GOLD Elliott Wave Technical Analysis

By: Lara Iriarte | Wed, May 6, 2015
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A small inside day for Wednesday importantly shows higher volume. Volume consistently continues to support the bear Elliott wave count.

Summary: The bull and bear wave counts diverge. The bull count expects a third or C wave up to 1,237. The bear count expects a third wave down (very strong) to 1,081.


Bull Wave Count

XAU/USD Daily Chart
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The bull wave count sees primary wave 5 and so cycle wave a a complete five wave impulse on the weekly chart. In order for members to judge for themselves I will list all points for and against for bull and bear wave counts.

Pros:

  1. The size of the upwards move labelled here intermediate wave (A) looks right for a new bull trend at the weekly chart level.

  2. The downwards wave labelled intermediate wave (B) looks best as a three.

  3. The small breach of the channel about cycle wave a on the weekly chart would be the first indication that cycle wave a is over and cycle wave b has begun.

Cons:

  1. Within intermediate wave (3) of primary wave 5 (now off to the left of this chart), to see this as a five wave impulse requires either gross disproportion and lack of alternation between minor waves 2 and 4 or a very rare running flat which does not subdivide well.

  2. Intermediate wave (5) of primary wave 5 (now off to the left of the chart) has a count of seven which means either minor wave 3 or 5 looks like a three on the daily chart.

  3. Expanding leading diagonals are are not very common (the contracting variety is more common).

  4. Volume continues to not support this bull wave count. If a third wave up is beginning volume should show an increase, not a decrease. "When prices are rising volume decreasing is questionable." (Kirkpactrick and Dahlquist)

Within cycle wave b primary wave A may be either a three or a five wave structure. So far within cycle wave b there is a 5-3 and an incomplete 5 up. This may be intermediate waves (A)-(B)-(C) for a zigzag for primary wave A, or may also be intermediate waves (1)-(2)-(3) for an impulse for primary wave A.

Intermediate wave (A) subdivides only as a five. I cannot see a solution where this movement subdivides as a three and meets all Elliott wave rules. This means that intermediate wave (B) may not move beyond the start of intermediate wave (A) below 1,131.09. That is why 1,131.09 is final confirmation for the bear wave count at the daily and weekly chart level.

Intermediate wave (B) is a complete zigzag. Because intermediate wave (A) was a leading diagonal it is likely that intermediate wave (C) will subdivide as an impulse to exhibit structural alternation. If this intermediate wave up is intermediate wave (3) it may only subdivide as an impulse.

At 1,320 intermediate wave (C) would reach equality in length with intermediate wave (A), and would probably end at the upper edge of the maroon channel. At 1,429 intermediate wave (C) or (3) would reach 1.618 the length of intermediate wave (A) or (1). If this target is met it would most likely be by a third wave and intermediate wave (C) would most likely be subdividing as a five wave impulse.

It is possible that the intermediate degree movement up for the bull wave count is beginning with a leading diagonal in a first wave position for minor wave 1.

A leading diagonal must have second and fourth waves which subdivide as zigzags. The first, third and fifth waves are most commonly zigzags but sometimes they may be impulses.

Within diagonals the most common depth of the second and fourth waves is between 0.66 and 0.81. Minute wave ii is 0.67 of minute wave i.

Minute wave ii may not move beyond the start of minute wave i below 1,142.82.

XAU/USD Hourly Bull Chart
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Within the diagonal minute wave iii is most likely to subdivide as a zigzag, but it may also be an impulse. The bull wave count must look at both possible structures.

Minute wave iii must move beyond the end of minute wave i above 1,224.35.

The key difference between bull and bear wave counts at the hourly chart level today is the upwards wave labelled here minuette wave (a) or (i). The bull count must see this as a five, the bear count sees it as a three.

Ratios within minuette wave (a) or (i) are: there is no Fibonacci ratio between subminuette waves iii and i, and subminuette wave v is just 0.25 short of 0.618 the length of subminuette wave iii.

Ratios within subminuette wave iii are: there is no Fibonacci ratio between micro waves 3 and 1, an micro wave 5 is 0.78 short of 2.618 the length of micro wave 1.

If this movement is seen as a five up it suffers from two problems of disproportion. Subminuette wave iv is 9.5 times the duration of subminuette wave ii giving this move a three wave look, not a five. Within subminuette wave iii also micro wave 4 is 5 times the duration of micro wave 2 giving this movement too a three wave look.

The guideline of alternation suggests alternation between structure and depth of corrections. If one correction is a more time consuming type of structure it will necessarily be longer lasting, but the proportion between corrections should not be grossly dissimilar. Alternation does not suggest a big difference in time taken. It is the proportion between the second and fourth wave corrections within an impulse which give the impulse the "right look". A five should look like a five, and a three should look like a three.

Minuette wave (b) or (ii) may be a complete three. Equally as likely the degree of labelling within minuette wave (b) or (ii) could be moved down one degree; this three may only be subminuette wave a or w of a double zigzag, double combination or a longer lasting flat correction. For this reason the invalidation point for the bull count must remain at 1,169.94. Minuette wave (b) or (ii) may not move beyond the start of minuette wave (a) or (i).

At 1,237 minuette wave (c) or (iii) would reach 1.618 the length of minuette wave (a) or (i). This target woul d take minute w ave iii above the end of minute wave i and so meet that core Elliott wave rule.


Bear Wave Count

XAU/USD Daily Bear Chart
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This wave count follows the bear weekly count which sees primary wave 5 within cycle wave a as incomplete. At 957 primary wave 5 would reach equality in length with primary wave 1.

Pros:

  1. Intermediate wave (1) (to the left of this chart) subdivides perfectly as a five wave impulse with good Fibonacci ratios in price and time. There is perfect alternation and proportion between minor waves 2 and 4.

  2. Intermediate wave (2) is a very common expanded flat correction. This sees minor wave C an ending expanding diagonal which is more common than a leading expanding diagonal.

  3. Minor wave B within the expanded flat subdivides perfectly as a zigzag.

  4. Volume consistently supports the idea that the trend is currently down.

Cons:

  1. Intermediate wave (2) looks too big on the weekly chart.

  2. Intermediate wave (2) has breached the channel from the weekly chart which contains cycle wave a.

  3. Minute wave ii (the last high) breaches a base channel about the first and second wave one degree higher, minor waves 1 and 2. It is deeper and longer lasting than normal for a low degree second wave within a third wave one and two degrees higher.

  4. Within minor wave 1 down there is gross disproportion between minute waves iv and ii: minute wave iv is more than 13 times the duration of minute wave i, giving this downwards wave a three wave look.

This wave count now expects to see a strong increase in downwards momentum as a third wave unfolds. At 1,059 minor wave 3 would reach equality in length with minor wave 1, and both would be extended.

Within minor wave 3, if minute wave ii continues further as a double flat or combination then it may not move beyond the start of minute wave i above 1,224.35.

Draw a blue base channel about minor waves 1 and 2. Create a parallel copy and push it up to sit on the high of minute wave ii, then copy these trend lines over to the hourly chart. Look for upwards movement to find resistance at the upper blue trend line.

Although Wednesday's session is within a narrow range volume is higher. The difference is clear, and this indicates the bears are more active. Volume supports a downward breakout as more likely than upward.

XZU/USD Hourly Bear Chart
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Minuette wave (ii) is most likely complete as a single zigzag.

The problem of proportion which the bull wave count has on the hourly chart is resolved. This movement looks better as a three than a five.

Subminuette wave c is 0.81 short of 0.618 the length of subminuette wave a.

Ratios within subminuette wave a are: micro wave 3 is 1.41 short of 1.618 the length of micro wave 1, and there is no Fibonacci ratio between micro waves 5 and either of 3 or 1.

Within subminuette wave a micro wave 4 is 2.5 times the duration of micro wave 1. The proportion is better giving subminuette wave a a reasonable five wave look.

If minuette wave (ii) is over then a third wave at five degrees may be just beginning. This would expect a big increase in downward momentum to develop over the next week.

The target for minute wave iii remains the same at 1,081 where it would reach 4.236 the length of minute wave i. I am using this Fibonacci ratio in this instance because minute wave i was so short and it fits nicely with the lower target for minor wave 3 at 1,059. Minute wave i so far has lasted six days. If it continues for a further seven days it may end in a total Fibonacci thirteen days.

Copy the blue trend lines over to the hourly chart. If the invalidation point at 1,200.03 is breached then minuette wave (ii) would be continuing higher, as a double zigzag most likely. It would then be expected to find resistance at the upper blue line.

If m inuette wave (ii) is over (most likely) then submineutte wave ii within it may not move beyond the start of submineutte wave i above 1,200.03.

 


This analysis is published about 04:50 p.m. EST.

 


 

Lara Iriarte

Author: Lara Iriarte

Lara Iriarte
elliottwavegold.com

Lara Iriarte

Elliott wave is one of the more difficult and complicated technical analysis tools. When done right it can be uncannily accurate.

I have been using the Elliott wave principle to analyse up to five markets a day since 2008. I began Elliott Wave Forex (originally ForexInfo.us) in 2009 to provide daily analysis of EURUSD and GBPUSD, then I began Elliott Wave Stock Market in 2010. Elliott Wave Gold began in August, 2013. Currently I provide daily analysis of Gold on this site, and daily analysis of the S&P 500 on Elliott Wave Stock Market for its members.

I have a science background (BSc) which has trained me to think logically and be evidence focussed. Over the years I have seen no market movement which does not fit into the clear and restrictive rules for Elliott wave structures.

I have members who are fund managers, institutional investors and professional traders.

If you want to learn how to apply the Elliott wave principle to any market my analysis service is designed to teach you, daily, how to do this.

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