A short term target for a fourth wave correction to begin was 1,113. Price turned at 1,112.19.
Summary: Next week should see choppy overlapping sideways movement for a fourth wave correction.
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.
MAIN HOURLY WAVE COUNT
Micro wave 3 is a complete five wave impulse and 1.05 short of 1.618 the length of micro wave 1.
Micro wave 2 was a deep 0.66 zigzag. Given the guideline of alternation micro wave 4 may be expected to be a shallow flat, combination or triangle. It is most likely to end about the 0.382 Fibonacci ratio at 1,092.
Micro wave 1 lasted one day, micro wave 2 lasted 7 days, and micro wave 3 lasted 5 days. Micro wave 4 may be expected to last either a Fibonacci 5 or 8 days most likely.
The first move within micro wave 4 is most likely to be a zigzag downwards for submicro wave (A). There is a five wave impulse down for minuscule wave A so far within this zigzag. This should be followed by a three up for minuscule wave B which may not move beyond the start of minuscule wave A above 1,112.19.
Thereafter, another five down would complete a zigzag.
If submicro wave (A) subdivides as a three, then submicro wave (B) may make a new price extreme above the start of submicro wave (A) at 1,112.19 as in an expanded flat or running triangle.
A new high above 1,112.19 in the next few days does does not mean that this correction for micro wave 4 is over. A new high would most likely be part of the correction.
There are 23 possible structures a fourth wave may take. It is impossible to tell which one it will be at this early stage, and we may not be sure which one it is until it is complete. My focus during corrections is not to predict the exact pathway price should take during the correction, but to determine when it is over and when the trend should resume.
The labelling of this structure will probably change as more of this structure unfolds.
Micro wave 4 may not move into micro wave 1 price territory below 1,081.57.
ALTERNATE DAILY WAVE COUNT
This was the second alternate yesterday. It is the only alternate today.
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 (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.
I am going to discard the idea that intermediate wave (5) may be incomplete because the low shows an overshoot of the (1)-(3) diagonal trend line. This idea has a very typical look for the end of a diagonal. If this wave count is correct, then the diagonal is most likely over.
The same idea does not work for Silver which puts some doubt on this wave count.
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 (cyan line on the main daily chart). 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.
Short to mid term there is no divergence between the two wave counts. Both expect a fourth wave correction to move sideways and be followed by a fifth wave up. With both wave counts expecting the same thing next, we may have more confidence in that expectation.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Friday’s red candlestick has a small red body and long lower wick. It is not particularly bearish, but it is more bearish than bullish. It looks like a typical corrective day.
It was preceded by four days of upwards movement which showed a clear increase in volume. That rise in price was well supported by volume.
Friday’s red candlestick comes with lighter volume. The fall in price was not supported by volume.
ATR and ADX both agree that there is a trend. The trend is up.
The small correction which began with Friday’s red candlestick may be expected to find support and resistance about the two closest blue horizontal lines and the next support line, the yellow line.
This analysis is published @ 02:57 a.m. EST on 9th January, 2016.