A correction was expected to continue. A small inside day fits this expectation.

Summary: The structure of this correction is unclear and it will be impossible to accurately predict the pathway price will take to complete it (because it is impossible to predict what structure it will take and which of more than one valid wave count will be correct). What is clear is that it is unlikely to be over. It may continue for a further six days to end at either 1,088 or 1,104.

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

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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. It looks like minuette wave (ii) may be more brief and shallow than second wave corrections normally are, at this stage, due to the strong downwards pull from the middle of a third wave. So far it has lasted seven days. At this stage, it looks unlikely to end in one more day, so a further six days may see it total a Fibonacci thirteen.

MAIN HOURLY WAVE COUNT

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This wave count is changed today. This main wave count looks at minuette wave (ii) as a single incomplete expanded flat correction.

There are two possible structures for subminuette wave c. C waves may be either impulses or ending diagonals.

Previously, I had seen this upwards movement as an unfolding impulse. But the correction labelled micro wave 2 shows up on the daily chart as a red candlestick, where the smaller correction now labelled sub micro wave (B) (within micro wave 1) does not. It is more likely these two corrections are not the same degree, and the larger correction which shows up on the daily chart is a higher degree than the smaller correction that does not. This wave count resolves that problem of yesterday’s main hourly wave count.

If subminuette wave c is unfolding as an ending diagonal, then all the sub waves must subdivide as zigzags. Micro wave 1 is complete.

If the sideways movement labelled sub micro wave (B) within micro wave 2 is seen as a triangle, then micro wave 2 must be over. It is a 0.54 correction of micro wave 1, less than the normal range of 0.66 to 0.81 but still relatively deep, so not too far from normal to be problematic.

No second wave correction nor B wave may move beyond its start below 1,066.17 within micro wave 3.

Micro wave 3 must subdivide as a zigzag. When it is done the type of diagonal should be known, expanding or contracting. If micro wave 3 reaches above 1,108.63, the diagonal should be expanding. But it is more likely to be shorter than this for a contracting diagonal. Micro wave 3 must move above the end of micro wave 1 to make a new high above 1,088.94.

When micro wave 3 is a complete zigzag, then micro wave 4 must overlap back into micro wave 1 price territory, should be deep, must be a zigzag, and may not move below the end of micro wave 2 at 1,066.17. The invalidation point will remain the same for this wave count for some time.

The classic technical analysis equivalent (to a contracting diagonal) is a rising wedge. They are terminal structures.

Diagonals are choppy and overlapping; they take time to form. This structure may continue for a further six days, if minuette wave (ii) completes in a Fibonacci thirteen.

At 1,104 subminuette wave c would reach 1.618 the length of subminuette wave a and minuette wave (ii) would correct to the 0.382 Fibonacci ratio of minuette wave (i).

FIRST ALTERNATE HOURLY WAVE COUNT

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This first alternate wave count looks at minuette wave (ii) as an incomplete double combination or double flat correction.

An expanded flat correction may have been over with a slightly truncated fifth wave within micro wave C, labelled subminuette wave w.

This may have been the first flat correction within a longer lasting double flat or double combination for minuette wave (ii).

The second structure for a double combination may be a zigzag or a triangle. For a double flat, the second structure may be another flat. Double combinations and double flats have the same purpose: to take up time and move price sideways. To achieve this purpose the second structure in the double normally ends about the same level as the first, so subminuette wave y may be expected to end about 1,088.

Within doubles, the two structures are joined by a correction in the opposite direction labelled X. This may be any corrective structure. It may make a new low below the start of the first corrective structure, so there is no lower invalidation point for this wave count for that reason.

Subminuette wave x looks like it may be unfolding as a simple zigzag and that is the most common structure for X waves. Within subminuette wave x, micro wave B may not move beyond the start of micro wave A above 1,088.11.

Within the zigzag of subminuette wave x, today it looks like micro waves A and B are complete. At 1,057 micro wave C would reach equality in length with micro wave A. If micro wave B moves any higher, then this target must also move correspondingly higher.

When subminuette wave x is complete, then choppy overlapping sideways movement for a second corrective structure would unfold over a few days. If this continues now for a further six days, then minuette wave (ii) may last a total Fibonacci thirteen days.

SECOND ALTERNATE HOURLY WAVE COUNT

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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.

ALTERNATE ELLIOTT WAVE COUNT

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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.

TECHNICAL ANALYSIS

Click chart to enlarge. Chart courtesy of StockCharts.com.

A small inside day on light volume looks very corrective. This supports the main and first alternate hourly wave counts but does not support the second alternate hourly wave count.

ADX is clearly declining, indicating a correction. More sideways movement should be expected to unfold as price consolidates. A breakout should be looked for either above or below the gold horizontal lines now delineating support and resistance of this consolidation. ATR is beginning to agree as it too is starting to turn downwards.

To the upside, if price breaks above the upper horizontal gold line, then the next line of resistance would be the purple lines. A move above the gold line should come on higher volume for a breakout to be confirmed. A move below the lower horizontal gold line on higher volume would confirm a downwards breakout.

Price should be expected to swing between support and resistance while price remains within the gold horizontal lines. At this stage, more upwards movement should be expected to continue and to only end when price finds resistance and Stochastics reaches overbought at the same time.

This analysis is published about 08:17 p.m. EST.