Upwards movement was expected.
Yesterday’s second hourly Elliott wave count looked at the possibility that upwards movement may be very choppy and overlapping. This is the correct Elliott wave count.
Summary: The target for more upwards movement is at 1,101 to 1,103. Upwards movement is incomplete and extremely likely to make at least a slight new high above 1,098.25. Upwards movement may continue for a further two days and is expected to be choppy and overlapping.
New updates to this analysis are in bold.
To see weekly charts and the difference between the two wave counts go here.
MAIN 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.
The final line of resistance (cyan 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.
Minute wave ii is a complete double zigzag and deep at 0.75 the length of minute wave i. 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.
Draw a channel about this downwards movement using Elliott’s first technique: draw the first trend line from the end of minuette wave (i) to minuette wave (iii), then place a parallel copy on the high of minuette wave (ii).
Minuette wave (ii) should show up on the daily chart and may last a total Fibonacci five or eight days. It may be longer lasting, but at this early stage a quicker end should be expected. The middle of a big third wave is still approaching which may force corrections to be more brief and shallow than otherwise.
Minuette wave (ii) should first breach the orange channel containing minuette wave (i). If it ends at resistance at the dark blue line, it may reach only up to the 0.382 Fibonacci ratio of minuette wave (i) at 1,118. Final resistance would be at the final bear market trend line.
This may resolve RSI being oversold.
Using FXCM data there is a morning doji star at the last low. This supports the idea of some more upwards movement from here.
Again, today I have two hourly wave counts. The main wave count is very strongly favoured. The alternate is presented as a ‘what if?’ to consider all possibilities. I would judge it to have an extremely low probability, but it is technically possible.
MAIN HOURLY WAVE COUNT
There are technically still several structural possibilities for minuette wave (ii): it may be an expanded flat correction as labelled or it may be a combination. A combination looks to be unlikely though because normally their X waves are not this deep. This looks like a typical expanded flat.
Subminuette wave b is now 1.43 times the length of subminuette wave a. This is longer than the normal length of up to 1.38, but well within the allowable convention of 2 times the length of A.
Subminuette wave c is highly likely to move at least slightly above the end of subminuette wave a at 1,098.25 to avoid a truncation and a very rare running flat.
At 1,103 subminuette wave c would reach 1.618 the length of subminuette wave a. This is close to the 0.236 Fibonacci ratio at 1,101 giving a $2 target zone.
At this stage, there are two zigzags moving upwards. Subminuette wave c looks to be very likely unfolding as an ending expanding diagonal.
Micro wave 2 is 0.64 the length of micro wave 1 within the expanding diagonal. This is just short of the normal range of 0.66 to 0.81.
Micro wave 3 is longer than micro wave 1, and so far micro wave 4 is longer than micro wave 2. The diagonal is expanding. Micro wave 5 must be longer than micro wave 3, so it must be longer than 18.65.
Micro wave 4 looks likely to be very close to completion at this stage. The normal range would be 1,076 – 1,073 where it would be between 0.81 to 0.66 the length of micro wave 3.
Micro wave 4 may not move beyond the end of micro wave 2 below 1,069.57.
When micro wave 4 is complete, then a big zigzag upwards for micro wave 5 may take its time. If it lasts a further two days, then minuette wave (ii) may total a Fibonacci eight days.
The upper edge of the orange channel, which is copied over from the daily chart, is not perfectly showing where price is finding support and resistance. Create a parallel copy and place it as shown. This parallel copy may be a more accurate guide to support for the end of micro wave 4.
ALTERNATE HOURLY WAVE COUNT
What if minuette wave (ii) was over as a brief shallow zigzag? This is technically possible, but extremely unlikely for the following reasons:
1. Minuette wave (ii) would not contain any green candlesticks on the daily chart.
2. Minuette wave (ii) would not have breached the channel which contains minuette wave (i).
3. Subminuette wave ii, one degree lower, has breached the channel containing minuette wave (i).
4. Subminuette wave ii is deep and time consuming in comparison to subminuette wave i.
If in the next trading day we see a new low below 1,069.57, then this wave count should be seriously considered. It would then be likely that a third wave down has begun a little earlier than expected.
ALTERNATE ELLIOTT WAVE COUNT
I am aware that this is the wave count which EWI and Danerics have. The implications are important, so I will follow this wave count daily for members here too.
Everything is the same up to the end of the triangle for primary wave 4. Thereafter, primary wave 5 is seen as an ending contracting diagonal.
Within the ending contracting diagonal, it is not possible to see intermediate wave (2) as a zigzag and meet all Elliott wave rules. To see an explanation of why see this video at 10:25.
The same problem exists for the ending diagonal of primary wave 5 itself. Intermediate wave (3) is longer than intermediate wave (1) which would suggest an expanding diagonal, but intermediate wave (4) is shorter than intermediate wave (2) and the trend lines converge which suggests a contracting diagonal.
From “Elliott Wave Principle” by Frost and Prechter, 10th edition, page 88: “In the contracting variety, wave 3 is always shorter than wave 1, wave 4 is always shorter than wave 2, and wave 5 is always shorter than wave 3. In the expanding variety, wave 3 is always longer than wave 1, wave 4 is always longer than wave 2, and wave 5 is always longer than wave 3.”
This structure violates the rules for both a contracting and expanding variety. If the rules in Frost and Prechter are accepted, then this is an invalid wave count.
It may be that the rules need to be rewritten to add “sometimes a third wave may be the longest within a contracting or expanding diagonal”. But I have never seen Robert Prechter publish such a rule, I do not know that it exists.
I cannot reconcile this wave count from EWI with the rules in Frost and Prechter.
If an ending contracting diagonal is unfolding, then the (1) – (3) trend line may be overshot signalling the end of intermediate wave (5). If price behaves thus and turns around and moves strongly higher, then this wave count must be accepted and the rules for diagonals will need to be rewritten.
I will continue to follow this possibility as price moves lower.
Intermediate wave (5) should be shorter than intermediate wave (1). At 977.53 intermediate wave (5) would reach equality in length with intermediate wave (1). A new low below this point would take this possible diagonal structure too far from the rules. At that stage, it really should be finally discarded.
All sub waves within ending diagonals must subdivide as zigzags. Within the zigzag of intermediate wave (5), minor wave B should unfold over several days. At this stage, there is no divergence between this idea and the main Elliott wave count.
Minor wave B may not move beyond the start of minor wave A above 1,191.66.
I am uncomfortable with publishing this wave count and I only do so because it has been published by Elliott Wave International. I am not comfortable with publishing any wave count which violates the rules in Frost and Prechter. However, when looking at primary wave 5 on the weekly chart it does look like a diagonal is unfolding.
Short to mid term there is no divergence in expected direction between this wave count and the main wave count.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Note: Again, this analysis is published early while NY is still in session. Regular technical analysis will be updated later Saturday evening NY time when StockCharts data is available and finalised.
Daily: Upwards movement may be finding some resistance at the 9 day EMA. An increase in volume today supports the rise in price, indicating the likelihood of more upwards movement is reasonable.
Upwards movement may end when On Balance Volume comes up to touch its green trend line.
ADX still indicates a downwards trend is in place. Today ATR is rising which indicates also that the market is trending.
RSI is has almost retuned from oversold. At least one more upwards day, maybe a few more, may resolve RSI being oversold.
This analysis is published about 04:54 p.m. EST.