Downwards movement favours the bear wave count, but is not enough for confirmation.
The bull wave count remains valid.
Summary: Short term both wave counts expect a little more downwards movement to 1,116. Thereafter, both expect some upwards movement: the bear for a fourth wave correction which may not move above 1,136.18 and the bull to make new highs. A new high above 1,141.83 is required for confidence in the bull, while a new low below 1,108.62 would provide some confidence in the bear at this stage.
Changes to last analysis are bold.
To see the bigger picture on weekly charts 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 four overlapping first and second waves: intermediate waves (1) and (2), minor waves 1 and 2, minute waves i and ii, and now minuette 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) 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.
Downwards movement from 1,170.19 will subdivide as a complete five wave impulse on the hourly chart, but on the daily chart it does not have a clear five wave look. Subminuette wave iii has disproportionate second and fourth waves within it giving this movement a three wave look on the daily 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.
An impulse is unfolding downwards and the structure is incomplete. At 1,116 micro wave 3 would reach 4.236 the length of micro wave 1 and submicro wave (5) would reach equality in length with submicro wave 1. This target calculated at two wave degrees has a reasonable probability.
When micro wave 3 is a complete impulse then micro wave 4 should unfold upwards and / or sideways. Micro wave 2 was a deep 0.68 zigzag and it does not show up on the daily chart. Micro wave 4 may be a shallow flat, combination or triangle and it too should not show up on the daily chart. It should be complete lasting up to 24 hours, but not longer. It may not move into micro wave 1 price territory above 1,136.18.
Draw an acceleration channel about this downwards movement, and as price makes new lows keep redrawing the channel. Draw the first trend line from the end of micro wave 1 to the last low, then place a parallel copy on the high of submicro wave (2) so that all downwards movement is contained. Micro wave 4, when it arrives, may find resistance at the upper edge of the channel.
This bear wave count expects to see another red candlestick for Wednesday’s session.
The target for minuette wave (iii) is still at least a week and maybe up to three or four weeks away. At 1,026 it would reach 1.618 the length of minuette wave (i).
Along the way down, a new low below 1,108.62 would provide some confidence in this bear wave count. At that stage, the bull wave count would be invalidated at the hourly chart level.
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.
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.
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.
Minor wave 3 is most likely to subdivide as a zigzag. Within a zigzag, minute wave a must subdivide as a five wave structure.
Minute wave a would be an incomplete five wave impulse at this stage.
Minuette wave (ii) shows up on the daily chart and lasted two days. Minuette wave (iv) is most likely to also show up on the daily chart, for the five wave impulse of minute wave a to have the right look on the daily chart, and it may last 1-5 days.
Minuette wave (ii) is seen as an expanded flat for this bull wave count.
Minuette wave (iv) is not contained within a channel drawn about minute wave a using Elliott’s first technique. Sometimes fourth waves breach the channel which is why Elliott developed a second technique to redraw the channel when they do.
Minuette wave (iv) is unfolding as a zigzag which provides structural alternation with the flat of minuette wave (ii). So far the structure of this zigzag is incomplete and needs a final fifth wave down.
At 1,116 subminuette wave c would reach 4.236 the length of subminuette wave a. Also exactly at 1,116 micro wave 5 would reach equality in length with micro wave 1. The target is the same for both wave counts because A-B-C of a zigzag and 1-2-3 of an impulse subdivide in exactly the same way.
Minuette wave (iv) may not move into minuettte wave (i) price territory below 1,108.62.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: A stronger red candlestick on increased volume is bearish. The fall in price is supported by volume which favours the bear wave count.
In the last 20 days, it is four downwards days which have strongest volume and this may indicate a downwards trend is still intact. The volume profile is giving mixed signals.
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.
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 to continue 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 still possibly be continuing at this stage and would be expected to only end when price reaches resistance and Stochastics is overbought at the same time. 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.
On Balance Volume has found resistance at the green trend line and moved lower from there. The strength of that line is reinforced. OBV may yet move up again to touch the line; this would allow for more upwards movement which the bull wave count expects. Equally as likely OBV may continue lower from here as the bear wave count expects.
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.
This analysis is published about 06:57 p.m. EST.