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!