Home—Online trading—Spread betting explained—Spread betting blog—Gold is at a crossroads
Oct 12, 2012, 03:18
Posted byJohn C Burford
Comments (16)
On Monday, I noted a five-wave Elliott wave pattern down off last Friday’s $1,796 high on the 15-minute chart. That gave me some good evidence that we have seen a major high.
A minor five-wave down pattern off a high is one clue that the high is genuine.
This may or may not be the top, of course. Only time will tell – and sadly, nobody makes any money betting in hindsight, do they?
So we have to do the best we can given current input – and a little imagination.
A basic knowledge of Elliott wave theory can give us clues as to what is likely to occur, especially in the near-term.
Today, I have a great example of this in action in gold.
On Monday, I counted the five waves down and suggested that we should see a rally phase – hopefully in an A-B-C – ending at the $1,780 region at the Fibonacci 38% retrace level.
This is what happened later on Monday and into Tuesday:
(Click on the chart for a larger version)
That was a nice bullseye.
The A-B-C rally had a very shallow B wave, but is recognisable as three waves.
To learn the significance of three-wave patterns, go to my Elliott wave tutorials.
The market then declined below the previous wave five low, thereby verifying my projection – so far.
But with gold – a most treacherous market – I have to be on my toes for surprises, particularly since I am trading against the major trend. All I can say is that the market is going to plan at this point but there is a hitch.
Yesterday, the market obliged by declining to sub-$1,760 and then staged a rally.
That was not in the plan!
So let’s see if this spoils my original analysis calling for a more substantial decline.
Here is the updated chart:
The pink bar represents chart support/resistance, which the market broke through yesterday – first down and then up. This area is now support.
Then there is the clear A-B-C three-wave pattern (red bars) off last Friday’s high – and with an ominous positive momentum divergence (red arrows). This is potentially bullish action, of course. Hmm.
Now if the pink bar is truly support now, a break above the B wave (blue bar) should confirm resumption of the uptrend, and the market should go on to challenge the $1,796 high soon.
But can I find any tramlines to guide me further?
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Below is the chart I took yesterday as the market moved up off the C wave low. I have a splendid lower tramline with multiple prior pivot points and excellent touch-points.
I then simply drew the parallel tramline across the only touch-point available – last Friday’s high. And just admire the way the rally was stopped in its tracks right on the line with a large spike. That is beautiful.
OK, so how is the market looking this morning?
First, note how the Wednesday low hit the Fibonacci 62% retrace of the large swing up from the late September low to the $1,796 high (red arrow). That was always going to be a problem area for the bearish case, and so it is proving.
Remember, Fibonacci retrace levels are good places to look for pauses in the corrections to previous swings.
So this morning, we are knocking on the door of my upper tramline again.
Will it or won’t it?
But I know where my line in the sand is now – and that is valuable information.
OK, we have two opposing forces at work here. On the bearish side, I have my original five-wave pattern down with the A-B-C rally and a new low on Wednesday.
On the bullish side, I have the larger A-B-C down with positive momentum divergence – and of course, the main uptrend.
Which side will win out?
Here is one possible scenario:
We could be in a continuation pattern such as I have drawn and the upper tramline holds. This five-wave continuation pattern is quite common, especially on short-term charts.
But to me, the odds are evenly drawn as I write. We will soon find out which one will win out – and thereby hangs a possible trading opportunity using the rules I use.
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(12 October 2012, 03:48PM) Complain about this comment
Part 1 JohnI love reading the comments when you comment on gold particularly if comment bearishly. I saw you recent posting and wondered how you would comment on the drop and subsequent rally. As you know I am long gold and I don’t regard anything you say that might be bearish as anti my stance. But other get very excited when you say anything that threatens their long gold stance. They should remember you are commenting on swings in the movement of trades a form of trade that is extremely difficult to perfect and has no loyalty to any long term trend. (to be cont’d)
(12 October 2012, 03:49PM) Complain about this comment
Part 2 It seeks only to spot a short term opportunity and capitalise upon it. I find your articles fascinating. However, as I have commented here before that hasn’t always been the case it took me several months to understand what you are doing and realise that my long term positions weren’t threatened by the swings you monitor. In a year your approach sees you move from long to short numerous times. I see it pretty much like sat at the beach. I and a lot of others are monitoring the tides watching the long term movement. You and any swing trader is watching for that unexpected large wave, or sudden current switch that runs against the actual tide. Thanks once again for printing your thoughts an incredible brave think do.
(12 October 2012, 04:12PM) Complain about this comment
You could take the May low of around 1525 (which was a hit a couple of times before) and the recent high. Draw a fibonacci and you will see it is currently bouncing around the 14.6% retrace mark. You could be aggressive and target 23.6% at around 1733 level or near the bottom of your tramline is the monthly pivot of 1750 which could be a nice profit taking level. At around 1722 level there is also the 50% retrace of the larger weekly fib. Take your pick.
(12 October 2012, 04:28PM) Complain about this comment
Also, there is a bearish head and shoulders pattern - seen best on the 4 hour or 1 hour chart. Price broke down through the neckline earlier today. All down to interpretation but worth looking at.
(12 October 2012, 07:00PM) Complain about this comment
Thanks for the interesting post John. Have been puzzled and caught out this past week with teh conflicting signals, but right now the market is moving down per your last possible scenario. Only thing I don't get from your red lines is if that is a 5 wave, then how come wave 4 encroaches on wave 1? I thought that invalidated a 5 wave move in Elliot Wave theory. I know it can get very complex if we go into EW too deeply, but that is a basic rule I thought? (Or anyone with any comments about this, please go ahead!)
(13 October 2012, 11:06AM) Complain about this comment
any further developments on the previously mentioned alert service john?thanks
(13 October 2012, 03:00PM) Complain about this comment
Further to the comment by Lee, i would be grateful if somebody could answer the same question. I was short and then, when wave 4 went into the area of wave 1, abandoned the trade - regrettably considering the fall last night. The top of 4 was at 1773, which was well within the bottom of 1 (1767).
(13 October 2012, 06:54PM) Complain about this comment
@Lee & Phil, Prechter and Frost reckon there is such a thing as a leading diagonal in Elliottwave Principal where wave 4 is allowed to overlap wave 1. http://www.elliottwave.com/tutorial/lesson3/3-3.htmSome practitioners reckon that owing to increased leverage that is now available since Elliott first "discovered" EWP that overlaps should in some cases be ignored. As human beings it is normal to want to believe that there is structure to everything in life and with this in mind and the fact that it is a big money spinner one can understand why it is such an accommodating theory.
(14 October 2012, 08:38AM) Complain about this comment
What are you on? Must be good. Don't you get it, there is NO WAY of predicting the future. Sorry , buts that the way it is. With gold at say 6x it's low, and not bound by fundamentals like stocks are ie profits made, value gained translating to higher prices, gold is ready to fall -after a 6x price increase simple reasoning would predict falls are coming.
(14 October 2012, 07:54PM) Complain about this comment
Short term movements aside there is a fierce battle going on between gold $1735 and $1800. A report said " The commercials are massively short gold at the moment, and each time they try an attempt to drive price of gold lower, there is a solid wall of physical buying they are running into by buyers such as China". It went on to say that " we are getting to the point where there is a distict possibility that the bullion banks may run into some seriouse trouble with their enormous short positions". It also said that "China is delighted the commecials keep trying to push gold lower"....well their not the only ones.
(14 October 2012, 09:16PM) Complain about this comment
@Rob,Many thanks for the reference.
(15 October 2012, 03:51AM) Complain about this comment
Rob, thanks also.As a novice at this i find the markets John covers very tricky. For those who are interested in EW analysis, the Facebook chart seems very clear - so far.
(15 October 2012, 05:14PM) Complain about this comment
@ Lee & Phil, my pleasure. I would not try and take EWP any further than what John does other wise you one day you may be loaded in to a secure vehicle by men in white coats. I'm sure John knows that as well.Bronco, why would the commercials want to drive the price down. My understanding is the majority are made up by the producing miners. Hedging their production on an incremental basis as the price rises and/or their production increases? In the same way as farmers lock in prices for their crops. Thanks.
(16 October 2012, 04:59PM) Complain about this comment
Great analysis John. Gold market is very tricky to call just now but I always enjoy your commentary.Just jumping onto the question of why the commercials try to push the price lower. My own humble understanding of it is that its all to do with gold and silver competing with fiat currency. History shows of course that gold is usually viewed as money. In order to prolong the current system of fiat currency, the value of gold and silver must be suppressed in order that the public is not alerted to the precious metals alternative to the paper currency.
(16 October 2012, 05:00PM) Complain about this comment
[cont]Central banks can influence this process of keeping the value down by leasing out metal (possibly leveraged several times) at low interest rates. The futures market is largely governed by the value of paper certificates which of course are probably not backed by actual metal in many cases, again letting the short be leveraged. ETF's such as GLD again can be used to divert investors into paper rather than actual metal. As a gold bull, I'm betting that these kind of shenanigans won't last forever and people will eventually stampede into a very small amount of actual physical metal abandoning all these paper investments in the process.Time will tell if I'm right or not
(17 October 2012, 05:57PM) Complain about this comment
Here's the view of an expert reader of the COT data http://www.gannglobal.com/webinar/2012/10/12-10-17-Video-5.phpIs it time for the gold bugs do don their brown under wear?
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