To end this week, I still have just the one daily chart but now four hourly wave counts.
I will not try to pick a winner. The labelling of 1-2-3-4 is not intended to indicate which is more or less likely. Volume and price next week should tell us which one is correct.
Summary: Minute wave iv may or may not be over. Only a clear five up on the hourly chart would confirm it. I have three possible structures which may be unfolding for minute iv. What looks clear still is that the trend is up and corrections present an opportunity to join the trend.
New updates to this analysis are in bold.
Last published weekly chart is here.
DAILY ELLIOTT WAVE COUNT
The cyan trend line is now breached by a full weekly candlestick above and not touching it. This gives substantial confidence that Gold has very likely changed from bear to bull.
So far, within the first five up, the middle of the third wave is now most likely complete. The strongest move may still be ahead. Gold typically exhibits swift strong fifth waves to end its third wave impulses. Look out for surprises to the upside for minute wave v and minor wave 5.
At 1,339 minor wave 3 would reach 6.854 the length of minor wave 1. When minute wave iv is confirmed as over, then this target may be calculated at a second degree. At that stage, it may widen to a zone, it may change, or a second target may be added.
Minute waves i, ii and now iii are complete within minor wave 3.
The fourth wave corrections are so far more brief and shallow than expected within this impulse unfolding upwards. This pattern may continue, which is why I say look out for surprises to the upside. Gold typically exhibits swift strong fifth waves to end its third wave impulses, and this often forces the fourth wave corrections which unfold right before to be over more quickly and be very shallow. It gives Gold’s impulses a curved look at a higher time frame.
The pink channel is a best fit. Draw the first trend line from the highs labeled minute waves i to iii then place a parallel copy lower to contain the whole upwards wave. If minute wave iv continues next week, then look for it to find support at the lower pink line. If price touches that line, it should offer a low risk entry point to join the upwards trend.
If it continues any further, then minute wave iv may not move into minute wave i price territory below 1,081.57.
At the end of this week, it is not clear that minute wave iv is over. The last three days may be the start of minute wave v, but if so it is not so far very convincing. Sometimes waves start off slowly and end strongly. This may be happening. Alternatively, minute wave iv may be continuing sideways. I will not pick a winner while the situation is unclear. I will outline exactly what we need to see to have confidence this correction is over.
HOURLY WAVE COUNT 1
The first of three wave counts which see minute wave iv continuing looks at a flat correction. These are very common. The most common type of flat is an expanded flat where minuette wave (b) would move above the start of minuette wave (a) at 1,261.94.
If upwards movement continues next week and it has a corrective count (3, 7, 11, 15 etc. adding multiples of 4), then this wave count should be expected to be likely.
Minuette wave (b) may be unfolding as another double zigzag. It must reach up to a minimum 90% of minuette wave (a) at or above 1,254.84.
When minuette wave (b) is complete, then its length would determine what type of flat should be unfolding. At that stage, a target may be calculated for minuette wave (c) downwards to end. Minuette wave (c) would be extremely likely to make a new low below the end of minuette wave (a) at 1,190.9. It may find support at the lower pink line.
This wave count may take a further two days to complete the structure, but that now looks to be too brief. The next Fibonacci ratio in the sequence after eight is thirteen, which would see minute wave iv continue for a further seven days. That looks to be too long. It may not exhibit a Fibonacci duration.
HOURLY WAVE COUNT 2
Minute wave iv may be continuing sideways as a triangle. Within the triangle, minuette wave (b) may be complete at 0.69 the length of minuette wave (a). One of the triangle’s subwaves is often close to 0.618 of its predecessor.
Minuette wave (b) may also continue higher as a double zigzag. It may make a new high above the start of minuette wave (a) at 1,261.94 as in a running triangle. 40% of triangles are running triangles, so this is a reasonable possibility.
Minuette wave (c) may not move beyond the end of minuette wave (a) at 1,190.9 for a contracting or barrier triangle. Expanding triangles are one of the rarest Elliott wave structures, so it will not be considered here.
The triangle idea would be invalidated below 1,190.9.
This wave count could see minute wave iv continue sideways in an ever decreasing range for a further seven days to total a Fibonacci thirteen. Triangles take time and test our patience.
If MACD begins to hover close to zero, then this wave count would have technical support.
HOURLY WAVE COUNT 3
What if my analysis of the downwards wave labelled here minuette wave (a) is wrong for the first two hourly wave counts? What if it was not a double zigzag but was an impulse?
Zigzags and impulses often have a very similar look. Both possibilities must be considered.
If a single zigzag is completing for minute wave iv, there would still be inadequate alternation between minute waves ii and iv. There would be alternation in depth but not structure. A new low below 1,216.92 would invalidate wave counts #1 and #4, leaving this wave count #3 and the triangle wave count #2.
This wave count expects a little more downwards movement to end about 1,184, if minute wave iv is to end at the 0.382 Fibonacci ratio and find support at the pink trend line.
Minuette wave (c) would be extremely likely to make at least a slight new low below the end of minuette wave (a) at 1,190.9 to avoid a truncation. Once it has done that, then look for support at the pink trend line. If that happens, it should offer a low risk entry to join the upwards trend.
HOURLY WAVE COUNT 4
If minute wave iv is complete, then it was a shallow double zigzag. There is little alternation in structure with the single zigzag of minute wave ii, but there is good alternation in depth.
Fourth wave corrections within Gold’s third wave impulses are often brief and shallow, sometimes surprisingly so. This is the wave count that looks at what a surprise to the upside would look like. If price begins to move very strong up and remains above 1,216.92, then this wave count would be possible. When minuette wave (i) is a complete five wave structure, then this wave count would be confirmed and would be the only wave count.
When minuette wave (i) is complete then minuette wave (ii) should move price lower for a short correction. It may be brief and it may be shallow, but it should move lower. If this wave count is correct, then the lower pink trend line may not again be touched on the way up. A lilac line is added on this chart across the two lows as marked. Minuette wave (ii) may come down to touch that line. It was also tested once earlier, off to the left of the chart.
Click chart to enlarge. Chart courtesy of StockCharts.com.
Volume remains light for the last three days. Some increase in volume for the second upwards day may be an early sign of bullishness, but volume is still lighter than prior upwards days. Overall, it looks like a consolidation may be continuing. A break to a new high on a day with an increase in volume would indicate an upwards breakout is underway.
For Friday’s session, ADX is now slightly increasing indicating the market is trending upwards.
ATR is increasing overall indicating the market is trending.
ADX and ATR are indicating that Elliott wave count #4 should be seriously considered. However, they are based on 14 day averages and so necessarily are lagging indicators. If price has been consolidating only for 5 days, they will not yet indicate that.
On Balance Volume has found support at both the dark blue and green lines. The green line isn’t very technically significant; it is too steep. The dark blue line is technically significant though; it is shallow and long held. If OBV bounces up from here on Monday, then its strength would be reinforced. That may support wave count #4.
RSI has returned from overbought, just. RSI can remain extreme for some time during a trending market. When RSI shows divergence with price at a high, then it would be a reasonably reliable indicator of a deeper and longer lasting correction. At this stage, RSI showed no divergence with price at the last high, so a more brief correction looks more likely. This supports the Elliott wave count which sees this correction as either over or continuing for a minute degree wave.
Stochastics has returned from overbought. It too did not show any divergence with price at the last high.
I have taken some time to look back over price data back to December 2010. I have noted wide ranging days (a wide range compared to several days immediately prior) which completed a trend with a spike in volume and looked at how long the following correction lasted. This list is not exhaustive; it is the few that appeared to be clear from a visual identification. (I did not find any wide ranging days with volume spikes at the end of movements for the end of the last bull market from December 2010 to September 2011). Results are listed here:
Past wide ranging days with volume spikes at the end of movements:
Date, Price range, Volume (K), Result (any candlestick pattern?)
26 Sep 2011, $128.07, 150.3, 31 day correction (hammer)
4 Jan 2013, $38.19, 297.1, 12 day correction (hammer)
15 Apr 2013, $83.03, 24.4, low next day, 8 day correction
19 Jul 2013, $26.87, 222.1, 2 day correction
15 Oct 2013, $35.88, 298.9, 9 day correction (hammer)
18 Dec 2013, $28.23, 183.7, 5 day correction
19 Jul 2014, $45.65, 158.5, 5 day correction
My conclusion is that a wide ranging day at the end of a movement which has a volume spike should result in a correction lasting two to eight days. If the wide ranging day is also a single candlestick reversal pattern (a hammer in a downtrend, or a shooting star or hanging man in an uptrend), then the correction that follows it may be more long lasting.
In this instance for 11th February, 2016, the candlestick is not a reversal pattern, so a more brief correction looks most likely.
This analysis is published @ 10:15 p.m. EST.