Downwards movement was expected for the bear Elliott wave count and this is what has happened.
So far both Elliott wave counts remain valid.
Summary: The short term target for a third wave for the bear is 1,106. This may be met next week. The short term target for the bull is 1,160 which should also be met next week. A third wave is unfolding either downwards (more likely) or upwards. Both wave counts will remain viable while price remains below 1,156.86 and above 1,098.85. Regular technical analysis still indicates a downwards breakout is more likely than upwards, and at this time it also indicates downwards movement is likely from here.
New updates to this analysis are in 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 (just). 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.
There is now a five down on the hourly chart followed by a three up. This fits the bear wave count better than the bull.
Micro wave 1 is a leading contracting diagonal. Micro wave 2 is a deep 0.86 zigzag. Second wave corrections following leading diagonals in first wave positions are normally very deep.
At 1,106 micro wave 3 would reach 2.618 the length of micro wave 1. If this target is wrong, then it may not be low enough. Micro wave 3 should show a strong increase in downwards momentum for this wave count.
Micro wave 4 should be over quickly. Micro wave 5 downwards may be a sharp price shock on a volume spike. That would be a typical end for a third wave in Gold.
At 1,069 subminuette wave iii would reach 1.618 the length of subminuette wave i. Again, if this target is wrong, then it may not be low enough.
The next interruption to the downwards trend for this bear wave count would come when subminuette wave iii is over and subminuette wave iv arrives.
At 1,041 minuette wave (iii) would reach 1.618 the length of minuette wave (i). This target would be still at least two weeks away.
A new low below 1,136.74 would add some confidence to this bear wave count. It would still require a new low below 1,098.85 to eliminate any bullish variation and provide full confidence.
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.
Within minor wave 3, now at 1,163 minute wave c would reach equality in length with minute wave a. This would see minor wave 3 shorter than minor wave 1, so the leading diagonal would be contracting and that is the more common variety than expanding for a leading diagonal. This would be a reasonable expectation.
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.
Subminuette wave ii is seen as a zigzag. Micro wave C is seen within it as an ending expanding diagonal. This does not have as good a fit as how this movement is seen for the bear wave count. Here the ending diagonal does not fit within its trend lines perfectly. Expanding diagonals are not as common as the contracting variety.
This bull wave count requires strong upwards movement. Minuette wave (iii) should show an increase in upwards momentum beyond that seen for minuette wave (i). But price is moving lower and momentum is declining. This does not look like a third wave up at this stage. It could redeem itself; a new high above 1,156.83 would provide confirmation.
At 1,160 subminuette wave iii would reach equality in length with subminuette wave i. When subminuette wave iii is over the next interruption to the upwards trend for this bull wave count would be expected for subminuette wave iv.
When subminuette wave iv is complete then a target may be calculated for subminuette wave v to end minuette wave (iii).
Minuette wave (iii) may only subdivide as an impulse. It is showing its subdivisions on the daily chart. However, the correction of subminuette wave ii is very deep and breaches a base channel which would be drawn about minuette waves (i) and (ii) (not shown). This reduces the probability of this bull wave count.
Micro wave 2 may not move beyond the start of micro wave 1 below 1,136.74. If this wave count is invalidated by downwards movement, then it may be a continuation of subminuette wave ii as a double zigzag. That would have a very low probability; it is only just technically possible. The invalidation point for that idea is at 1,130.29, the start of subminuette wave i.
A new high now above 1,153.80 would add some confidence to this wave count. It would still require a new high above 1,156.83 AND a clear breach of the upper edge of the dark blue channel on the daily chart by one full daily candlestick before full confidence could be had in it.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Daily: Price is still within horizontal trend lines and sloping trend lines providing resistance and support. ADX is again flat indicating no clear trend. The market is still range bound. The breakout is closer as the sloping trend lines converge and this consolidation matures.
During this consolidation, which began about 7th August (when the black ADX line began to decline), it remains a downwards day which has strongest volume indicating a downwards breakout may be more likely than upwards.
A range bound trading system should be used as opposed to a trend following system. The system outlined here uses lines on price for support and resistance in conjunction with Stochastics to indicate oversold / overbought. The idea is simple. Expect price to swing between support and resistance. Expect one swing to end and the next to begin when price reaches support or resistance and Stochastics reaches oversold or overbought at the same time. At this time, price is returning from resistance and Stochastics is returning from overbought, so the downwards swing should be expected to continue.
Today’s small downwards day comes on some increase in volume. The fall in price has some support.
I added a new trend line to On Balance Volume. If OBV breaks below this orange line, then that would be further bearish indication. If OBV bounces up from this line, then the strength of the line would be reinforced and that would be bullish indication. OBV tends to work well with trend lines and not always so well with divergence, so I will just focus on using trend lines for it.
RSI indicates there is plenty of room for the market to rise or fall.
This analysis is published about 07:16 p.m. EST.