Another downwards day on lighter volume fits the Elliott wave count.
Summary: The fourth wave correction is not over. Price should remain above 1,081.57. Within the correction, an upwards swing should now begin to reach resistance. It may make a new high above 1,112.19.
New updates to this analysis are in bold.
To see the last long term analysis with weekly charts click 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. The bear market should be expected to be intact until we have technical confirmation of a big trend change.
That technical confirmation would come with a breach of the upper cyan trend line by at least one full daily candlestick above and not touching the line. A new high above 1,191.37 would provide full and final price confirmation.
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 941 minute wave iii would reach 1.618 the length of minute wave i.
Minuette wave (i) is complete.
Minuette wave (ii) looks like a fairly typical expanded flat correction which may end about the 0.618 Fibonacci ratio at 1,135.
Draw a channel about subminuette wave c using Elliott’s first technique: draw the first trend line from the ends of micro waves 1 to 3, then place a parallel copy on the end of micro wave 2. Look for micro wave 4 to find support at the lower edge of the channel. Copy the channel over to the hourly chart.
There are still multiple structural possibilities that micro wave 4 may unfold as. I am labelling it so far as either a flat or combination, but it may also be a triangle. What that means in practical terms is it is impossible to predict the pathway price may take while this correction unfolds. The labelling on the hourly chart may change over the next few days.
Micro wave 2 was a deep zigzag. It is extremely unlikely that micro wave 4 is now complete as a zigzag because it would exhibit no alternation with micro wave 2. The structure of micro wave 4 is too brief. This is most likely just submicro wave (A) or (W) of a flat, combination or triangle.
The next most likely move within this fourth wave correction is a three wave structure up for a B or X wave.
Micro wave 4 may not move into micro wave 1 price territory below 1,081.57.
Micro wave 2 lasted seven days. Micro wave 4 so far can be counted as two daily candlesticks, so a further three or six to total a Fibonacci five or eight should be expected.
ALTERNATE DAILY WAVE COUNT
Everything is the same up to the end of the triangle for primary wave 4 (see weekly charts for this larger structure). 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 this wave count is correct, then the diagonal is most likely over.
This wave count expects that the bear market from September 2011, has very recently ended and that Gold is in a new bull market to last one to several years. A trend change of that magnitude absolutely requires confirmation before it may be used with any confidence.
A new trend up at cycle degree must begin with a clear five wave structure at the daily chart level. So far only minor waves 1 and 2 are complete. Minor wave 3 would reach 2.618 the length of minor wave 1 at 1,159.
Minor wave 3 may only subdivide as an impulse. So far minute waves i, ii and now iii may be complete. Minute wave iv should unfold over 5 or 8 days as choppy overlapping sideways movement. It may not move into minute wave i price territory below 1,081.57.
The hourly chart for this bull wave count would be exactly the same as the bear, only everything would be moved up three degrees.
I want to remind members that last time Gold saw a reasonable upwards movement from 24th July, 2015, to 15th October, 2015, there were many people who expected that rise meant the bear market had ended and a new bull market had begun. It turned out that idea was premature: price turned around and made new lows. On 21st August I developed three bullish wave counts, partly in response to a demand from members, and one by one they have all been eliminated.
Now, again, price rises and there is a demand for bullish wave counts.
It is my strong view that this is premature. I will publish this wave count with that strong caveat.
Eventually the market will change from bear to bull, and when that change is confirmed that is the time to have confidence in a bull wave count. That time is not now.
Price remains below the 200 day moving average. Price has made a series of lower highs and lower lows down to the last recent low. There is not a clear five up on the daily chart. Price remains below the bear market trend line. While price remains below that line this wave count will be an alternate and comes with a strong warning that it is premature.
When the upwards impulse of minor wave 3 is complete, then how low the following correction goes will tell us which wave count, bull or bear, is correct. At that stage, minor wave 4 must remain above minor wave 1 price territory at 1,088.79 while the main wave count will expect new lows.
Minute waves i and ii are complete within minor wave 3.
If minute wave iii is complete at the last high, then minute wave iv may not move into minute wave i price territory below 1,081.57.
If price breaks below 1,081.57, then the degree of labelling within minute wave iii must be moved down one degree. It would be developing as a longer extension; it may be that minuette wave (i) was complete at the last high and the current correction is another second wave for minuette wave (ii). Minuette wave (ii) may not move beyond the start of minuette wave (i) below 1,058.42.
Click chart to enlarge. Chart courtesy of StockCharts.com.
As price falls, volume declines overall. The prior rise in price was supported by volume. The volume profile is bullish and supports the Elliott wave counts which expect this downwards movement is a correction against an upwards trend.
ADX still indicates there is a trend and it is up. ATR still agrees as it too is increasing. These two indicators are lagging as they are based on 14 day averages.
With volume declining while price falls, it looks like price is in the early stage of another consolidation. It may be expected to swing from resistance to support and back again, delineated by the blue and gold lines at the last high and about today’s low. These lines of support and resistance may be to be adjusted further outwards as the consolidation continues. We need to wait for a breakout, a move above resistance or below support on a day with higher volume. At that stage, the market would be again trending.
With Stochastics not yet oversold, a range bound approach to this market would expect a continuation of this downwards swing only to end when Stochastics reaches oversold. The Gold support line may stop price here though. Stochastics may not reach oversold before this downwards swing ends.
This analysis is published @ 08:38 p.m. EST.