if it does, then it is better to be prepared.
The small pennant pattern continues to unfold. Pennants are smaller versions of triangles. This classic technical analysis pattern is the most reliable continuation pattern, particularly when it turns up in a clearly defined trend and unfolds on declining volume as this one does. During the unfolding of this pennant pattern, it is a downwards day which clearly has the strongest volume providing further indication that the breakout of this pattern is likely to be downwards. When price breaks below the lower trend line of the pennant, and when volume shows an increase, then a downwards breakout should be expected to be underway.
Pennants can last up to three weeks. This one is within its second week. If the breakout comes on Monday, then it will still be a pennant pattern. To become a classic technical analysis triangle it would need to continue into next week.
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.
Today’s small green candlestick has somewhat even upper and lower wicks indicating a continuation of the correction. It comes on slightly higher volume, but volume for this upwards day is still lower by a wide margin than a prior downwards day within the pattern.
On Balance Volume is moving within a narrowing range while price does too. The breakout is now very close.
RSI has returned from oversold to above 30. There is again room for the market to fall.
This analysis is published about 05:37 p.m. EST.