Gold: Update of the Long Term EWP
Since this weekend I don't have anything new to add to what I have been discussing regarding SPX I think it is interesting to review the Gold EWP.
Long -Term Count:
In my opinion from the September 2011 high to the June 2013 low price has unfolded a Double Zig Zag.
Since the internal structure of the up leg off the June 2013 to the August peak is corrective I rule out that price has concluded the correction.
Therefore we could have four options:
Blue count: Price is on the verge of beginning an impulsive wave (Z) down that will conclude a Triple Zig Zag from the 2011 high. This option will become the front-runner if in the following pullback the internal structure is impulsive (As long as momentum indicators do not turn bearish this option is less likely).
Red Count: Price is unfolding a large wave (B) countertrend rebound that could reach the trend line resistance that connects the September 2011 high with the October 2012 lower high. Once the wave (B) is in place a large wave (C) down will conclude the corrective pattern off the 2011 high (Too soon to give much credibility to this count).
(Green count): Price is unfolding the wave (X) within a Triple Zig Zag off the 2011 high. If price clears the August peak we have a strong resistance in the area of 1489 (Horizontal resistance, 0.5 retracement of the down leg off the October 2012 lower high and the 50 wma). The assumed wave (X) could reach the 1506 area (1 x 1 extension target). Once the wave (X) is in place it will be followed by the last Zig Zag down.
Triangle wave (X): Not shown in the chart below.
Lets have a look at the weekly momentum indicators:
Even though the Stochastic has a sell signal in force since the beginning of September, the MACD issued a buy signal at the beginning of August. If the Stochastic stabilizes it will have plenty of room to the upside before entering the overbought zone. Therefore as long as the MACD bullish cross is not cancelled we should expect higher prices ahead.
But bulls have a serious problem due to the RSI overhead resistance of the 50 line and the trend line resistance in force since the August 2011.
If the RSI breaks above the mentioned trend line the probability that the Red count discussed above is the correct one would substantially increase.
In the next chart we I have removed the bearish Blue count since I expect a higher low in the following pullback.
Therefore if this is the case my preferred count is the Green one.
If price is unfolding the wave (X) (Green count) I establish the target box in the range of the falling 200 dma which today stands at 1429 - 1 x 1 extension target located at 1506.50.
If price stalls below 1488 we could make the case that price is forming a bearish flag.
Above 1506.50 the Red count will become the most likely option.
In the next chart I zoom in the shorter time frame. Here I want to show two things:
Price has reached the upper Bollinger Band hence the probability of a pullback is large.
If the following pullback is corrective and the 20 dma, which is located at 1311, is not breached (EOD print) then the scenario of at least one more up leg will be correct.
Next I show you the Triangle wave (X) option, if this is the correct pattern the internal path is quite clear and does not need to be discussed.
In addition of the potential Bollinger Band reversal from the daily momentum indicators chart we can draw the following conclusions:
The RSI (5) is overbought and displaying a negative divergence (Suggesting that a pullback is in the cards).
The Stochastic is overbought and showing signs of a potential roll over.
The RSI (14) has crossed the 50 line, hence as long as it remains above the 50 line the expected pullback should be a buying opportunity.
The MACD issued in the middle of October a buy signal and it is now attempting to cross the Zero line (As long as the bullish cross is not cancelled I expect higher prices ahead).
Lastly in the 60 min chart below I have labelled the up leg off the October 15 lod as a Double Zig Zag, with the wave (Y) forming a likely Ending Diagonal.
If the Ending Diagonal pans out and the following pullback is corrective at the moment I establish a wide target box for the assumed wave (B) in the range 1314 (200 ma) - 1291 (Approximately the 0.618 R).
Next week I will try to get involved in the short side.