Price still has not confirmed or invalidated either the bear wave count or the bull wave count.
Summary: The bear wave count is close to even in probability with the bull wave count today. To the upside, a new high above 1,148.04 would see the bull wave count more likely than the bear. To the downside, a new low below 1,108.62 now would see the bear wave count more likely than the bull. Price may tell us this week which wave count is correct.
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. Today this channel is overshot, and it is concerning that upwards movement came on increased volume. Today this decreases the probability of the bear wave count to about even with the bull. If this channel is breached by a full daily candlestick above the upper line and not touching it, then the bear wave count would further reduce in probability.
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.
Subminuette wave ii may have continued higher as a zigzag. There is no Fibonacci ratio between micro waves A and C.
Micro wave C is a complete five wave impulse on the five minute chart, and within it there is an extended fifth wave to end sub micro wave (3).
Subminuette wave ii has breached the green base channel which is drawn about minuette waves (i) and (ii) on the daily chart and copied over here. Lower degree second waves should not breach base channels drawn about first and second waves one or more degrees higher. This is almost always the case, but almost always is not the same as always. Occasionally lower degree second waves do breach base channels; these channels just do not always work. The probability of this wave count is today reduced, but it remains valid. I have seen base channels not work before.
A new low below 1,108.62 would invalidate the bull wave count at the hourly chart level, and would provide some confidence in this bear wave count.
Price, on the way down, may find support at the bright aqua blue trend line. If this line provides support before it is breached, then price may throwback to the line to find resistance. When price behaves like that it can offer a good entry point for a trade in the direction of a trend.
The target for minuette wave (iii) remains the same at 1,063 where it would reach 1.618 the length of minuette wave (i).
The sideways movement labelled micro wave B may be seen as an expanding triangle for this bear wave count. This has the best fit in terms of subdivisions; the bear fits much better than the bull for this piece of movement.
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.
This channel is not yet clearly breached. A breach would be a full daily candlestick above the upper pink line and not touching it. So far the channel is overshot. How price behaves in the next 24 hours will provide further indication of which wave count is correct.
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.
Minuette wave (ii) cannot be seen as an expanding triangle for this bull wave count because a second wave correction may not have its sole corrective structure as a triangle. Minuette wave (ii) is seen as an expanded flat, but within it subminuette wave c does not look like a clear five wave structure. This problem remains with the bull wave count.
Minuette wave (iii) may now be over. Draw a channel about this upwards movement: draw the first trend line from the highs labelled minuette waves (i) to (iii), then place a parallel copy lower down to contain the whole movement. Minuette wave (iv) may find support at the lower edge of the channel.
Minuette wave (iv) may not move into minuette wave (i) price territory below 1,108.62. This price point is critical today for both wave counts. A new low below that point would confirm that the prior wave up was most likely a three, not a five. That would be another three up, while downwards waves are subdividing as fives. The probability that the trend is up at that stage would be very low indeed.
Upwards movement to a new high above 1,148.04 would provide reasonable confidence in this bull wave count.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Upwards movement for Wednesday comes on increased volume indicating a potential upwards breakout, which favours the bull wave count. However, volume is lower than a prior recent downwards day of 9th September, so this is not definitive. This volume spike may also be a spike at the end of a movement, a false breakout. This happened last on 18th June for a strong upwards day, right before a sustained fall in price.
Overall, from the last swing high at 1,170 on 24th August, as price falls it comes on declining volume. There is some small support for the fall in price: each wave down has increasing volume, but the whole movement from its start has overall declining volume. The picture remains unclear.
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.
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. An upwards swing may possibly be developing at this stage. While the Elliott wave bear count remains valid the risk that a bear market may still be intact must be acknowledged. Good money management on any bullish trades is essential.
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 remains unclear. We may have more clarity this week.
This analysis is published about 08:07 p.m. EST.