A strong downwards day has push from volume, but price remains above support. All three Elliott wave counts remain valid.

Summary: A sharp reversal and bearish candlestick pattern on the daily chart at last week’s high puts the breakout in some doubt.

Both bullish and bearish Elliott wave counts remain valid. The bearish case has some support from classic technical analysis after Friday’s sharp reversal. Confidence may be had if price makes a new low below 1,346.45.

The bullish Elliott wave count now expects a continuation of upwards movement this week to 1,565.

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 complete. 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 a complete zigzag. Within the zigzag, intermediate wave (C) is 5.19 short of equality in length with intermediate wave (A).

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.

FIRST DAILY CHART

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Intermediate wave (C) may now be a complete impulse.

Gold often exhibits surprisingly short and brief fifth waves out of its fourth wave triangles, and this wave count expects that it may have done so here. This wave count follows common tendencies for this market.

Cycle wave c should move below the end of cycle wave a at 1,046.27 to avoid a truncation. Cycle wave c may only subdivide as a five wave structure, most likely an impulse. Within cycle wave c, primary wave 2 may not move beyond the start of primary wave 1 above 1,450.65.

Only when the bullish Elliott wave count is invalidated will targets for cycle wave c be published.

HOURLY CHART

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The fist five down from the high may be complete. This is labelled minor wave 1. However, within minor wave 1, minute wave iv is now disproportionate to minute wave ii. For commodities it is acceptable for fourth waves to be more brief than second waves, but in this example it is the other way around. This is unusual for Gold, but more acceptable on a lower time frame.

Minor wave 2 may be a complete zigzag. Minor wave 3 downwards may have begun.

Within minor wave 3, no second wave correction may move beyond its start above 1,432.29.

SECOND WEEKLY CHART

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Now that this bearish wave count diverges from the first bearish wave count, it is time to publish it on a daily basis.

Because it is my judgement that the two bearish wave counts have about an even probability, today they are renamed “first” and “second” to reflect this.

It remains possible that cycle wave b is an incomplete double zigzag.

The first zigzag in the double is seen in the same way for both bearish wave counts, a zigzag labelled primary wave W.

This second bearish wave count sees primary wave X as a different structure, a regular contracting triangle, that ends at a different point. Primary wave Y must subdivide as a zigzag if cycle wave b is a double zigzag. Within primary wave Y, intermediate wave (A) may now be complete, and intermediate wave (B) may not move beyond the start of intermediate wave (A) below 1,266.61.

SECOND DAILY CHART

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Within primary wave Y, intermediate wave (A) may now be a complete five wave impulse.

Intermediate wave (B) may unfold over a few weeks. Intermediate wave (B) may subdivide as any one of more than 23 possible corrective Elliott wave structures. It may be a quick sharp pullback as a zigzag, or it may be a time consuming sideways consolidation as a combination, flat or triangle.

Intermediate wave (B) should exhibit weakness.

Intermediate wave (B) may end about either the 0.382 or 0.618 Fibonacci Ratios. It may be relatively shallow if it finds support about 1,375, so the 0.382 Fibonacci ratio may be favoured as a target.

If intermediate wave (B) subdivides as any one of an expanded flat, running triangle or combination, then it may include a new high above its start at 1,450.65. A new high above this point does not invalidate this wave count.

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 bearish wave counts are still considered above as they have 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 49 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 last high. 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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Primary wave 3 may only subdivide as an impulse. Within the impulse, intermediate waves (1) through to (4) are all now complete. It is possible that intermediate wave (5) could be over at the last high, but for this wave count it would look more normal if it continued higher.

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

On the hourly chart, extend the trend lines from the triangle of intermediate wave (4) out to the right. The upper B-D trend line may be providing support.

HOURLY CHART

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Intermediate wave (5) may only subdivide as a five wave structure, either an impulse or an ending diagonal. Fifth waves to end third waves one degree higher, as this one is, almost always subdivide as impulses (that is what shall be expected).

Within intermediate wave (5), minor wave 1 may be complete.

Minor wave 2 may not move beyond the start of minor wave 1 below 1,400.64. Minor wave 2 may be a complete double zigzag.

If this wave count is invalidated at the hourly chart level, it would indicate that primary wave 3 should be labelled as complete at the last high. At that stage, it would be expected that primary wave 4 should be underway and the invalidation point at 1,346.45 would apply.

TECHNICAL ANALYSIS

MONTHLY CHART