Gold Hits Resistance – Target Below

Nov 1, 2008: 1:46 PM CST

Gold prices completed their counter-trend rally on Thursday and found confluence resistance at the 38.2% Fibonacci retracement along with the 20 day EMA.  Let’s see this event and see if we can make out a weekly Elliott Wave count structure as well.

Gold Daily Prices:

If there ever was an ‘anatomy of a sell signal,’ Gold provided it this week.  Price formed a new momentum low last week and then began a sharp retracement back to the upside.  What was the target for the retracement?  It was the 20 period EMA as I pointed out at the time.

Price retraced quickly to this level which formed powerful “Confluence” Resistance as the 38.2% Fibonacci retracemen coincided with the falling 20 day EMA about the $779 level.  Combine this with two “long-legged” or long upper-shadow candlesticks and you have an ultimate short-term sell signal (highlighted in green).

Price is still in a downtrend and we still need to work off the recent new momentum low (meaning a new momentum low often precedes a new price low… or that with the new momentum low, a new price low is perhaps yet to come).

Where might price find support (or where is the target for this current short-sell trade)?  Initially, it’s the old $680 low but let’s raise the time frame to the weekly chart for possible additional clues… and a favored Elliott count.

Gold Weekly Prices:

Ignoring Elliott for a moment, we have the rising 200 week moving average coming in around $650 per ounce.  Let’s set this as our target for the swing.

Picking up with the possible Elliott Wave count, we’re currently in Wave 5 down, and are deep in Wave 5 at that.  The $650 to $675 rough area is a decent target for the wave to end.

The one major caveat to this count is that labeled Wave 4 dipped into the price territory of Wave 1 which violates the basic Elliott principles.  Some Ellioticians allow 4 to enter wave 1 in regards to futures markets due to their leverage, but it is far more appropriate not to have to use this situation, meaning the above count may need to be altered.

Perhaps my Wave 1 down was actually an “A” Corrective Wave with Wave 2 being the “B” corrective wave and then my labeled Wave 3 is actually the “C” corrective wave – and that perhaps a complex correction is forming.

Let’s see if this possible structure plays itself out in the coming weeks.

***

Published by Corey Rosenbloom of Afraid to Trade.

Also, click to join the Afraid to Trade blog as it continues to expand.

7 Comments

7 Responses to “Gold Hits Resistance – Target Below”

  1. Gil Young Jo Says:

    Very nice charts and explanation!

    Keep up the helpful information flowing!

    Cheers!

  2. Andrew Stanton Says:

    Major Elliott rule violation on the weekly chart: waves 1 and 4 overlap. The whole thing from the March high looks like a big complex correction; perhaps 1 is A, 2 is B, 3 is C of W, 4 is X, and the current move down is A of Y?

  3. Corey Rosenbloom Says:

    Andrew,

    Yes, that’s the only problem I had with the count. I updated the post to reflect this possibility. During the course material for the CMT, we were instructed that futures contracts – due to their leverage – can violate the “wave 4 rule” but only very slightly and that more than one close would violate the count (as opposed to any intraday/week penetration violating it).

    Thank you for the comment.

  4. J. Livermore Says:

    Corey, I like your work a lot, but that wave 4 violation is so egregious that it negates the count, futures or otherwise. In other words, it’s not 5 waves down…something else is up.

  5. Richard Says:

    Corey, thanks for your consistent coverage of gold.

    While I do agree with you that gold is in a Deflationary Downtrend, I would not have written: “If there ever was an anatomy of a sell signal,’ Gold provided it this week”. That may caused some to go short the gold ETF, GLD.

    In my blog article ‘Peak US Dollar May Be In And Gold May Be On The Verge Of A Breakout’, I present charts showing that peak US Dollar may be in; and gold, which trades inversely of the Dollar, could “break out” this next week!

    So like a “breakout” to where one might ask?, well definitely up … yes at least up.

    I have a question for you and others: Where does one and how does one, preserve one’s wealth?

    I believe that placing money in brokerage accounts or money market accounts even though they may be “insured”, places one “at risk of investment loss”, when a world wide financial system breakdown occurs.

    Yes, such is going to occur! Evidence suggests that there will be a declaration of martial law in response to that bad news. No surety and no guarantees exist for such an event, which might even introduce a New North American currency, that being, the sometimes mentioned Amero.

    If gold moves closes above $730 this week, it’s a buy!

    I do have to relate my bias: all, yes every last bit of my money, is in gold!

  6. Brad Says:

    Thanks for the analysis. Looking forward to a rebound from $680 level.

    http://customerrelay.com/2008/11/stock-markets-looking-up.html

  7. Andrew Stanton Says:

    The problem with futures charts is also that longer time frame ones are almost always some form of continuation contract and depending on how they are constructed, price distortion can often be introduced on the roll-over.