Downwards movement has breached the invalidation point on the main Elliott wave count, but this was allowed for in the alternate.
Overall, a correction against a trend was expected to be continuing.
Summary: The main wave count is changed to see an ending diagonal continuing. With lighter volume for today’s upwards day, it looks like this market is still consolidating. The main wave count will expect some more choppy overlapping overall downwards movement to remain above 1,058.42. In the short term, a new high above 1,112.19 would indicate an upwards breakout and a big third wave up unfolding. The target is at 1,167 short term and 1,227 mid term.
New updates to this analysis are in bold.
It is time again to step back and look at weekly charts. At the end of this analysis I have a new idea for you.
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, 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.
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.
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 12.57 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 wave counts are 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 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.
There are two structural possibilities for a C wave within a flat correction: either an impulse or an ending diagonal. Because the impulse is now invalidated with the fourth wave overlap into first wave price territory, that leaves only one possible structure for subminuette wave c, an ending expanding diagonal.
All the subwaves must subdivide as zigzags within an ending diagonal. I have checked subdivisions on the hourly chart and both micro waves 1 and 3 can be seen as zigzags. The fourth wave must overlap back into first wave price territory within a diagonal. The rule for the end of the fourth wave is it may not move beyond the end of the second wave. Micro wave 4 may not move below 1,058.42.
The diagonal must be expanding because micro wave 3 is longer than micro wave 1, and micro wave 4 is longer than micro wave 2. The trend lines must diverge. If micro wave 4 is labelled as complete at today’s low, then the trend lines would slightly converge. This means micro wave 4 must move lower, so that the trend lines can diverge.
There is still the possibility that minuette wave (ii) could be labelled as complete at the last high. If it was over, then the only structure I can see which would fit is a double combination. But double combinations are sideways structures; they should not have a slope against the trend one degree higher. This correction has a clear slope. For that reason I still do not want to publish this idea because the probability is too low. I will only publish it if price breaks below 1,058.42.
The fourth wave must subdivide as a zigzag within an ending diagonal. This fourth wave must move lower, so that the trend lines of the diagonal diverge.
Submicro wave (A) would be complete within the zigzag. This downwards wave is ambiguous; it will subdivide as either a zigzag or an impulse.
Within the zigzag, submicro wave (B) may not move beyond the start of submicro wave (A) at 1,112.19. Submicro wave (B) must subdivide as a three wave structure, most likely a zigzag, and it would most likely end about the 0.618 Fibonacci ratio of submicro wave (A) at 1,100.
The common depth for fourth and second waves within diagonals is between 0.66 to 0.81 the prior wave. This gives a target range for micro wave 4 between 1,076.7 and 1,068.64.
ALTERNATE WAVE COUNT
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.
I have finally resolved the problem of intermediate wave (2). It is possible to see this upwards wave as a single zigzag. Today’s video will show how this is resolved at the daily chart level.
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.
If this wave count is correct, then the diagonal is most likely over.
Because for this wave count cycle wave a is seen as a five wave structure, that means cycle wave b may not make a new high above the start of cycle wave a at 1,920.18.
Cycle wave b should last one to several years. It may be any one of 23 possible corrective structures. It must start with a clear five up at the daily chart level for a move of this degree. While that is incomplete, no second wave correction may move beyond its start below 1,046.27. Cycle wave b would be likely to end at either the 0.382 or 0.618 Fibonacci ratios of cycle wave a.
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 may only subdivide as an impulse. So far minute waves i and ii are complete within minor wave 3. Current downwards movement may not be minute wave iv as it has overlapped back into minute wave i price territory. This must be another second wave correction for minuette wave (ii).
The pink channel is an acceleration channel about this upwards movement. If this wave count is correct, then the lower edge of that channel should provide support. This means minuette wave (ii) should be over. This wave count now expects a third wave up at three degrees to be starting.
At 1,227 minor wave 3 would reach 4.236 the length of minor wave 1. This target is recalculated today to fit with the new target for minuette wave (iii).
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 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.
Because the hourly charts for the main and alternate now diverge, I will publish an hourly chart for both.
Downwards movement labelled minuette wave (ii) is ambiguous. It will subdivide as either an impulse or a zigzag. This wave count sees it as a complete zigzag.
The pink channel is the acceleration channel copied over from the daily chart.
At 1,167 minuette wave (iii) would reach 1.618 the length of minuette wave (i).
Minuette wave (iii) may only subdivide as a five wave impulse. Within minuette wave (iii), subminuette wave ii may not move beyond the start of subminuette wave i below 1,079.79.
SECOND ALTERNATE WAVE COUNT
Thank you to our member Dreamer for posting a chart of this idea.
I have checked all the subdivisions and it will fit. This idea resolves the problem that the first alternate has of the ending diagonal not meeting all the rules.
If downwards movement is a double zigzag, then this would most likely be super cycle wave (a) within Grand Super Cycle wave IV.
This wave count must ignore what looks like a triangle from June 2013 to July 2014. But apart from that problem it all fits very well. It also works perfectly for Silver on cash data.
If this is a double zigzag, then within the first zigzag there is still a good Fibonacci ratio of 1.618 between primary waves A and C.
Within the second zigzag, the ending diagonal now begins earlier. This means that within it intermediate wave (3) is now shorter than intermediate wave (1). All the rules for an ending contracting diagonal are met. The structure looks complete at the weekly and daily chart level. I have learned the hard way (on the S&P500 analysis) to expect a contracting diagonal is complete as soon as there is an overshoot of the 1-3 trend line and price reverses from there. Because on the daily chart the overshoot is clear (even though it is small), I will follow this lesson and expect the structure is complete.
On all weekly and daily charts the final bear market trend line is drawn from exactly the same two price points as marked. It is essential that this trend line is breached before any confidence at all may be had in a major trend change. These two bull wave counts come with that strong caveat.
When an A wave subdivides as a three, then the larger structure may be either a flat or triangle. The B wave may make a new price extreme beyond the start of the A wave within flats and triangles. Here, super cycle wave (b) may move above 1,920.18 as in an expanded flat or running triangle.
When the first move of a larger correction subdivides as a multiple (w-x-y), then a combination may be eliminated. Combinations may not have multiples within multiples, because that would increase the number of corrective structures within a multiple beyond three and violate the rule.
If we get bull market confirmation with a breach of the bear market trend line, then I will have two weekly wave counts: this idea and the other idea presented in this analysis as “Alternate Wave Count”.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volume continues to decline. Importantly, today’s green candlestick comes on declining volume also. The upwards move in price was not supported by volume. This makes the last three days look typically corrective.
ADX finally is beginning to agree. The black ADX line is now flat indicating the market is not trending but consolidating. ATR is still increasing, but the upwards slope is declining.
It may now be expected that price will swing from resistance to support and back again. We need to wait for a breakout. With Stochastics not reaching oversold, it would be expected that price may continue overall lower until Stochastics is oversold and price finds support at the same time.
The consolidation is immature. The extent of support and resistance may not yet be determined. I have added three new blue horizontal lines below the gold horizontal lines. When Stochastics reaches oversold on a downwards swing, then the support line reached may then delineate the lower edge of this consolidation. At this stage, it looks like the gold line is not low enough.
More trend lines may be used with On Balance Volume to indicate a breakout direction as the consolidation matures.
This analysis is published @ 07:45 p.m. EST.