Yesterday two scenarios were presented on the hourly charts for the short term. The second less likely scenario has played out.
Both Elliott wave counts expect the same direction next.
Summary: Both wave counts will expect downwards movement to resume. In the short term, use a small channel on the hourly chart to provide trend channel confirmation that the correction is over and the next wave down has begun. A new low below 1,106.19 would provide price confirmation. Targets remain the same; for the bull 1,096 is where downwards movement is expected to end, but the bear target is at 1,063. Expect any surprises to be to the downside. The bear is very bearish indeed.
Changes to last analysis are bold.
To see weekly charts and the three different options for cycle wave b (bull wave count) click here.
BULL WAVE COUNT – DAILY
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 running triangle, or a combination.
This daily chart works for all three ideas at the weekly chart level.
For all three ideas, a five up should unfold at the daily chart level. This is so far incomplete. With the first wave up being a complete zigzag the only structure left now for intermediate wave (1) would be a leading diagonal. While leading diagonals are not rare they are not very common either. This reduces the probability of this bull wave count now to about even with the bear wave count.
A leading diagonal requires the second and fourth waves to subdivide as zigzags. The first, third and fifth waves are most commonly zigzags, the but sometimes may appear to be impulses. So far minor wave 1 fits well as a zigzag.
Minor wave 2 may not move beyond the start of minor wave 1 below 1,072.09. If this invalidation point is breached, then it would be very difficult to see how primary wave B could continue yet lower. It would still be technically possible that primary wave B could be continuing as a double zigzag, but it is already 1.88 times the length of primary wave A (longer than the maximum common length of 1.38 times), so if it were to continue to be even deeper, then that idea has a very low probability. If 1,072.09 is breached, then I may cease to publish any bullish wave count because it would be fairly clear that Gold would be in a bear market for cycle wave a to complete.
To the upside, a new high above 1,170.19 would invalidate the bear wave count below and provide strong confirmation for this bull wave count.
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.
In the short term, use the smaller pink channel drawn about the zigzag of minor wave 2 using Elliott’s technique for a correction as shown. Copy this channel over to the hourly chart. This channel is also drawn in the same way for the bear wave count, and there it is correctly termed a base channel. Both wave counts should expect upwards corrections for the short term to find resistance at the upper edge of this smaller channel.
I added a bright aqua blue trend line to this chart to be the same as the trend line on the technical analysis chart. Price has found support there and is bouncing up. I expect this trend line to be breached, and if that happens, then look for a throwback to it. Throwbacks to trend lines can provide perfect entry points when you are confident of the trend, and they also provide some confirmation of an expected trend.
Today subdivisions at the hourly chart level will be exactly the same, with the exception of the degree of labelling. Minute wave c is subdividing as a five wave impulse. I am moving the degree of labelling within this last wave down up one degree for the bull wave count; this would be most likely minuette wave (iv). Only a final fifth wave down may be required to complete the five wave impulse of minute wave c.
Minuette wave (iv), if it continues, may not move into minuette wave (i) price territory above 1,116.67.
There is little alternation in structure: minuette wave (ii) was a double zigzag and here minuette wave (iv) fits as a single zigzag. There is some alternation in depth: minuette wave (ii) was a shallow 0.328 correction and minuette wave (iv) was a deeper 0.538 correction.
Draw a channel about this downwards movement using Elliott’s first technique. Draw the first trend line from the lows labelled minuette waves (i) and (iii), then place a parallel copy on the high labelled minuette wave (ii). Minuette wave (iv) so far is contained within this channel. For this bull wave count minuette wave (v) may end midway within the channel.
Minuette wave (iii) is shorter than minuette wave (i). Because a third wave may never be the shortest, this limits the fifth wave to no longer than equality with the third. This limit is at 1,090.
There is no Fibonacci ratio between minuette waves (i) and (iii). At 1,096 minuette wave (v) would reach 0.618 the length of minuette wave (i). This target is now calculated at two wave degrees, so it has a higher probability for this wave count.
BEAR ELLIOTT WAVE COUNT
At this stage, the reduction of probability for the bull wave count sees this bear wave count about even now in probability.
This wave count now sees a series of six overlapping first and second waves: intermediate waves (1) and (2), minor waves 1 and 2, minute waves i and ii, minuette waves (i) and (ii), subminuette waves i and ii, and now micro waves 1 and 2 (on the hourly chart). Minute wave iii should show a strong increase in downwards momentum beyond that seen for minute wave i. If price moves higher, then it should find very strong resistance at the blue trend line. If that line is breached, then a bear wave count should be discarded.
The blue channel is drawn in the same way on both wave counts. The upper edge will be critical. 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 wave count will substantially reduce in probability.
Minuette wave (ii), if it were to continue, may not move beyond the start of minuette wave (i) above 1,170.19. A breach of that price point should see this wave count discarded as it would also now necessitate a clear breach of the blue channel and the maroon channel from the weekly chart.
Full and final confirmation of this wave count 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. With three big overlapping first and second waves, now this target may not be low enough.
The subdivisions here are the same because 1-2-3-4 subdivides 5-3-5-3, as does 1-2, 1-2.
Use the channel and confirmation price point at 1,106.19 in the same way.
There are now potentially six overlapping first and second waves for this bear wave count. This indicates a strong increase in downwards momentum ahead. Within Gold’s third waves, the strongest piece of movement is very commonly seen in the fifth wave, which is typical of commodities. When price moves towards subminuette wave v downwards movement may be explosive. If targets are wrong, then they may be too low. Expect any surprises to be to the downside and a price shock may even be seen when the fifth wave arrives.
While there is zero confirmation that micro wave 2 is over the invalidation point for the bear wave count must remain at 1,126.96. Micro wave 2 could yet move higher as a double zigzag and may not move beyond the start of micro wave 1.
If price reaches up higher, then it should find strong resistance at the upper edge of the green channel which is copied over from the daily chart. A lower degree second wave correction should not breach a base channel drawn about a first and second wave one or more degrees higher.
The target for minuette wave (iii) remains the same at 1,063 where it would reach 1.618 the length of minuette wave (i).
Confirmation at the daily chart level that Gold remains within a bear market would come with a new low below 1,072.09.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Yesterday’s volume spike disappeared, but volume still increased for a down day. Price fell on rising volume for four days in a row. The fall in price was supported by volume. This supports both Elliott wave counts which expect more downwards movement.
Volume for today is light for an up day. A small green body with reasonably equal upper and lower shadows for an inside day overall looks corrective, and that view is supported by low volume. The small rise in price was not supported by volume.
ADX is still indicating no clear trend at this time. ADX does tend to be a lagging indicator. If the black ADX line turns up in the next day or two, then a downwards trend would be indicated.
On Balance Volume remains below its green trend line, which remains a bearish indicator. If OBV moves higher, then it may find resistance at that trend line. If that happens, then it may indicate when price should stop moving higher.
Stochastics remains oversold, but if there is a new downwards trend oscillators can remain extreme for extended periods of time.
Moving averages should be used instead of oscillators in a trending market. I have added Kaufman’s moving average, which is designed to be more responsive than an exponential moving average. This may be used in three ways: while price remains below the average expect the trend is down; if price comes up to touch the average, then that may be where price finds resistance; and, stops may be set just above the average (allow for small overshoots) and moved as price continues lower.
Price has found support at the bright aqua blue trend line. If this line is breached, then a throwback may find resistance there. Throwbacks can be really useful in providing an entry point to join a trend.
RSI is neither overbought or oversold. There is plenty of room for the market to move up or down.
This analysis is published about 08:20 p.m. EST.