The pennant pattern remains valid; the breakout is now expected within the next few hours. The targets calculated from the flag pole of the pennant pattern and from Elliott wave remain the same.

Summary: After the breakout from multi year resistance on 20th June, price has curved around to back test support, which is about 1,360 to 1,375. That test of support may be very shallow reaching down to only about 1,380. It may end within the next very few hours.

There are two Elliott wave scenarios in this analysis (published below in this order):

1. The bear market continues: the breakout was false but incomplete. One final high to 1,452 or 1,489 may unfold before a multi year trend change and a new downwards wave to new lows.

2. A bull market is underway: this back test of support is a fourth wave correction. The target for the mid term is 1,565. It is this scenario which currently has the most support from classic technical analysis, but it still has the biggest problem in terms of Elliott wave structure.

If price does break out of the current pennant pattern upwards, then a classic analysis target is at 1,537.

Grand SuperCycle analysis is here.

Last monthly charts are here.

Overall, the bearish wave counts still have a higher probability based upon Elliott wave structures. However, it would be best to leave price to invalidate either the bullish or bearish scenario before having confidence in which is correct.

BEARISH ELLIOTT WAVE COUNTS

FIRST WEEKLY CHART

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It remains possible that the bear market for Gold may yet continue. It is possible that cycle wave b may be nearing completion. Cycle wave b may be a double zigzag.

Double zigzags are common structures, but within them their X waves are almost always single zigzags that are relatively brief and shallow. However, this wave count sees primary wave X as a complete double combination: zigzag – X – expanded flat.

An X wave may occasionally subdivide as a multiple. In a multiple the maximum number of corrective structures is three: W, Y and Z. To label any one of W, Y or Z as a multiple would violate the Elliott wave rule. Here, the rule is met.

Primary wave Y may be an incomplete zigzag. The purpose of a second zigzag in a double zigzag is to deepen the correction when the first zigzag does not move price far enough. This purpose has been achieved.

A new low now by any amount at any time frame below 1,346.45 would invalidate the bullish wave count below and provide some confidence in this wave count.

DAILY CHART

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This chart focusses on the impulse of intermediate wave (C).

Intermediate wave (C) may be an incomplete impulse. The last several sessions may be a triangle for minor wave 4.

The target for intermediate wave (C) is calculated for it to reach equality in length with intermediate wave (A).

A second higher target is calculated at primary degree for primary wave Y to reach equality in length with primary wave W. If price reaches the first target and either the structure of minor wave 5 is incomplete or price keeps rising, then the second target may be used.

After cycle wave b may be complete, this wave count would require a new low below 1,346.45 for confidence.

Note: The price spike down to 1,378 on the daily chart for the 11th of July is highly suspicious because it is not visible on time frames below daily. I have contacted Barchart to open a support ticket for this problem, but the ticket still remains open. I have followed up again with Barchart today, and shall phone them tomorrow if it is not resolved. The price spike is ignored in this analysis because it is not visible on time frames below daily.

HOURLY CHART

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Subdivisions of the last few days for this wave count are seen in the same way as the bullish wave count. For both wave counts a triangle may be unfolding sideways. Here, the degree of labelling is one degree lower, at minor degree.

Within the triangle, minute wave e may not move beyond the end of minute wave c below 1,387.02.

Minute wave e may be almost complete. This structure is a zigzag, which subdivides 5-3-5. Price may now be within the final fifth wave of subminuette wave c. The target would see minute wave e fall a little short of the lower triangle a-c trend line; this is the most common point for E waves of triangles to end.

Elliott wave triangles are always continuation patterns. The direction of entry for this triangle was upwards, so the breakout should be upwards.

As minor wave 4 continues, the triangle may be invalidated. It is also possible that minor wave 4 may be continuing sideways as a double combination. Minor wave 4 may need to be relabelled if price makes a new low now below 1,387.02.

BULLISH ELLIOTT WAVE COUNT

WEEKLY CHART

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This wave count sees the the bear market complete at the last major low for Gold in November 2015.

If Gold is in a new bull market, then it should begin with a five wave structure upwards on the weekly chart. However, the biggest problem with this wave count is the structure labelled cycle wave I because this wave count must see it as a five wave structure, but it looks more like a three wave structure.

Commodities often exhibit swift strong fifth waves that force the fourth wave corrections coming just prior and just after to be more brief and shallow than their counterpart second waves. It is unusual for a commodity to exhibit a quick second wave and a more time consuming fourth wave, and this is how cycle wave I is labelled. This wave count still suffers from this very substantial problem, and for this reason a bearish wave count is still considered above as it has a better fit in terms of Elliott wave structure.

Cycle wave II subdivides well as a double combination: zigzag – X – expanded flat.

Cycle wave III may have begun. Within cycle wave III, primary waves 1 and 2 may now be complete. If it continues lower as a double zigzag, then primary wave 2 may not move beyond the start of primary wave 1 below 1,160.75.

Cycle wave III so far for this wave count would have been underway now for 47 weeks. It may be beginning to exhibit some support from volume and increasing ATR. If this increase continues, then this wave count would have some support from technical analysis.

Draw an acceleration channel about primary waves 1 and 2: draw the first trend line from the end of primary wave 1 to the last high, then place a parallel copy on the end of primary wave 2. Keep redrawing the channel as price continues higher. When primary wave 3 is complete, then this channel would be drawn using Elliott’s first technique about the impulse. The lower edge may provide support.

Primary wave 4 may not move into primary wave 1 price territory below 1,346.45. Because the data used for this analysis is cash market data no overlap between primary waves 4 and 1 should be allowed. The invalidation point is absolute.

DAILY CHART

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This daily chart focusses on the impulse of primary wave 3.

Primary wave 3 may only subdivide as an impulse. Primary wave 3 has now moved above the end of primary wave 1, meeting a core Elliott wave rule.

When it arrives, primary wave 4 may not move into primary wave 1 price territory below 1,346.45.

Intermediate wave (5) may exhibit further strength. The target for primary wave 3 is calculated using the most common Fibonacci ratio to primary wave 1.

The structure of primary wave 3 as an incomplete impulse for this wave count is seen in exactly the same way as the incomplete impulse for intermediate wave (C) in the bearish daily chart. Both wave counts view a fourth wave triangle unfolding sideways. This bullish wave count sees the triangle as intermediate wave (4).

Look out now for the possibility of another blow off top as intermediate wave (5) to end primary wave 3 comes to an end.

HOURLY CHART

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Intermediate wave (4) be continuing sideways as a regular contracting triangle. Within the triangle minor wave E may not move beyond the end of minor wave C below 1,387.02.

When the triangle is complete, then price may be expected to break out upwards.

It is also possible that the triangle may be invalidated. Intermediate wave (4) may be unfolding as a double combination.

TECHNICAL ANALYSIS

MONTHLY CHART

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

Gold has effected an upwards breakout above multi-year resistance and above the cyan bear market trend line. Look for next resistance identified on the chart.

WEEKLY CHART

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

Gold has broken out of a multi-year consolidation, which saw resistance about 1,375. The breakout has support from volume, so confidence may be had in it.

Price now has some strength with rising ATR. Conditions remain overbought. The pullback so far has not relieved extreme conditions and has lasted only two weeks.

Support about 1,375 continues to hold.

When Gold has a strong trend, conditions may reach extreme and may remain there for some time while the trend continues and price moves a substantial distance.

DAILY CHART

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

It is common to see price curve down and back test support at prior resistance after a breakout. This is what is happening, although the test of support is shallow.

A pennant pattern may be forming. These are reliable continuation patterns. The best performing pennants and flags complete within 15 sessions. If this one is to be a good performer, it should now complete within the next session. So far this one has lasted 14. The target from the flag pole would be at 1,537.

Consolidation of the last several sessions after the breakout has now lasted long enough to bring conditions down from extreme. There is again room for price to rise.

At this stage, a signal from On Balance Volume should be taken very seriously. If On Balance Volume breaks out of its current range, then it may precede price.

Today some increase in volume has pushed price lower. This is bearish for the very short term and suggests a new low tomorrow. The lower trend line of the pennant may provide support.

GDX WEEKLY CHART

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

The upwards trend continues, but conditions are now overbought. This can continue for a while during a strong trend. At this stage, there are no signs of a reversal.

Last week price has closed near the high. This is bullish, suggesting more upwards movement this week.

Weak volume is a slight concern.

GDX DAILY CHART

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

The measuring gap remains open as long as price remains above 24.03. Closure of this gap would be a significant bearish signal.

The last gap is within the current consolidation zone, so it is most likely a pattern gap. These are usually closed.

The prior upwards trend reached very extreme. Price has been consolidating with a slight upwards bias, and there is now bearish divergence between price and both of RSI and Stochastics. However, divergence is not always reliable; sometimes it simply disappears.

There is still no evidence of a trend change in a bearish candlestick pattern or a new swing low. While the last swing low at 24.53 remains intact, it would be safest to assume the upwards trend may not be over (despite ADX) but to exercise extreme caution as it is overextended and may end at any time.

Today completes an outside day with the balance of volume downwards and some small increase in volume pushing price lower during this session. For the short term, some more downwards movement may be expected for tomorrow’s session.

Published @ 08:03 p.m. EST.

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Follow my two Golden Rules:

1. Always trade with stops.

2. Risk only 1-5% of equity on any one trade.

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New updates to this analysis are in bold.