Today's Technical Report/Commentary:
Yesterday’s gold report introduced a complete wave count for every major move after reaching the historical high in 2011. Using this wave count I have reached the conclusion that since June 2013, the precious metal has been trading in a corrective triangle, which I labeled wave 4. If this wave count is accurate, the inescapable conclusion is that gold is currently in what I believe is wave 5 down, which is expected to collapse the price all the way down to 957.0.
When gold broke below June 1st bottom 1240.5, things completely changed because this break meant that we can no longer consider the falling move from July’s top 1345.4 a correction for the previous move! This break forced a visit to the longer term charts, and what can be found there is horrifying for the precious metal.
On the chart below, I have attempted to count the waves from the historical high of 2011. Although wave 2 looks extremely complicated, the rest of the waves look very good. Now if we can get past the complexity of wave 2, and the chaos of its internal structure, we got ourselves a seriously bearish wave count! Personally, I have seen waves 2, 4 and B create absolute chaos and therefore, I have become more tolerant with the internal structure of those waves.
If this wave count is correct, then every move from last year’s 3-year low 1180.4 is a part of a triangle. The internal structure of waves a, b and d in specific is in complete harmony with the requirement that the waves within triangles come in threes. Nevertheless, the structure of waves b and e is not as satisfying.
This frightening wave count suggests that July 10th top 1345.4 is the end of wave e, and therefore the end of the triangle. Ergo, the drop from the above mentioned top is wave 5, which is expected to dive below the extreme of wave 3, namely 1180.4! One important guideline of The Wave Principle is the equality guideline, which suggests that some waves tend to be equal to each other, including waves 1 & 5. If we use this guideline to calculate the potential target of wave 5, we will have a shocking target at 957.0!
The last time gold traded below $1,000 was in September 2009, and we could be trading below this landmark at a later time this year, or early next year. However, before we commit to this startling outlook, a search for more clues is needed.
As for the shorter term, this interesting recovery from yesterday’s 8-month low has touched the micro term Fibonacci 50% level at 1241.7, topping at a current daily high only 2 pips above it. This level is the first among 3 micro term levels we need to care about, in order to have more clues about the real strength of this correction. A break above 1241.7 would be a good start, but it will need confirmation in the form of breaking above 1245.4 & 1248.5. Clearing all 3 levels would indicate that we are in a short term correction, which will be expected to target 1252.7 at the very least, with more attractive targets stretching all the way up to 1276.3.
However, topping very close to the Fibonacci 50% is not a bullish sign at all. In fact it can be considered a first bearish sign. Unless the price breaks above this level soon, another retreat will be expected. The second sign that such a retreat is becoming probable is breaking below the rising trend line from yesterday’s low, which is currently running at 1236.0. Breaking this trend line would target the micro term retracements at 1233.8, 1231.9 and 1230.3. Below the latter, reaching a new multi-month low will become a high probability. Potential targets would include 1224.6, 1218.5 and 1211.6. Those are all short term targets, but the medium term target, breaking below 1240.5, is set to at least test 2013 3-year low 1180.4, if not break below it!
Support:
• 1236.0: the rising trend line from yesterday's 8-month low.
• 1233.8: micro term Fibonacci 50% retracement, calculated for the recovery from yesterday's low 1225.7 to today's current daily high 1241.9.
• 1231.9: micro term Fibonacci 61.8% retracement, calculated for the recovery from yesterday's low 1225.7 to today's current daily high 1241.9.
• 1230.3: micro term Marji 71.4% retracement, calculated for the recovery from yesterday's low 1225.7 to today's current daily high 1241.9.
• 1224.6: November 24th 2013 daily low.
• 1218.5: January 7th daily low.
• 1211.6: December 3rd 2013 daily low and short term bottom.
• 1207.7: July 4th 2013 daily low.
Resistance:
• 1241.7: micro term Fibonacci 50% retracement level, calculated for the drop from September 10th high 1257.6 to yesterday's 8-month low 1225.7.
• 1245.4: micro term Fibonacci 61.8% retracement level, calculated for the drop from September 10th high 1257.6 to yesterday's 8-month low 1225.7.
• 1248.5: micro term Marji 71.4% retracement level, calculated for the drop from September 10th high 1257.6 to yesterday's 8-month low 1225.7.
• 1252.7: short term Fibonacci 38.2% retracement level, calculated for the whole drop from August 28th daily high and Fibonacci top 1296.5 to yesterday's 8-month low 1225.7.
• 1256.0: short term Marji 42.9% retracement level, calculated for the whole drop from August 28th daily high and Fibonacci top 1296.5 to yesterday's 8-month low 1225.7.
• 1261.1: short term Fibonacci 50% retracement level, calculated for the whole drop from August 28th daily high and Fibonacci top 1296.5 to yesterday's 8-month low 1225.7.
• 1266.1: short term Marji 57.1% retracement level, calculated for the whole drop from August 28th daily high and Fibonacci top 1296.5 to yesterday's 8-month low 1225.7.
• 1269.5: short term Fibonacci 61.8% retracement level, calculated for the whole drop from August 28th daily high and Fibonacci top 1296.5 to yesterday's 8-month low 1225.7.
• 1276.3: short term Marji 71.4% retracement level, calculated for the whole drop from August 28th daily high and Fibonacci top 1296.5 to yesterday's 8-month low 1225.7.
Trend:
• Short term: Down, as long as the price is below 1248.5.
• Medium term: Down, as long as the price is below 1276.3.
• Long term: Down, as long as the price is below 1638.0.
Article originally appeared on MarjiFX.com