A small red candlestick on light volume indicates a correction unfolded during Tuesday’s session.
Price still has not clarified the situation, and both bull and bear Elliott wave counts remain valid.
Summary: The bear wave count expects downwards movement to continue, with an increase in momentum, and the bull wave count expects upwards movement. The critical trend line is the pink / green downwards sloping channel on both daily charts. A break above that channel would favour the bull, but while price remains within the channel the bear will be slightly favoured. In the short term, use a new channel on the hourly chart for next confirmation of a continuation of the downwards trend. If that channel is breached, then the bear will again increase in probability. A new low below 1,098.85 would increase probability of the bear and decrease probability of the bull. The bear would have final confirmation below 1,072.09.
Changes to last analysis are bold.
To see the bigger picture on weekly charts click here.
To see a video explanation of the daily chart click here.
BEAR ELLIOTT WAVE COUNT
Gold has been in a bear market since September 2011. There has not yet been confirmation of a change from bear to bull, and so at this stage any bull wave count would be trying to pick a low which is not advised. Price remains below the 200 day moving average and below the blue trend line (copied over from the weekly chart). The bear market should be expected to be intact until we have technical confirmation of a big trend change.
This wave count now sees a series of five 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), and now subminuette waves i and ii. 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 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.
An earlier indication of which wave count is correct would come from the green base channel drawn about minuette waves (i) and (ii). This channel too is drawn in the same way on both daily charts for bull and bear. Price must find resistance at the upper edge of this channel for the bear wave count. A breach of that channel would substantially reduce the probability of the bear wave count. Minuette wave (iii) should have the power to break below support at the lower edge of this channel. If that happens, then the probability of this bear wave count would substantially increase.
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.
Downwards movement from the high labelled minute wave ii subdivides 5-3-5. For the bear wave count, this is minuette waves (i) and (ii) then subminuette wave i, and for the bull wave count, this is minute a-b-c. The whole of a zigzag and the start of an impulse have exactly the same subdivisions.
Price is being squashed between the upwards sloping bright aqua blue trend line and the downwards sloping upper line of the green channel. The breakout may now come within hours.
Sideways movement for Tuesday looks like a continuation of subminuette wave ii, which subdivides as a zigzag. There is no adequate Fibonacci ratio between micro waves A and C, and micro wave C moves slightly above the end of micro wave A avoiding a truncation. Micro wave B subdivides perfectly as an expanding triangle, the rarest of all Elliott wave structures, and is supported by MACD hovering about zero while it ended. This resolves a problem the bull wave count has with this movement. This bear wave count fits better in terms of subdivisions for most recent movement with the downwards wave labelled submicro wave (E) of the triangle seen here as a double zigzag, but the bull wave count must see that as a five wave structure.
Draw a new channel about the zigzag of subminuette wave ii using Elliott’s technique for a correction: draw the first trend line from the start of micro wave A to the end of micro wave B, then place a parallel copy on the end of micro wave A. This channel perfectly shows where upwards movement is finding support and resistance.
When this channel is clearly breached by at least one full hourly candlestick below it and not touching it, then it shall provide trend channel confirmation that the correction is very likely to be over and the next wave down is underway.
At 1,063 minuette wave (iii) would reach 1.618 the length of minuette wave (i). This target remains the same at this stage.
If my targets are wrong for the bear wave count, then they may be too high. Expect any surprises now to be to the downside. A big third wave is unfolding; when price moves towards the end of minuette wave (iii) (or maybe even the end of subminuette wave iii) we may see explosive downwards movement for a strong fifth wave.
Subminuette wave ii, if it continues any further (and it may do so as a combination), should find strong resistance at the upper edge of the base channel (green downwards sloping, copied over from the daily chart). If the invalidation point at 1,109.31 is breached, then my wave count for the bear at the hourly chart level will change to see subminuette wave ii continuing sideways as a combination. However, because this would necessitate a break above the upper green trend line, I would not expect this price point to be breached at this stage.
No second wave correction may move beyond the start of its first wave above 1,109.31 within subminuette wave iii.
BULL ELLIOTT WAVE COUNT
The bull wave count sees cycle wave a complete and cycle wave b underway as either an expanded flat, running triangle or 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 for a movement at primary degree. This is so far incomplete. With the first wave up being a complete zigzag the only structure left now for intermediate wave (1) or (A) 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.
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 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. Price has found support there and is bouncing up.
Minor wave 2 can now be seen as a complete zigzag. It is 0.73 the depth of minor wave 1, nicely within the normal range of between 0.66 to 0.81 for a second wave within a diagonal. Downwards movement really should be over for this bull wave count. Minor wave 2 can technically continue lower this week, but further downwards movement will reduce the probability of this bull wave count.
A breach of the pink channel would provide trend channel confirmation that the zigzag of minor wave 2 is over and the next wave up for minor wave 3 should be underway. Third waves within leading diagonals are most commonly zigzags, but sometimes they may be impulses. Minor wave 3 should show some increase in upwards momentum beyond that seen for minor wave 1. Minor wave 3 must move above the end of minor wave 1 above 1,170.19. That would provide price confirmation of the bull wave count and invalidation of the bear.
The bull wave count sees the subdivisions of minor wave 2 down as 5-3-5 for a complete zigzag.
Because the bull wave count sees a leading diagonal unfolding upwards, with the third wave of the diagonal just beginning, a zigzag up is most likely. Third waves (as well as first and fifth) within leading diagonals are most commonly zigzags, but sometimes they may also be impulses.
Within minor wave 3, no second wave nor B wave may move beyond its start below 1,098.95. A new low below this point could be minor wave 2 extending lower, but this has a low probability.
Along the way up, price may first find resistance at the upper edge of the green channel. This is drawn about minute wave c using Elliott’s technique.
A new high above 1,109.31 would provide first price confirmation for this wave count. But, before I would have reasonable confidence in it, this wave count absolutely requires a breach of the pink channel on the daily chart with a full daily candlestick above it and not touching it.
Minuette wave (ii) for the bull wave count must have continued sideways. It may subdivide as an expanded flat, but within it subminuette wave c must be seen as a five wave structure. This is possible (it will work on the five minute chart), but there is a gross disproportion within micro wave 3 between its long second wave and quick fourth wave correction. This gives the third wave a three wave look to it on the hourly chart. This problem is resolved for the bear wave count.
This problem again slightly reduces the probability of this bull wave count further today.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Another small real body, this time red, on light volume indicates a sideways consolidation is continuing. Price has again overshot the lower upwards sloping bright aqua blue trend line, which is no longer providing strong support.
As price falls there is some support with some rising volume since the last swing high at about 1,170. The strongest volume days in this fall are for down days. Overall the volume profile looks more bearish than bullish, but it is not as clear as it could be.
I have two sloping blue trend lines to show support and resistance. These are coming to cross, and price is being squeezed. This indicates a strong movement to come shortly, either up or down. The test and overshoot of the lower trend line may be the earliest indication the break will be more likely down than up.
ADX is flat indicating there is no clear trend and the market is range bound. If a range bound system is used here, then it would expect an upwards swing because price has reached to the lower horizontal line of support and Stochastics has reached oversold. However, trading a range bound market is more risky than trading a clearly trending market. The final swing never comes; that is when price breaks out of the range and begins a trend. The bear Elliott wave count has serious implications, because it expects a strong downwards move from here, so any expectation of an upwards swing must be approached with caution and good risk management.
While On Balance Volume remains below its trend line it is bearish.
RSI at the daily chart level is neither overbought or oversold. There is room for the market to rise or fall.
Overall the regular technical analysis picture is unclear. We may have more clarity this week.
This analysis is published about 07:21 p.m. EST.