An upwards correction was expected to begin this week.
Monday is completing a green daily candlestick which fits the Elliott wave count perfectly.
Summary: This second wave correction may last a total Fibonacci 13 or 21 days. It would most likely end about the 0.382 Fibonacci ratio at 1,104, because it may find resistance there at a trend line. The trend is down. This is a correction against the trend.
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.
At 932 minute wave iii would reach 1.618 the length of minute wave i.
Minuette wave (i) is complete. Ratios within minuette wave (i) are: subminuette wave iii is 6.48 longer than 4.236 the length of subminuette wave i, and subminuette wave v is 2.03 short of equality in length with subminuette wave i. If subminuette wave v continues any lower at the beginning of next week, then it may end at 1,050.82 where it would reach equality in length with subminuette wave i.
Minuette wave (ii) may find resistance at the upper dark blue trend line. This may see it end about the 0.382 Fibonacci ratio of minuette wave (i) at 1,104.
Draw a channel about minuette wave (i) using Elliott’s second technique: draw the first trend line from the ends of subminuette waves ii to iv, then place a parallel copy on the end of subminuette wave iii. When price breaks above the upper edge of this channel it should confirm a trend change. Copy the channel over to the hourly chart. So far this channel is breached on the hourly chart providing earliest trend channel confirmation that minuette wave (i) is over and minuette wave (ii) has begun. When this channel is also breached on the daily chart, then more confidence may be had that minuette wave (i) is over and minuette wave (ii) is underway.
Minuette wave (i) lasted 31 days, three short of a Fibonacci 34. Minuette wave (ii) may be expected to last a Fibonacci 13 or 21 days, with 13 favoured at this stage. It may also be more brief than this due to the strong downwards pull of the middle of a big third wave. Analysis this week and next will focus on identifying a potential end to this correction.
At this early stage, it is impossible to determine which of several possible structures may unfold for minuette wave (ii). Today I will have two hourly charts to look at subminuette wave a as either a three or a five.
FIRST HOURLY WAVE COUNT
Minuette wave (ii) is most likely to be a zigzag, so subminuette wave a is most likely to be a five wave structure.
If a five wave structure is unfolding upwards, it looks so far like it may be an impulse. There is no Fibonacci ratio between micro waves 1 and 3.
Micro wave 2 was a very deep 0.95 zigzag. Given the guideline of alternation micro wave 4 may be expected to be a shallow flat, combination or triangle. It may not move into micro wave 1 price territory below 1,061.83.
When micro wave 4 is complete, then micro wave 5 upwards would most likely make a new high above the end of micro wave 3 at 1,069.85 to avoid a truncation. It would most likely be equal in length with micro wave 1 at 8.98.
Subminuette wave b downwards should unfold when subminuette wave a is a completed impulse. It would most likely be choppy, overlapping and time consuming. It may not move beyond the start of subminuette wave a at 1,052.85.
If upwards movement continues as this first hourly wave count expects and there is a clear five up on the hourly chart, then the next correction may not make a new low.
However, if in the short term we see a new low below 1,061.83, then the first wave up would be a completed three and the second hourly wave count below would apply.
At this stage, I will label subminuette wave a as close to completion. But when the first wave up is complete, then alternates must be used which would move the degree of labelling within this correction down one degree. For now, to keep the number of charts reasonable, the analysis will focus on just the first movement up within this correction.
SECOND HOURLY WAVE COUNT
Minuette wave (ii) may also unfold as a flat or combination. The only structure it may not be is a triangle. Flats and combinations begin with three wave structures.
If a flat or combination is unfolding, then subminuette wave a (or w) may be a completed three wave zigzag upwards. The degree of labelling within this movement may also be moved down one degree; this may only be micro wave A (or W) within a flat or combination which may be subminuette wave a. For now I will publish this idea with this degree of labelling only, but please note that the degree of labelling over this week may change as more structure unfolds and it becomes clearer.
If the first wave up is a zigzag, then the next wave downwards may make a new low below its start below 1,052.85.
If a flat correction is unfolding, then subminuette wave b must retrace a minimum 0.9 length of subminuette wave a at 1,054.55. The most common range for a B wave within a flat is 1 to 1.38 times the length of the A wave, which gives a range between 1,053 – 1,046.
If a combination is unfolding, then there is no minimum nor maximum for subminuette wave x. It may be any corrective structure, and it may make a new low below 1,052.85.
There is no maximum limit for the length of a B wave within a flat. There is a convention which states that when the B wave reaches twice the length of the A wave the probability of a flat unfolding is so low that it should be discarded. This price point would be at 1,035.85.
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.
Monday’s upwards movement is not supported by volume. This indicates that upwards movement is most likely a correction against a downwards trend. This supports the Elliott wave count.
Gold often exhibits a volume spike at the end of its trends. This may be what has happened on Friday. Monday’s upwards movement is finding some resistance at the lower triangle trend line.
ADX still indicates a downwards trend is in place. ATR agrees for the last three days; it is increasing. Both of these indicators are lagging as they are based on averages.
RSI and Stochastics are returning from oversold. More upwards movement may be expected to return further above oversold before there would be room again for more downwards movement.
This analysis is published about 06:49 p.m. EST.