Downwards movement was expected for Wednesday’s session for Gold.
Today’s analysis will answer the question of whether or not price has confirmed the trend.
Summary: The channel on the hourly chart is breached, but the breach is not convincing and there is no clear five down yet. The probability that downwards movement will continue is good, but we do not have enough confirmation for a high level of confidence. If price remains below the trend line and the next few hours show bigger red candlesticks below the line, then the probability that the downwards trend has resumed will increase. There are three things today which give cause for concern: volume for today’s small down day is low, there is slight hidden bullish divergence between price and Stochastics, and there is no clear five down on the hourly chart. Caution and good risk management is advised in your approach to this market today.
Changes to last analysis are bold.
To see weekly charts and the three different options for cycle wave b (main 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.
Minute wave b is very likely to be a complete double combination: flat – X – zigzag. However, there is still no confirmation that minute wave b is over. It is possible that it could continue higher. If minute wave b does continue, then it may not move beyond the start of minute wave a above 1,170.19. While there is no confirmation of a resumption of the downwards trend the risk remains that price could move higher. I will not move the invalidation point down until we have confirmation.
The bright aqua blue channel is a best fit about minute wave b. The channel has been slightly breached to the downside and price stalled at the line, but the breach is not convincing. At the time of this analysis, the only hourly candlestick below the line is incomplete and may yet see the candlestick move back above the line.
Only when there is at least one full red hourly candlestick below the lower line and not touching it would the breach be convincing. After that happens, if price shows a throwback to the line and finds resistance there, then the probability that minute wave b is over would further increase.
It is a common method to wait for a breach of support or resistance to occur, and then to enter a position on a throwback to a previous line of support or resistance. The tendency of price in all markets to behave in this way is known. When it does that provides a relatively low risk entry point because stops may be set just beyond the prior line of support or resistance, which means risk is kept low. If the particular situation offers a high potential reward, then a trade may be calculated to have a relatively low risk / high reward, and so be potentially very desirable. It must be accepted when using this method that price does not always behave as anticipated; there is always a risk of a loss.
There is not a clear five down yet at the hourly chart level. If a new low is seen below the end of submicro wave (3), then the downwards movement will still only subdivide as a three which could be a zigzag.
Minute wave c would reach equality in length with minute wave a at 1,096. This would see minor wave 2 end within the normal range for a second wave within a diagonal of between 0.66 to 0.81 the first wave, which is a range of 1,105 – 1,091.
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 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 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.
Within minute wave iii, no second wave correction may move beyond the start of its first wave 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.
This wave count expects an impulse to be beginning downwards. An impulse subdivides 5-3-5-3-5. So far the first 5 down is complete.
The beginning of an impulse and the whole of a zigzag have exactly the same subdivisions.
Subdivisions are seen again in mostly the same way for both wave counts. Here I am looking at the possibility of instead of 1-2, 1-2 unfolding downwards it may be 1-2-3 for a new impulse. When micro wave 3 is complete, if the following upwards correction which may be micro wave 4 remains below micro wave 1 price territory at 1,137.23, then this idea may be correct. If downwards movement unfolds as described, then we may have a clear five down at the hourly chart level within the next 24 hours. That would provide full confidence that minuette wave (ii) is over (or minute wave b for the bull wave count).
Along the way down, upwards corrections for both ideas should find resistance at the upper edge of the channel, green on this bear wave count and pink on the bull. Here it is a base channel about minuette waves (i) and (ii); for the bull it is a corrective channel. They are drawn in exactly the same way.
At 1,063 minuette wave (iii) would reach 1.618 the length of minuette wave (i). This bear wave count expects to see a very strong increase in downwards momentum over the next couple of weeks, culminating in a huge movement for the fifth wave of minute wave iii (maybe another price shock).
Click chart to enlarge. Chart courtesy of StockCharts.com.
Today’s red candlestick does not have increased volume. This is only a slight cause for concern; the first day of a new or resuming trend does not always show a strong increase in volume. I will be watching volume closely over the next few days. If downward movement comes on increasing volume, then it would support the Elliott wave counts; if it does not, then the Elliott wave counts would be in doubt.
The last swing high saw a rise in price accompanied by a rise in volume, and the following fall in price comes overall on a decline in volume. The volume profile of the last 12 days indicates there may be a new upwards trend developing.
ADX does not yet indicate a new trend (ADX does tend to be a lagging indicator). The black ADX line is pointing down. The market is range bound.
There is small hidden bullish divergence between Stochastics and price today: price has made a higher low while Stochastics made a lower low. This is bullish for the short term, but it is a weak signal. This weak signal in conjunction with the lack of confirmation so far on the Elliott wave counts indicates extreme caution should be used in your approach to this market today.
This analysis is published about 07:44 p.m. EST.