Downwards movement was expected, but price breached the invalidation point on the hourly chart first providing much confusion with the wave count.
Summary: In the mid term, downwards movement should continue to at least 1,144. In the short term, a retracement of today’s price shock may end about 1,171. A new low below 1,120.32 would be very bearish at this stage.
To see weekly charts for bull and bear click here.
New updates to this analysis are in bold.
BULL ELLIOTT WAVE COUNT
DAILY – COMBINATION
If cycle wave b is a combination, then the first structure in the double combination (or double flat) was an expanded flat. The double is joined by a three in the opposite direction labelled primary wave X which was a zigzag.
Downwards movement of the last several days looks now to be too large in price and duration to be part of the prior upwards wave, which now looks like a separate wave. Minor wave 3 may be a complete zigzag of a leading diagonal. Minor wave 3 is shorter than minor wave 1, so the diagonal would be contracting which is the most common type particularly for a leading diagonal. This limits minor wave 4 to no longer than equality in length with minor wave 2. Minor wave 4 may not move below 1,120.32.
A five wave structure would be developing upwards for this wave count as a leading contracting diagonal. Because primary wave Y would be beginning with a five wave structure, this reduces the possible structures to a zigzag. Cycle wave b as a combination would be a flat – X – zigzag.
The normal range for a fourth and second wave within a diagonal is between 0.66 to 0.81 the prior actionary wave. That gives a normal range for minor wave 4 from 1,130 to 1,116. Minor wave 4 must end at the upper edge of the normal range (or above) to remain above the invalidation point.
DAILY – EXPANDED FLAT
Cycle wave b may also be a flat.
If cycle wave b is an expanded flat, then primary wave C must be a five wave structure. The current upwards wave may be unfolding as a leading contracting diagonal, so this would be minor wave (1) within primary wave C.
There are two possible structures for a C wave within a flat correction: an impulse or an ending diagonal. If the first wave is a five and not a zigzag, then an ending diagonal may be ruled out because ending diagonals require all sub waves to be zigzags. Primary wave C may now only be an impulse.
A leading diagonal requires the second and fourth waves to subdivide as zigzags. The first, third and fifth waves are most commonly zigzags, but sometimes may appear to be impulses. So far minor waves 1 and 3 both fit well as zigzags.
Minor wave 2 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.
The hourly chart below works for both these first two daily charts.
The upwards movement which invalidated yesterday’s hourly wave count will fit best as a continuation of minute wave b. Minute wave b subdivides perfectly as an expanded flat. Minuette wave (b) is a 1.62 length of minuettte wave (a), and minuette wave (c) is 2.08 longer than 1.618 the length of minuette wave (a). Minuette wave (c) moves slightly beyond the end of minuette wave (a) avoiding a truncation.
The pink channel is a best fit about this downwards movement. Draw the first trend line from the start of minute wave a to the end of minute wave b, then place a parallel copy on the low labelled minuette wave (b) so that all downwards movement is contained. The lower edge may provide some support, and after it is breached may provide some resistance.
Although minor wave 4 could be a complete zigzag at today’s low, it is unlikely to be over there if the bigger picture (a leading diagonal unfolding upwards on the daily chart) is correct. Fourth waves within diagonals are not normally that shallow.
At 1,144 minute wave c would reach 1.618 the length of minute wave a.
Price shocks like this one which moved price quickly lower during Wednesday are often all or almost all retraced. Minuette wave (ii) may be likely to end about the 0.618 Fibonacci ratio of minuette wave (i) at 1,171. It does not have to end there, it may also end about the 0.382 Fibonacci ratio, but in this instance the 0.618 ratio would have a higher probability.
When minuette wave (ii) is complete, then minuette wave (iii) downwards should unfold and may show an increase in momentum beyond that seen for minuette wave (i).
Minuette wave (ii) may not move beyond the start of minuette wave (i) above 1,183.09.
DAILY – TRIANGLE
This daily chart looks at what a triangle would look like for cycle wave b. The triangle would be a running contracting or barrier triangle. Within the triangle, primary wave C up must be a single or multiple zigzag. Primary wave C may not move beyond the end of primary wave A above 1,308.10.
This idea slightly diverges from the other two ideas for cycle wave b as an expanded flat or combination.
If a triangle is unfolding, then at the weekly chart level primary wave C looks unlikely to be complete and should move higher for the triangle to have the right look. This wave count sees upwards movement as incomplete for minor wave C with a final fifth wave yet to unfold. At 1,220 minute wave v would reach equality in length with minute wave iii. This would see primary wave C end close to 0.618 the length of primary wave B. One of the five sub waves of a triangle is commonly about 0.618 the length of its predecessor.
The second target at 1,256 is where minor wave C would reach 2.618 the length of minor wave A, and at 1,261 primary wave C would reach 0.8 the length of primary wave A.
For the triangle idea, for cycle wave b, a five wave impulsive structure only needs to complete upwards. The next wave down for primary wave D should be fairly time consuming, lasting about 2 to 6 months. Primary wave D may not move beyond the end of primary wave B at 1,072.09 for a contracting triangle. Alternatively, primary wave D may end about the same level as primary wave B at 1,072.09 for a barrier triangle, as long as the B-D trend line remains essentially flat. In practice this means primary wave D can end slightly below 1,072.09 and this wave count remains valid. This is the only Elliott wave rule which is not black and white.
HOURLY – TRIANGLE
The subdivisions within downwards movement for the hourly chart for the triangle are exactly the same as for the first hourly chart. A 5-3-5 down is complete, here labelled minuette waves (a), (b) and (c).
For this triangle idea, this may be a completed zigzag for minute wave ii.
A new high above 1,183.09 should provide some confidence that a three down is complete and a new upwards wave is underway.
If minute wave ii continues any further (and minuette wave (c) within may yet continue lower), then it may not move beyond the start of minute wave i below 1,104.69.
BEAR ELLIOTT WAVE COUNT
The final line of resistance (bright aqua blue line copied over from weekly charts) is only overshot and not so far properly breached. While this line is not breached the bear wave count will remain possible. Simple is best, and the simplest method to confirm a trend change is a trend line. While price remains below this line, it must be accepted that Gold has been in a bear market since 2011 and we don’t have technical confirmation that the bear market has ended.
The most likely possibility is that minute wave ii is a complete double zigzag and deep at 0.75 the length of minute wave i for the bear wave count. It has breached the dark blue base channel drawn about minor waves 1 and 2, one degree higher. When a lower degree second wave correction does this it reduces the probability of the wave count but does not invalidate it. Base channels most often work to show where following corrections find support or resistance, but not always.
At 932 minute wave iii would reach 1.618 the length of minute wave i.
If minute wave ii were to continue further, it may not move beyond the start of minute wave i above 1,232.49. A new high above that price point would be final price invalidation of any bear wave count. That would fully eliminate the concept that Gold remains in a bear market. No bear wave count should be considered above that point.
Although the subdivisions at the hourly chart level are the same for all wave counts, I will provide a separate hourly chart for this bear wave count to avoid any confusion. At this stage, it does not mean I consider this wave count to have a higher probability because I do not, but I do wish to stress it is entirely technically possible and we do not have technical confirmation that Gold has changed from bear to bull. All wave counts should be considered while the situation remains unclear for Gold.
Downwards movement from the last swing high at 1,191.66 subdivides so far 5-3-5 for all wave counts.
For the bear, this may be minuette waves (i), (ii) and now subminuette wave i.
At 1,080 minuette wave (iii) would reach 4.236 the length of minuette wave (i). I am using that Fibonacci ratio because minuette wave (i) is so short.
The green channel is slightly different. It is a base channel about minuette waves (i) and (ii). Base channels often (not always) are useful to show where following corrections may find support or resistance. The lower edge of the base channel should be breached by a third wave. So far this has happened. In the first instance look for upwards movement to find some resistance at the lower edge of this base channel.
This bear wave count expects to see a strong increase in downwards momentum over the next few weeks.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Today it looks increasingly like the breakout of 14th October was a false upwards breakout. Price has closed four days in a row back below the purple horizontal line of resistance.
Today’s strong downwards day comes with a sharp increase in volume (although this may change after 6:30pm EST when StockCharts data is finalised). This is bearish; the fall in price is well supported by volume.
ADX is a lagging indicator. ADX indicates an upwards trend is in place although price has now been moving overall lower for the last nine days. ATR overall still disagrees. This is an increase of only one day, not yet enough to determine a new trend is in place, although today’s range for price sharply increased. ATR overall is still declining which is more typical of price behaviour during a consolidation than a trend.
If price is still within a consolidation, then it may be expected that more downwards movement shall unfold until price finds support and Stochastics is oversold at the same time. Price may find support at either the upwards sloping light blue line or the horizontal purple line. Stochastics is not yet oversold. More downwards movement would be expected from this approach.
During this consolidation, which began back on 7th August, it is still a downwards day which has strongest volume. This indicates a downwards breakout is more likely than upwards.
On Balance Volume has breached the short held orange line. This is a weak bearish signal.
At this stage, the picture looks to be slightly more bearish than bullish, at least short term. That ADX still indicates an upwards trend is in place is concerning though, so this regular technical analysis comes with the caveat that the picture is mixed and we may yet have an upwards trend in place if ADX is to be believed in this instance.
This analysis is published about 06:55 p.m. EST.