BullMarketRun - Gold Updated Chart And AnalysisBullMarketRun - Gold Updated Chart And Analysis
August 25, 2010
From Rouyn-Noranda, Quebec, 7:30 am eastern time
Gold had a volatile day yesterday, rebounding sharply after an intra-day tumble. As of 7:30 eastern time this morning, the yellow metal is up $4 to $1,234 and has traded within a range of $1,230 to $1,240. BMR’s technical analyst has a very bullish outlook on Goldbut sees some back-and-forth action for a little while, including are-test of yesterday’s low, before it’s ready to explode to new highs:
John: Yesterday, Gold (continuous contract) openedat $1226, fell to $1210 and then rocketed back up to a high of $1235,all in the space of 2 hours before settling down and closing at $1231for a gain of $5. A wild day indeed. Watching this kind of volatilityon a regular basis is confusing, frustrating and offers no insight asto what the Gold market is doing. In order to definewhat we may expect in the near future we have to consult a chart andanalyze it with methodology such as the Elliott Wave Theory, Fibonaccilevels, indicators and candlesticks.
First, a word about RN Elliott’s Wave Theory which states that amarket follows a cycle made up of 8 “Waves”. This Wave structure occursin both uptrends and downtrends and continues until the trend ends.The trend structure is composed of two phases – the Motive Phase and the Corrective Phase. The Motive Phase moves in the direction of the primary trend and consists of 5 Waves whereas the Corrective Phase consists of 3 Waves and moves countertrend.
Looking at the chart we see that on the left hand side a CorrectivePhase starting at $1226 is shown as 3 blue zig-zag lines down to a lowof $1045. This indicates of course the primary trend is up. At $1045there is a bullish reversal and a MotivePhase starts, a series of 5 Waves up (green lines) until it reaches a peak of $1249. A reversal then occurs with a Corrective Phasedown to $1155. This is followed by another reversal and a #1 Wavestarts upward and climbs to $1237 at which point (last Friday, August20) a bearish reversal 3 candle pattern called an “evening star” wasformed. It was this pattern that alerted me to the possibility of areversal on Monday. This pattern had to be confirmed by a down candleon Monday which indeed did occur. After the pattern was confirmed Iplaced on the chart the Fibonacci retracement levels because Wave #2usually does not retrace Wave#1 more than the 61.8% level and typicallythe reversal occurs between the 38.2% and the 61.8% levels ($1,206 to$1,186), thus this can be considered a band of strong support.Yesterday’s trading went as low as $1210. I expect to see this supportband tested before the reversal to start Wave #3.
Looking at the indicators:
The RSI shows that it is on the edge of the overbought region andmust decline to a much lower level before Wave #3 can start in asimilar manner to Wave #2 on the previous Motive Phase (i.e, the RSIdropped down to the 30% level before the reversal occurred (thinvertical blue lines). Similarly, the Slow Stochastics also has todecline down to about the 20% level before the reversal.
The ADX trend indicator shows the -DI (red line) is about to cross upover the +DI (green line) indicating the near term moves will bedown. The ADX trend strength indicator (black line) is weak and flat.Note that this daily ADX does not indicate thestrength of the Primary trend – the weekly ADX is used to determinethat. The weekly ADX (not shown here) is strong and shows Gold is in an uptrend.
Outlook: The primary trend for
Goldis up and is strong. We are likely to see some downside in the nearfuture until Wave #2 is complete, then a reversal and the start of Wave#3 which is usually the longest and strongest wave of the
Motive Phase.
Source:
https://www.bullmarketrun.com/?p=2978
Guy