Gold rally corrective before turning lower: Elliott Wave

Gold finally found some support and it seems that price is now at the start of a larger three wave retracement in wave ii) back to $1,305-$1,326 region. As such, be aware of a slow and choppy recovery in the next few days before downtrend resumes. From a timing perspective, this wave ii) could complete the path on Monday or Tuesday.

GOLD Intraday

Gold retraced back to $1,285 highlighted yesterday after completed five waves down, followed by a recent push out of a downward channel that we think is causing wave a up, first leg of a three wave rally in wave ii).

Elliott Wave Education: Motive and Corrective Wave

Elliott’s pattern consists of motive waves and corrective waves. A motive wave is composed of five subwaves and always moves in the same direction as the trend of the next larger size. A corrective wave is divided into three subwaves. It moves against the trend of the next larger size.

A picture above shows, these basic patterns build to form five and three-wave structures of increasingly larger size (larger “degree,” as Elliott said).

Waves 1, 2, 3, 4 and 5 together complete a larger impulsive sequence, labeled wave (1). The impulsive structure of wave (1) tells us that the movement at the next larger degree of trend is also upward. It also warns us to expect a three-wave correction — in this case, a downtrend. That correction, wave (2), is followed by waves (3), (4) and (5) to complete an impulsive sequence of the next larger degree, labeled as wave 1. At that point, again, a three-wave correction of the same degree occurs, labeled as wave 2.

Note that regardless of the size of the wave, each wave one peak leads to the same result, a wave two correction.

About the Author

Gregor Horvat, based in Slovenia, has been in the forex markets since 2003. He is a technical analyst and individual trader who has worked for Capital Forex Group and TheLFB.com. He also is founder of forex services on www.ew-forecast.com. EW-Forecast.com provides technical analysis of the financial markets, highlighting behavioral patterns based on the Elliott Wave Principle (EWP). Website: http://www.ew-forecast.com/

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