Elliott Wave Analysis of Gold - A Word of Caution for Gold Bulls
Apr 20, 2007 - 01:46 AM
By: Nadeem_Walayat
Gold in recent days has flirted with resistance above $690, currently having retraced from the initial attempts at a breakout higher.
From time to time, so as not to get suckered into a wrong analysis or wave count of a market based on relying too much on ongoing 'updated' analysis. I like to take a fresh chart of a market, in this case of Gold, and see what actually stands out clearly at this point in time, a Fresh view so to speak.
http://tinypic.com/view.php?pic=4348zrk
What is the 'Fresh' current chart of Gold telling us, especially terms elliott wave analysis ?
A. The first thing that stands out is that the $733 peak in May 2006 marked a significant peak, a 5th wave peak. So I can mark that peak as a 5 on the chart.
B. The subsquent price action resembles a correction, and in elliott wave terms, a correction is comprised of 3 waves, A, B, C. Again this is perfectly clear on the chart. And thus I denote ABC. So far this is going well. Especially when I note that C is higher than B, which is a sign of strength !
C. Now this part of the chart brings us into the present. What do you see ? I see 4 clear waves, 1, 2, 3,4. So that count is entered onto the Gold chart.
D. The Present ! - What follows a 4 is a 5, which implies that the current wave up is a 5th wave. Now this is where things get a little tricky. Gold has breached the Peak of Wave 3, so it could make a weak 5th peak anytime soon. This would be taken as very weak price action. And imply a larger correction is expected, much larger than which usually follows minor wave 5 counts. Therefore Gold must continue higher virtually immediately to and beyond 733 BEFORE correcting.
So taking a fresh look at gold, has resulted with a warning to perma gold bugs, that if Gold does not manage to extend the size of the current 5th wave rally to beyond 733, then the ensuring correction is likely to be pretty severe.
So how would one actually trade this market ?
1. LONG - With a tight stop, i.e. under the last weeks low, 675 and rising under each previous weeks low going forward.
2. SHORT - On a reversal trigger, one of the best triggers are off of SAR's (Stop and Reverse), therefore a break of the Long stop at 675, with a stop over the high, currently 696.
