In last analysis, after the close of the New York session for the 18th of October, Elliott Wave Gold members were advised to enter long with stops just below 1,260.72. Those long positions should now be profitable.

Advice is given today on how to manage positions with targets and any adjustment of stops.

Summary: A bullish engulfing candlestick pattern has good support from volume; expect price to most likely keep rising at least for the short term. Pull stops up to just below 1,260.70 now, reducing risk. Long positions may be held for at least one more day, but be prepared to take profits sooner rather than later. If any weakness is seen in the next few days, then we may take profits. But if volume and indicators show strength, then long positions may be held for longer.

The target would be at 1,320 in the first instance. It may be as high as 1,412, but this looks less likely.

Invest only 1-5% of equity on any one trade. Always trade with stops.

New updates to this analysis are in bold.

Last monthly charts for the main wave count are here, another monthly alternate is here, and video is here.

Grand SuperCycle analysis is here.

The wave counts will be labelled first and second. Classic technical analysis will be used to determine which wave count looks to be more likely. In terms of Elliott wave structure the second wave count has a better fit and fewer problems.

FIRST ELLIOTT WAVE COUNT

WEEKLY CHART

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There are more than 23 possible corrective structures that B waves may take, and although cycle wave b still fits well at this stage as a triangle, it may still be another structure. This wave count looks at the possibility that it may be a double zigzag.

If cycle wave b is a double zigzag, then current upwards movement may be part of the second zigzag in the double, labelled primary wave Y.

The target remains the same.

Within intermediate wave (C), no second wave correction may move beyond the start of its first wave below 1,205.41. However, prior to invalidation, this wave count may be discarded if price breaks below the lower edge of the black Elliott channel. If this wave count is correct, then intermediate wave (C) should not break below the Elliott channel which contains the zigzag of primary wave Y upwards.

There are now three problems with this wave count which reduce its probability in terms of Elliott wave:

1. Cycle wave b is a double zigzag, but primary wave X within the double is deep and time consuming. While this is possible, it is much more common for X waves within double zigzags to be brief and shallow.

2. Intermediate wave (B) within the zigzag of primary wave Y is a double flat correction. These are extremely rare, even rarer than running flats. The rarity of this structure must further reduce the probability of this wave count.

3. Although intermediate wave (C) should be continuing so that primary wave Y ends substantially above the end of primary wave W, the duration and depth of minor wave 2 within it now looks to be too large at the weekly time frame.

DAILY CHART

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The analysis will focus on the structure of intermediate wave (C). To see details of all the bull movement for this year see daily charts here.

Intermediate wave (C) must be a five wave structure, either an impulse or an ending diagonal. It is unfolding as the more common impulse.

It is possible that minor waves 1 and now 2 may both be over. Minor wave 2 may have ended very close to the 0.618 Fibonacci ratio. If it continues lower, then minor wave 2 may not move beyond the start of minor wave 1 below 1,205.41.

Minor wave 1 lasted 44 days and minor wave 2 may have lasted 20 days, just one short of a Fibonacci 21.

It is of some concern now that minor wave 3 appears to be starting out rather slowly. This is somewhat unusual for a third wave and offers some support now to the second Elliott wave count. With StockCharts data showing a steady decline in volume as price rises, this concern is now validated.

Attention now turns to the structure of minute wave ii. Downwards movement to the low labelled minute wave ii fits well at this stage as a completed double zigzag. Because the proportion looks reasonable on the daily chart, and because minute wave ii has reached to just below the 0.618 Fibonacci ratio of minute wave i, it looks most likely to be over now. This is the expectation for the main hourly wave count.

The alternate hourly wave count simply moves the degree of labelling down one degree within minute wave ii and looks at the possibility it may continue sideways for a few more days. This looks less likely, but this idea will be used to illustrate risk to long positions.

MAIN HOURLY CHART

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A double zigzag structure now could be complete for minute wave ii. At the daily chart level, this structure looks reasonably in proportion to minute wave i, and as it has reached now to just below the 0.618 Fibonacci ratio of minute wave i, it is entirely possible that it could be over.

A target is provided for minute wave iii, which assumes the most common Fibonacci ratio.

The channel which was drawn about downwards movement on yesterday’s hourly charts has been very clearly breached by upwards movement several hours ago. That was the signal to enter long for the next wave up.

Minute wave ii may only subdivide as a five wave impulse. Within minute wave ii, minuette wave (i) would most likely be incomplete. When minuette wave (i) is complete, then the correction for minuette wave (ii) may be fairly brief and shallow as the pull of the middle of a third wave up forces it to be so.

Minuette wave (ii) may not move beyond the start of minuette wave (i) below 1,276.10.

ALTERNATE HOURLY CHART

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This wave count simply moves the degree of labelling within the double zigzag downwards all down one degree. This downwards wave may only have been minuette wave (a) of a flat correction for minute wave ii.

The minimum requirement for minuette wave (b) within a flat would be 0.9 the length of minuette wave (a) at 1,302.74. The common range for minuette wave (b) is given on the chart.

Minute wave ii could be continuing further as a flat correction. Wave A within flats must subdivide as a three and a double zigzag is classified as a three.

Minute wave ii cannot be continuing further as a combination if the last wave down here is correctly labelled as a double zigzag. This double zigzag cannot be labelled minuette wave (w) of a continuing combination. The maximum number of corrective structures in a combination is three (this maximum refers to W, Y and Z). To label multiples within multiples is to increase the maximum beyond three and would violate the Elliot wave rule. This is the most common error made by many, so members should always keep this rule in mind when labelling multiples.

Minute wave ii cannot continue further as a triangle as second waves do not subdivide with triangles as their sole corrective structure.

When the length of minuette wave (b) is known in relation to minuette wave (a), then the type of flat correction possible would be known, and a target may be then calculated for minuette wave (c) downwards. That cannot be done yet. At this stage, it can only be said that in order to avoid a truncation minuette wave (c) would be very likely to make at least a slight new low below the end of minuette wave (a) at 1,276.10.

The best fit channel about upwards movement is drawn in the same way on both hourly charts. Assume the trend remains upwards while price remains within the channel. Each small pullback may present another opportunity to enter the upwards trend.

SECOND ELLIOTT WAVE COUNT

WEEKLY CHART

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It is still possible that cycle wave b is unfolding as a regular contracting or barrier triangle.

Within a triangle, one sub-wave should be a more complicated multiple, which may be primary wave C. This is the most common sub-wave of the triangle to subdivide into a multiple.

Intermediate wave (Y) now looks like a complete zigzag at the weekly chart level.

Primary wave D of a contracting triangle may not move beyond the end of primary wave B below 1,123.08. Contracting triangles are the most common variety.

Primary wave D of a barrier triangle should end about the same level as primary wave B at 1,123.08, so that the B-D trend line remains essentially flat. This involves some subjectivity; price may move slightly below 1,123.08 and the triangle wave count may remain valid. This is the only Elliott wave rule which is not black and white.

Finally, primary wave E of a contracting or barrier triangle may not move beyond the end of primary wave C above 1,295.65. Primary wave E would most likely fall short of the A-C trend line. But if it does not end there, then it can slightly overshoot that trend line.

Primary wave A lasted 31 weeks, primary wave B lasted 23 weeks, and primary wave C lasted 38 weeks.

The A-C trend line now has too weak a slope. At this stage, this is now a problem for this wave count, the upper A-C trend line no longer has such a typical look.

Within primary wave D, no part of the zigzag may move beyond its start above 1,357.09.

DAILY CHART

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This second wave count expects the new wave down may be deeper and longer lasting than the first wave count allows for.

A common length for triangle sub-waves is from 0.8 to 0.85 the length of the prior wave. Primary wave D would reach this range from 1,170 to 1,158.

If primary wave C is correctly labelled as a double zigzag, then primary wave D must be a single zigzag.

Within the single zigzag of primary wave D, intermediate wave (A) is labelled as a complete impulse.

Intermediate wave (A) lasted twenty days, just one short of a Fibonacci twenty-one. Intermediate wave (B) may be about the same duration, so that this wave count has good proportions, or it may be longer because B waves tend to be more complicated and time consuming.

So far intermediate wave (B) has lasted nine sessions. If it continues to total a Fibonacci thirteen, it may end in another four sessions. The next Fibonacci number in the sequence is twenty-one which would see it continue now for another twelve sessions.

Intermediate wave (B) may be a sharp upwards zigzag, or it may be a choppy overlapping consolidation as a flat, triangle or combination. At this stage, it looks most likely to be incomplete because an intermediate degree wave should last weeks. At its conclusion intermediate wave (B) should have an obvious three wave look to it here on the daily chart.

It now looks likely that minor wave B could be over, that intermediate wave (B) could be subdividing as a simple zigzag. The target for minor wave C would see intermediate wave (B) end close to the 0.618 Fibonacci ratio of intermediate wave (A), and price would end at the upper edge of the small blue channel. This second wave count illustrates why long positions may not be very long term trades; if this wave count is correct, then the new upwards swing may end in only another four or twelve sessions, at about 1,320.

While it is possible that minor wave B is complete as a double zigzag, it is also possible that it may continue sideways as a triangle as per the hourly chart below.

HOURLY CHART

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While the first two hourly charts for the first Elliott wave count also work in exactly the same way for this second wave count, there is another option that only works for this second wave count.

Second waves may not subdivide as triangles, so this idea does not work for the first Elliott wave count. But B waves may subdivide as triangles.

It is possible that price may be entering a sideways, time consuming, choppy movement to last another week and possibly two.

TECHNICAL ANALYSIS

WEEKLY CHART

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

This last weekly candlestick completes a Morning Star reversal pattern, which is bullish.

Without support from volume for upwards movement though, it should be suspicious. The reversal pattern may signify a new sideways trend or a short lived upwards bounce.

Resistance at On Balance Volume may halt the rise in price.

DAILY CHART

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

Today’s session completes a Bullish Engulfing candlestick reversal pattern. Engulfing patterns are the strongest reversal patterns, especially when they come with good support from volume as this one does. It does look like a low is in place for Gold. Have more confidence in this view with a bullish signal now from On Balance Volume.

Reversal patterns make no comment on how far price may travel in the new direction, nor on whether the reversal is a complete 180 degree reversal or a move into a sideways consolidation. For these scenarios Elliott wave analysis is used to outline possibilities for price today.

The short yellow line on On Balance Volume may provide some resistance, but it does not have much technical significance. It is short held and only tested twice, and was more recently weakened when On Balance Volume moved below it. The next yellow line above may offer stronger resistance.

Bollinger Bands and ATR still support the second Elliott wave count over the first.

GDX

DAILY CHART

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

While Gold has a clear bullish candlestick pattern, GDX does not. Two small red doji in a row do not provide confidence in this upwards movement.

A small rise in volume for an upwards day with a balance of volume upwards offers enough support here to expect at least a little more upwards movement for at least one more session.

The long purple support line on On Balance Volume is today adjusted as On Balance Volume has bounced up. The next resistance line with reasonable significance may be the new purple line ahead.

Published @ 10:05 p.m. EST.