The correction continues as expected.
Summary: There is still more than one possible structure which may be unfolding for this correction, but what is clear is that the correction is still very unlikely to be over. It may now continue for three more days to total a Fibonacci thirteen, or eleven more days to total a Fibonacci twenty one.
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 cyan 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.
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.
Minuette wave (i) lasted 31 days, three short of a Fibonacci 34. So far it has lasted ten days. A further three days may see it total a Fibonacci thirteen. If it does not end in a further three days, then the next Fibonacci number in the sequence is twenty one which would see a further eleven days from here.
I have again three hourly charts today. The main hourly wave count at this stage may be the most likely, the first alternate is also reasonably likely, and the third is unlikely.
MAIN HOURLY WAVE COUNT
This main wave count looks at minuette wave (ii) as an incomplete double combination or double flat.
The first structure in the double is an expanded flat labelled subminuette wave w.
The double is now joined by a completed three, a zigzag, in the opposite direction labelled subminuette wave x.
The second structure in the double would be labelled subminuette wave y. It may be a flat, zigzag or triangle. A flat or zigzag is much more likely than a triangle.
Subminuette wave y should end about the same level as the first structure in the double, so that the whole correction moves sideways. It should end about 1,088.
If subminuette wave y is an expanded flat, it may include a new low below its start at 1,062.54. It may also include a new low below 1,046.48. There is no lower invalidation point for this wave count.
Subminuette wave y would most likely take about another three days to complete. It may be very choppy and overlapping, if it is a flat correction, or it may be a quicker simpler zigzag.
FIRST ALTERNATE HOURLY WAVE COUNT
This first alternate wave count today is only slightly less likely than the main wave count.
This first alternate wave count looks at minuette wave (ii) continuing as a single longer lasting flat correction.
Within the flat correction, subminuette wave a is a three wave structure, itself an expanded flat.
Subminuette wave b of a flat correction must retrace a minimum 0.9 length of subminuette wave a at 1,056.38. Subminuette wave b may make a new low below 1,046.48 as in an expanded flat. It must subdivide as a three, and it may be subdividing as a double zigzag.
Within the double zigzag of subminuette wave b, micro wave X must complete as a three wave structure, most likely a simple zigzag. Thereafter, micro wave Y should be a second zigzag to move lower.
When the depth of subminuette wave b is known, then the type of flat, regular or expanding, would be known. At that stage, a target for subminuette wave c to move higher may be calculated.
Subminuette wave c would be extremely likely to at make at least a slight new high above the end of subminuette wave a at 1,088.11 to avoid a truncation.
This second idea may take longer to unfold, possibly a further eleven days to total a Fibonacci twenty one. It would be very choppy and overlapping.
SECOND ALTERNATE HOURLY WAVE COUNT
This second alternate wave count is least likely. It looks at minuette wave (ii) as a complete expanded flat.
This would be a very quick and shallow second wave correction, but the possibility must be considered.
If the main wave count is correct (as opposed to the alternate daily wave count below), then there should be a strong downwards pull from the middle of a big third wave at this stage. Surprises to the downside may turn up.
For this wave count a third wave down is expected. The following correction for a fourth wave may not move back into first wave price territory. The structure of downwards movement should indicate which of the two alternate wave counts is correct.
With subminuette wave ii now possibly a time consuming and deep double combination, the probability of this idea has further decreased. It is presented to consider all possibilities, as a what if.
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.
An increase in volume for an upwards day supports the rise in price. This supports the idea that we should expect some more upwards movement as a part of this correction.
Overall, volume remains relatively light for the last five days. During the consolidation the strongest volume is seen for an upwards day. This indicates an upwards breakout would be more likely than downwards. This does not support the Elliott wave count at the daily chart level which expects a downwards breakout.
ADX is declining indicating price is consolidating. ATR agrees as it too is declining.
While On Balance Volume remains above its short term pink trend line, it too is bullish.
At this stage, more upwards movement would be expected to only end when price finds resistance at the upper gold trend line and Stochastics is overbought at the same time.
This analysis is published about 12:13 a.m. EST on 12th December, 2015.