A slight new high on light volume changes both Elliott wave counts.
The bull and bear Elliott wave counts now diverge.
Summary: The bear wave count expects downwards movement and would be confirmed with a new low below 1,098.85; the target is 1,058. The bull wave count expects upwards movement and would be confirmed with a new high above 1,156.83; the target is 1,163.
Changes to last analysis are bold.
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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.
If subminuette wave ii continues any higher then it may not move beyond the start of subminuette wave i above 1,156.83.
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.
Minuette wave (ii) will subdivide as a double zigzag, but it has a five wave look on the daily chart, not a three. Both the wave down labelled minuette wave (i) and the wave up labelled minuette wave (ii) have a better fit and look for the bull wave count than the bear at the daily chart level.
Gold has the most textbook looking structures and waves of all the markets I have analysed over the years, probably due to the high volume of this global market. And so I am quite concerned with the look of minuette waves (i) and (ii). Sometimes Gold has movements which don’t look perfect on the daily chart, but this is uncommon.
Sometimes Gold’s impulse waves start out slowly. There is a good example on this daily chart for minute wave i. When the fifth wave approaches that is when momentum sharply increases, and it often ends on a price shock with a volume spike. This is an even more common tendency for Gold’s third wave impulses. The strongest downwards movement is ahead, and it should be expected to arrive when subminuette wave v within minuette wave (iii) begins.
This bear wave count expects Gold is within a third wave at five wave degrees. Expect any surprises to be to the downside for this wave count.
Within minuette wave (iii), subminuette wave ii now shows up very clearly on the daily chart. This was expected, and will give minuette wave (iii) the right look. Minuette wave (iii) may only subdivide as an impulse.
Full and final confirmation of this wave count would come now with a new low below 1,098.85.
I will remove the final target for primary wave 5 at this stage. If it were to reach only equality with primary wave 1 , then this wave count would end about 985. But it has begun with three big overlapping first and second waves, so the target no longer looks low enough. I will calculate a target for primary wave 5 to end at intermediate degree when intermediate waves (3) and (4) are complete. Primary wave 5 may not exhibit a Fibonacci ratio at primary degree.
The upwards movement now labelled subminuette wave ii looks strongly like a three and not a five.
This hourly wave count is changed today to see subminuette wave i over at the low of 1,104.69. With the many subdivisions in this downwards wave, this is possible; however, it is impossible to determine with confidence if that move was a five wave impulse or a three wave zigzag as it will subdivide either way. So I must consider both possibilities.
Ratios within subminuette wave i are: there is no Fibonacci ratio between micro waves 3 and 1, and micro wave 5 is 1.37 short of equality with micro wave 1. Micro wave 3 is extended.
If subminuette wave ii continues any higher, it should find strong resistance about the upper blue trend line copied over here from the daily chart.
There is no Fibonacci ratio between micro waves A and C within subminuette wave ii.
A channel drawn about subminuette wave ii using Elliott’s technique is breached by sideways movement. I would prefer to see this breached by clearly downwards movement before having confidence that the correction is over, but this breach does provide first indication.
A new low below the start of micro wave C at 1,130.29 would provide early price confirmation that subminuette wave ii would likely be over.
At 1,058 subminuette wave iii would reach 1.618 the length of subminuette wave i.
The end of subminuette wave iii would be the next interruption to the downwards trend for this bear wave count. The fifth wave within subminuette wave iii may be very swift and sharp, maybe a price shock to the downside. This bear wave count expects downwards momentum to show a strong increase.
If subminuette wave ii moves any further (and it may as a double zigzag), then it may not move above the start of subminuette wave i above 1,156.83. However, this is a lower degree second wave within a third wave three degrees higher. It should not be too deep or long lasting. It would very likely be over now if this wave count is correct.
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.
To the upside, a new high above 1,156.83 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.
Price has again come down to touch the bright aqua blue trend line and bounced up from here. If price continues any higher, then it should find very strong resistance at the upper dark blue trend line.
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.
There now looks like a five up on the daily chart within minor wave 3. This may be minute wave a within a zigzag, or it may also be minute wave i within an impulse. It is difficult at this stage to see how minute wave b could continue any lower; it is likely to be over now as labelled. I will leave the invalidation point at 1,098.85 to consider the unlikely possibility that it could continue. If it does, then it may not move beyond the start of minute wave a.
For this bull wave count, a third or C wave up should now be underway. At 1,163 minute wave c would reach equality in length with minute wave a.
Today the bull wave count sees minute wave b complete as a sharp deep zigzag. It does not have a very clear three wave look at the daily chart level, but with this depth I am considering the possibility that it is over. There is no Fibonacci ratio between minuette waves (a) and (c).
The first wave of minuette wave (i) is most likely complete within minute wave c (or minute wave iii) upwards.
Minuette wave (ii) would very likely be incomplete because second wave corrections are more often deeper than this one is so far. It may be unfolding as a regular flat correction.
At 1,124 subminuette wave c would reach 1.618 the length of subminuette wave a. This is somewhat close to the 0.382 Fibonacci ratio of minuette wave (i) at 1,127.
Minuette wave (ii) may not move beyond the start of minuette wave (i) below 1,104.69. Along the way down, if price gets that low, it may again find some support about the bright aqua blue trend line copied over from the daily chart.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Monday completed with a red candlestick with a small real body, almost but not quite a doji. This represents indecision, a balance between bulls and bears with the bears only slightly in charge. It looks corrective, and most of the session was taken up with sideways movement. Price remains range bound, below the upper sloping blue trend line providing resistance and the lower blue trend line providing support.
The black ADX line is pointing downwards which indicates there is no clear trend to the market yet. ADX does tend to be a lagging indicator. ADX has been indicating no clear trend for almost every day since 7th August; Gold has been range bound now for some time. During this time, it is still a downwards day which shows strongest volume which indicates that a downwards breakout would be more likely than upwards.
It would be expected that during this consolidation price should find support at one or both of the upwards sloping aqua blue line or the horizontal purple line. If price continues higher for Tuesday, then the next line of resistance is the downwards sloping blue line.
Overall, volume continues to decline as this consolidation continues. While price is being squashed between the sloping lines providing resistance and support the consolidation comes closer to maturity. The breakout is closer. I would expect the breakout may come this week now.
A range bound system is outlined here using lines on price for resistance and support in conjunction with Stochastics to indicate overbought / oversold. The downwards swing ended with Friday’s strong upwards move in price, but although price reached support Stochastics did not quite reach oversold. This is one illustration of why trading a range bound market is so risky. Here price should be expected to move higher until it finds resistance and at the same time Stochastics reaches overbought.
RSI at the daily chart level is neither overbought or oversold. There is room for the market to rise or fall.
There is some hidden bullish divergence between price and On Balanace Volume (olive green lines). While price made a higher low, OBV has made a lower low. This is a weak signal, but it does support a range bound approach (because it expects more upwards movement at this time).
Overall, at this stage, volume analysis indicates the bear wave count may be more likely than the bull.
This analysis is published about 06:56 p.m. EST.