A Closer Look at Corrective and Impulsive Phases in Gold

Aug 19, 2010: 2:58 PM CST

Rather than getting down in the nitty gritty and doing a detailed Elliott Wave Count on gold – or any market for that matter – I often find Elliott Wave concepts best suited for showing me whether a market is in a “Corrective” or “Impulsive” phase, and knowing that gives me insights into what the higher timeframe expectation is and where the market is likely heading.

I correctly used/showed this concept in a blog post entitled:

“Signs of a Distribution Top?  A Look at S&P 500 Intraday Elliott Wave Insights.”

Review that post for a detailed explanation of what I was seeing at the time (in terms of the market shifting intraday to CORRECTIVE waves to the upside and IMPULSIVE waves to the downside) and how the market now has indeed confirmed the downward turn that I showed early on the Elliott insight post.

Here’s the current intraday chart (120-min) of Gold Futures (@GC) – let’s see if we can make sense of it in the same way.

(click for full-size image)

A quick review of the difference between impulsive and corrective waves (or swings):

Impulsive Waves show motion/movement, and generally do not overlap each other.  These show the direction of the higher timeframe and likely direction of price continuation.

Corrective Waves show stalemate/pause/sideways action and almost always overlap each other.  They show correction or “reaction” against the “action” of the higher timeframe.

You can have a lot of fun counting waves and some people are really good at it, but for most people, it’s enough to pinpoint the difference between a corrective or impulsive movement in the market.

Case in point – the ‘impulse’ from April to the May 2010 peak of $1,250 per ounce is a good example of a series of impulsive waves (swings) in gold.

Though the whole move was an upward impulse, you can see little/smaller upward impulses that I’ve highlighted that continued to suggest higher prices were likely as the uptrend continued.

The little down or sideways phases – not highlighted – were the smaller corrections as price “waved” its way higher.

We had a swift downside move and then a steady rise in price from $1,180 back to a new contract high of almost $1,270 on June 21.

This is a more advanced concept, but price “impulsed” upward waves in what was actually a rising larger-scale corrective phase – as evidenced both by the overlapping larger waves (look closely) and the price collapse (impulsive move) that occurred when price broke down from the bigger corrective rising pattern.

It’s one of the most confusing aspects for new traders learning Elliott Wave to discover that corrective “B” waves that occur after a 5-wave sequence to new highs CAN and sometimes DO make new absolute price highs… just before a violent downward impulsive Wave C.

It looks like that’s what happened here with the initial Wave A occurring from $1,250 to $1,170 then the larger “Corrective” Wave B pushing up to new price highs to peak on June 21, which then gave way for a big Wave C (at least on this timeframe).

But look very, very closely at what happened in terms of the “corrective” and “impulsive” wave structure that began after that peak and after the breakdown from the “rounded reversal” pattern.

We began “IMPULSING” to the downside and “CORRECTING” to the upside… or in other words, we began making really big swings down and smaller, overlapping swings on the way up.

I highlighted the downswings accordingly during this time.

Price continued in this fashion all the way down to a new swing low at $1,160.

The important question now is:

“Are we Impulsing higher or Correcting Higher?”

I think it’s clear – right now at least – that we’re impulsing higher, at least that’s what the 60-min chart shows:

Again, click for a larger image.

I’ve highlighted what appear to be the “impulsive” (non-overlapping, actionary) waves and drew trendlines around most of the corrective or “re-actionary” overlapping waves.

As long as we keep seeing this pattern, it implies that we can expect higher prices in gold, but watch the pattern closely to see if there’s any change in structure.

From a pure price standpoint, it’s also bullish as long as gold continues to make higher swing highs and higher swing lows – that’s the definition of an up-trend.

Unless we see any sort of sign of weakness – via a trendline break or a shift in corrective/impulsive short-term wave structure – we could easily retest the $1,260 level again, but be sure to watch closely at all the overhead price resistance there.

Try not to get too caught up in the intricate details – always maintain perspective on the larger picture.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

4 Comments

4 Responses to “A Closer Look at Corrective and Impulsive Phases in Gold”

  1. John Says:

    Thank you for that post. I agree $1260 is a possibility.

  2. Tin Says:

    Really useful. Obvious in hindsight, as is often the way. But you've helped me prepare for what lies ahead. Thanks, Corey.

  3. Maumaj Says:

    You are one good teacher ! Thanks for sharing.

  4. Social Wars Hack Says:

    Social Wars Hack…

    A Closer Look at Corrective and Impulsive Phases in Gold | Afraid to Trade.com Blog…