Ramki’s Elliott Wave Analysis of Gold has been posted in MarketWatch, a Wall Street Journal publication
Here is the link again: http://www.marketwatch.com/story/gold-plunge-offers-up-short-term-trades-2013-04-16
It is a while since I posted Elliott Wave Analysis of Gold. Septerber 2012 has started off with a a sharp rally in this precious metal and there have been persistent requests for an update. Lets look at the charts and see what clues we might get.
I frequently go back to the most recent significant low and see if any sense can be made of the moves from there. Accordingly, I am starting my wave counts from the October 2008 low of $680. (By the way, when I am doing a fresh analysis, I don’t cloud my mind with any wave counts that I might have made several months earlier. Markets change, and it is always good to start afresh). My first attempt produced this chart you see below.
You can see that wave 3 was 161.8% of wave 1. So far so good. But is it possible that wave 3 was an extended wave? Lets take a look at the next chart. Here the internal wave counts (the sub waves) within wave 3 show that perhaps this is a better way of labelling the chart.
You can see that wave 3 has travelled a distance equal to 323.6% of wave 1. Clearly, this is an extended third wave. What is more! As the next chart reveals, the fourth wave came down by exactly 38.2% of the third wave.
Having sort of settled down on how the recent moves can be counted, we turn next to figuring out pressure points for the future moves. A fibonacci retracement grid revealed that the key resistance at the 61.8% level falls at 1770. This is not only going to attract, but there is a chance we might get a small correction from there. Remember what I discussed in the article today “what next for the s&p500” posted earlier today? We should trade in the direction of the trend, and where the odds are in our favor. Clearly, if we are going to get a 5th wave higher, there is a lot of room on the upside. Besides, the recent action by the ECB only increases the chance for high inflation and that is fundamentally good for Gold, In these circumstances, we should avoid selling at minor perceived resistances, and focus on identifying low-risk entry levels to join the next step higher. So although a resistance lies at 1770, we should be more willing to buy any correction from there, rather than selling at the resistance.
Use the 61.8% retracement level to signal the possibility of a dip that you can use to join the trend, even if it is a short term trend. Now let us pause and consider whether Gold can collapse for some reason. Sure, anything can happen. But in my view, even if Gold breaks down dramatically, we will likely see a rebound to near last week’s highs before it follows through. And if a trader had gotten long on a dip, then there would be a good chance for a safe exit if things turn unexpectedly bad. It is intelligence like this that Elliott Waves offers a thoughtful trader, and hence, why it pays to learn the techniques. It goes without saying that a trader who trades without a stop-loss order in place is a gambler. He is not a trader. Good luck.
Yesterday I had posted a short term chart in Forbes suggesting a possible correction to 1625 area. However, from just below 1650 we saw a massive rally spurred by the FOMC statement. Of course, any shorts should have been stopped out at 1665 or close to that as recommended. WHere do we go now? Take a look at the following two charts.
Hah! So you really think trading gold can be made easy? It certainly does look so with hind sight, as the following charts reveal. But honestly, if you learn some Elliott Wave analysis, you could have captured at least some of this move. Of course, just like trading any other instrument, you would have placed protective stops while trading Gold. For example, you might have thought that Gold would find resistance at the 61.8% retracement level, but it actually went to the 70.7%. If you had sold at the 61.8% level, you should have chosen your stop carefully, just above the next key resistance at 70.7%. Alternately, you would have joined in as the metal started moving down, with a stop above the high, Trading is more than just analysis. It concerns active money management. What WaveTimes does is to show you how to use Elliott Wave principle in order to bring a method to your trading activity.
So let us start by looking at how you could have captured many of the moves down. Remember, Wave Times had mentioned the target of 1480 a few months prior to the collapse, so you know which way it was headed already.
P.S. I will try and post more charts on trading gold in Forbes today.Click here if you wish to follow my Forbes comments.
In my 29 November Elliott Wave commentary on Gold, I suggested that Gold would probably need to come down a bit before rallying. The reason was I was looking for a much sharper recovery than what I was seeing. However, the markets just fooled me. Sure it did come off to 1700, but it didnt quite get to 1662 again 🙁 What happened there?
Well, as you can make out from the first Elliott Wave chart of Gold that you see here, we got an irregular 4th wave, which is a complex correction, and that pause sort of took me off the track. Still, all is not lost. We do have the making of an extended 5th wave, and usually that is a warning of a sharp correction. But beware of paying too much attention to the very short term charts! I have often warned you in this blog, (and if I remember correctly, also in my book “Five Wave to Financial Fortune”) that you can make decent money by trading the bigger waves. So what is my take in the bigger picture?
Elliott Wave analysis of the loger term Gold charts tells me that there is a reasonable chance for us to go dramatically lower, say to around 1310 during 2012. You should therefore start making plans to identify a good, low-risk selling level to capture that huge move (if and) when it happens. Of course, I hope to be around to give you my two cents worth at that time, but today’s Elliott Wave comments on Gold’s outlook is laying the foundation for that move. Just remember that you read it here first, and when others pick up the ideas and publish it, you know that they are also secret members of the Wave Times club!
A few days ago, in my Elliott Wave commentary on Gold, I wrote that we will get a move down to 1662, but that I would be happy to cover shorts just ahead of that level. The reason was there existed a possibility of a sharp rally. But the price action we are seeing is not convincing. So I am now thinking that we could fail to go above 1735, and possibly experience one more dip. So plan your trades accordingly.
Elliott Wave analysis of Gold involves not only anticipating the move, but monitoring the market for additional clues as the move unfolds. It is never a black box!
Elliott wave analysis of Gold suggests that the recovery from 1534 to 1803 has fulfilled at least one part of the required correction. When we last considered this commodity back in September 2011, we were suggesting that it made sense to consider going long from 1575, because there was a strong support at 1478. We also said that strong resistance was expected at 1790. The metal stopped abruptly at 1534 and embarked on the correction that failed at 1803. So we pretty much anticipated most of the movement that has taken place in the last two months. ( To come up with this analysis, I used the same techniques that you have read in the book, “Five Waves to Financial Freedom”)
Looking at the picture now, I think we might get a smallish recovery towards 1725, but there is a good chance for a move lower towards 1662. HOwever, I will be quite happy to cover shorts sligtly higher at the 1680/85 levels. We will take up the question of whether we will get a new rally higher after we see the dip that we are hoping will happen. ( I have given you a clue here, let us now see whether you can discuss that in the forum with others!) Enjoy.
The sharp move down has all the characteristics of a move that starts after completing an extended fifth wave. Our target should be wave ii of the extended fifth, which lies at 1478. Having come down to 1626, the 23.6% retracement level of the whole five wave rally, we are likely to pause here, and certainly I think there is good support near 1575 which is a good place to think of a counter trend trade. Strong resistance comes at 1790 now.
It might be helpful for some to consider why I was reluctant to confirm a top in Gold was in place at 1920. This is explained in the post of Sep 8th. My approach to trading is to be exposed when the risk of error is low. A conservative approach would make us miss some very nice moves like what just happened. That is the price of survival! It does seem now that the move to 1920 was not 3 waves, but a five-wave affair. See the hourly chart to the right. Every now and then, we will witness situations where it is possible to count waves differently, and both scenarios appear equally appealing. When we reach such a ‘fork-in-the -road’ it is best to find a shady spot and rest while we wait for someone who knows the road to tell us which way to go.
This someone is usually an armchair analyst who doesn’t trade, but made the right call and so wishes to publicize that fact. (Someone who traded and lost money will not tell others, and an experienced trader who made money knows that his next trade could be wrong, and anyway he doesn’t care for being right. He only wants to have good trades, and so he will not tell us). But the best teacher is the market itself. If we arm ourselves with sufficient knowledge of the Elliott Wave Principle, we can make adjustments to our count, and get ready to trade the next move with low risk! That should be our goal, and it is the mission of Wave Times to help you acquire that knowledge and skill set. Good luck all.
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When we use Elliott Wave Analysis in real time, there are warning signs on the way that tell us that perhaps we are on the wrong track. For example, the three wave rally to 1920 that I originally labelled as an irregular B wave should have been followed by a five wave decline (as a C wave). As you know, C waves should behave like impulse waves. However, we are witnessing an overlap of wave 1 by a recovery that started from the end of wave 3. If this were wave 4, then it should not have gone above the bottom of wave 1. So clearly something is going wrong. (Even if one were sort near 1850, the loss is limited to just 10-15 USD because the bottom of wave 1 was at 1860.)
Next we have to figure out what could be the scenario where we get a 3 wave rally to 1920, followed by a 3 wave decline to 1890 and then a new rally? One possibility is an ending diagonal triangle. typically, ending diagonal triangles have its internal waves made up of 3 waves. If this approach was correct, we should see a three wave rally that will make a new high now.
Should we trade this move? I am very reluctant to suggest a trade when the directions are changing so very quickly. But if we are able to confirm that an ending diagonal triangle is indeed developing, then we might be in a position to identify the end of the major move more confidently. I will post that when it becomes clear. For the time being, I would like to figure out exactly why we have an overlap after 2 successive three wave moves.
Now that we have traded below 1835, many people are anxious to know how far it will go down. Like always, I prefer to ‘show’ you my analysis! There are two charts presented here. The first chart gives you an overview of the bigger picture, and identifies two possibilities, and what is my preference. The second chart is an hourly chart, where I have let my imagination take over (but within the boundaries of Elliott’s guidelines). If you have invested in my book, you should try and figure out the reasons for my levels yourself. That will be the way to learn the techniques first hand. Good luck. Ramki