This is the last analysis prior to the Christmas / New Year break.
Next analysis will be done after market close for Monday, 4th January, 2016.
May you all have a very Merry Christmas and a Happy New Year!
Summary: The trend is down. The question is whether a small correction against the trend is over or not. The main wave count expects it is over, so this should remain the preferred wave count while price remains below the cyan trend line offering resistance on the daily chart. If that line is breached, use the Daily Alternate which expects the correction will move higher to 1,103 – 1,105. This target may be met in six days, if the correction totals a Fibonacci twenty one days. The time guide is rough only and may be too long. The second daily alternate is the ending diagonal idea for primary wave 5, and it too follows the same two ideas at the hourly chart level considering if the correction is over or not.
New updates to this analysis are in bold.
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 to the daily chart). The bear market should be expected to be intact until we have technical confirmation of a big trend change.
A five wave impulse is unfolding lower from the all time high. The subdivisions all fit perfectly.
It is not possible to see primary wave 1 ending any earlier because it must be a five. Primary wave 2 was a deep 0.68 running flat lasting 53 weeks. Primary wave 3 was a perfect impulse and 12.54 short of 1.618 the length of primary wave 1. Primary wave 4 was a shallow 0.27 regular contracting triangle lasting 54 weeks. There is perfect alternation in depth and structure between primary waves 2 and 4. There is almost perfect proportion also, which gives the wave count a textbook perfect look at the weekly chart level. It is the proportion between the corrections of an impulse which give it the “right look”.
Within primary wave 5, there is some concern that intermediate wave (2), minor wave 2, and now minute wave ii are all much bigger and time consuming than these corrections at these degrees normally are. The alternate idea of an ending diagonal for primary wave 5 is considered for this reason.
The final line of resistance (cyan line copied over from weekly charts) is only overshot and not so far properly breached. Simple is best, and the simplest method to confirm a trend change is a trend line.
Minute wave ii is a complete zigzag and deep at 0.73 the length of minute wave i.
At 930 minute wave iii would reach 1.618 the length of minute wave i.
Minuette wave (i) is complete.
This main wave count at the daily chart level looks at the possibility that minuette wave (ii) is over as a brief shallow expanded flat. There may now be enough of a strong downwards pull from the middle of a big third wave to force this correction to be more brief and shallow than second waves normally are. Because this main wave count expects a third wave down may be close to the strongest middle part, expect surprises to be to the downside.
I am drawing a best fit channel about this downwards movement in cyan. Along the way down, there will be small upwards corrections which may find resistance at the upper trend line. Expect that this main wave count is most likely correct while price remains below this trend line. If price breaks above that line, then use the daily alternate below.
Both hourly wave counts today will look at price movement since the high of 1,088 on 4th December, when minuette wave (ii) probably ended.
MAIN HOURLY WAVE COUNT
This wave count looks at minuette wave (ii) as a complete expanded flat.
Within minuette wave (iii), another first and second wave could also be complete for subminuette waves i and ii. Subminuette wave ii fits perfectly as a double combination.
Within subminuete wave iii, another first and second wave may be complete for micro waves 1 and 2. Micro wave 2 importantly ends at the second of a double top at 1,077.9. This means that the low of the price shock labelled submicro wave (X) is part of micro wave 2 and not a first wave down. This makes a difference to invalidation points, so makes a difference to risk.
The orange channel is a base channel about subminuette waves i and ii. A third wave should break out of a base channel about its first and second waves.
The lower edge of the base channel was breached, but price has moved back into the channel. Price is finding some resistance at the upper edge of the channel.
Another first wave for submicro wave (1) is complete. The structure for submicro wave (2) looks incomplete on the five minute chart and the hourly chart. It should move at least slightly higher but not beyond the start of submicro wave (1) above 1,077.9.
A new high above 1,077.9 would also mean price would breach the cyan trend line on the daily chart. If this happens, then the correction is clearly not over and price should continue higher for at least one day and most likely a few.
This main wave count should be preferred while price remains below 1,077.9.
At 1,020 subminuette wave iii would reach 2.618 the length of subminuette wave i. The strongest part of downwards movement may come when micro wave 5 to end subminuette wave iii arrives. Gold typically exhibits swift strong fifth waves, especially the fifth waves to end its third waves.
At 951 minuette wave (iii) would reach equality in length with minuette wave (i). Again, the fifth wave of subminuette wave v to end the impulse of minuette wave (iii) may be the strongest part of this downwards movement.
If price makes new lows and an impulse downwards is unfolding, then once the next five down is complete the invalidation points can start to be moved lower. When submicro wave (3) may be complete, then the invalidation point may move down to the low of submicro wave (1) at 1,046.8. The following correction for submicro wave (4) may not move into submicro wave (1) price territory.
Likewise, when subminuette wave iii may be complete, then the invalidation point for subminuette wave iv is at the low of subminuette wave i at 1,065.
To the downside on Monday, if price makes a new low below 1,054.6, then this wave count and its implications of a strong third wave down must be taken very seriously. If that happens, then along the way down use the cyan trend line on the daily chart as a guide to where corrections should find resistance. If that line holds, then each time it is touched it offers an opportunity to join the trend.
ALTERNATE DAILY WAVE COUNT
This wave count is identical to the main daily wave count up to the low labelled minuette wave (i).
Thereafter, it looks at the possibility that minuette wave (ii) is not over. This would still see minuette wave (ii) a relatively shallow correction (most likely), but it may be not as quick as the main wave count expects.
Minuette wave (ii) again fits as an expanded flat correction. The first expanded flat may have been a three wave structure for subminuette wave a. Subminuette wave b will fit as a double zigzag and is a 1.06 length of subminuette wave a. This is within the normal range of 1 to 1.38 and just longer than the minimum for an expanded flat which is 1.05.
Expanded flats normally have C waves which move a reasonable distance beyond the end of their A waves. If subminuette wave c takes price up to about the 0.382 Fibonacci ratio then minuette wave (ii) would still be relatively shallow but not as shallow as the main wave count expects. The expanded flat would have a typical look.
The target for minute wave iii is still the same. At 930 it would reach 1.618 the length of minute wave i.
If the target for subminuette wave c is wrong and is too low, then look for price to find resistance at the upper cyan trend line copied over from the weekly chart.
ALTERNATE HOURLY WAVE COUNT
I have found a solution for subminuette wave b, as a double zigzag. At 1.06 the length of subminuette wave a, the minimum for an expanded flat was met and passed.
At 1,105 subminuette wave c would reach 1.618 the length of subminuette wave a. This is close to the 0.382 Fibonacci ratio at 1,103, so it gives a $2 target zone for this correction to end.
If price breaks above 1,077.9, then this should be the preferred wave count. The main wave count would be invalidated.
Subiminuette wave c may only subdivide as one of two structures, either an impulse (more likely) or an ending diagonal (less likely). So far it looks like an impulse may be unfolding. If a diagonal unfolds, then it may possibly be time consuming enough to last six days in order for minuette wave (ii) to end in a total Fibonacci twenty one days.
I cannot see a complete five up so far on the five minute chart. There is a series of short first waves and overlapping second waves that need a series of third waves to end and their corresponding fourth waves.
Once an impulsive count up can be seen (an impulsive count is any count of five plus multiples of four which represent extensions, so an impulsive count is any of 5, 9, 13 etc.), then look out for the end of subminuette wave c. Once there is more structure within subminuette wave c, then draw a channel about it. A channel about the C wave should be used to indicate when the correction is over because expanded flats don’t fit well within channels. Once a reasonable channel can be drawn about subminuette wave c, then look for a subsequent breach of that channel to indicate subminuette wave c and so minuette wave (ii) as over.
Subminuette wave c should move at least slightly above the end of subminuette wave a at 1,074.6 to avoid a truncation and a very rare running flat.
Micro wave 4 may not move into micro wave 1 price territory below 1,054.6. If this price point is breached Monday or Tuesday, then the main wave count would be confirmed.
SECOND 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. (I have checked this structure again with COMEX data and it still violates the rule).
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 972.6 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 may either be a complete quick shallow expanded flat as per the labelling here, or it may yet continue further as per the first daily alternate above.
Minor wave B may not move beyond the start of minor wave A above 1,189.
Use the cyan trend line in the same way: expect the trend is down while price remains below it. If price breaks above that line, expect minor wave B is moving higher to the target at 1,103 – 1,105.
For this ending diagonal idea, the final fifth wave of intermediate wave (5) should be expected to overshoot the (1)-(3) trend line, which is a very typical look for contracting diagonals. What that means is if price moves lower and it overshoots the lower black line (which is the same as the lower cyan line on the main wave count), then look out for a possible end to this bear market.
At that stage, any shorts should be carefully handled. Manage risk so that your account is not left exposed at that stage to a potential major trend change.
At 1,004 minor wave C would reach 0.618 the length of minor wave A. If minor wave B does continue and moves higher, then this target must also move correspondingly higher. Minor wave C may be about $84 in length.
The same idea for Silver now works on COMEX data. An ending expanding diagonal, which meets all Elliott wave rules, may be close to completion for Silver. This adds slight support to this alternate idea for Gold.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volume for Friday’s upwards day is lighter than the prior downwards day. This volume profile is short term bearish.
ADX had previously indicated a downwards trend. The -DX line has remained above the +DX line, so no trend change has been indicated, but the decline of the ADX line has indicated a consolidation.
The downwards day of 17th December does look like a downwards breakout may be coming, but it is no longer definitive with the next day moving price back up into the consolidation zone.
A strong downwards day needs to close well below the lower gold line of support for a downwards breakout to be clear. It should do so on increased volume. If that happens, then expect the downwards trend has resumed.
To the upside, any further upwards movement may find resistance at the gold line first and then the lowest blue line after that. Look for any upwards movement to end when price finds resistance and Stochastics is overbought at the same time.
With price now comfortably back within the consolidation zone, we are still waiting for a breakout. Use On Balance Volume as a leading indicator of what direction price may break out. Use the peach and pink trend lines. A clear break above the peach line or below the pink line may be a leading indicator for price. OBV should break clearly above or below the line, and then look for a throwback. If that happens, then expect price to follow in the same direction.
At this stage, the ADX line is still flat to declining indicating the market is not trending but consolidating. If the black ADX line again turns up, then expect the market is again trending.
RSI is neutral. There is plenty of room for this market to rise or fall.
ATR is increasing. This supports the main wave count which expects the trend has resumed.
Once price has broken out and ADX indicates a trend again, then use both the trend lines on price and the 9 day EMA on this chart to show where price should find resistance.
It is expected that the breakout should be down.
This analysis is published about 10:13 p.m. EST.