Today I completed my analysis of the candles and charts and I wish I were so sure about the path gold futures are going to take. Everything points that Monday, the last day of the month, will be extremely critical. Let me explain why.
The biggest concern is possible completion of a multi-months Tower Top. Today GC closed just a tad below the required 1788.30. If Monday closes below 1788.30, I would expect a multi-month decline to follow. Note the monthly PSAR, RSI trend and the possible closure below 8 EMA.
Today’s closure completed the Falling 3/5 Methods multi-week combo, the second one in a row since the beginning of August. This week also closed with the 8/20 EMA bearish cross.
A solid bearish candle closed below 200 MA after two unsuccessful attempts to cross back over 200.
I would expect at least one lower low in the upcoming weeks. In order to continue to move further down, one of the following weeks needs to close below 1770.65 (today’s low). For the next several weeks, the price could try to close above the midpoint of this week red candle, 1826.30. If any of the attempts is successful, the odds of reversal would increase.
THREE CRITICAL LEVELS TO WATCH for the bulls (candles perspective):
1788.30 – November 30 must not close below this level
1770.65 – Any day next week must not close below this level
1826.30 – a good sign if any Friday closes above this level
The first and the most critical test comes on Monday.
Musings About Waves
Having the candles in mind, I was thinking about waves from the perspective of rejecting the improbable first:
– Can the wave IV (the whole pullback) end now? If the whole correction is a flat, it must end with a motive wave. The wave that started on November 11 does not break into clear 5 waves. It also does not break into a diagonal. At this level, it breaks into a zigzag rather well. So, I rejected the possibility of green C of IV.
– Can the correction follow the red count? Wave (A) is a flat. Wave (B) would be a running flat. It would be highly improbable from the alternation perspective.
– Can the current wave move down further? For this to be considered a motive wave, it needs another wave down. In this case it would be a completed motive wave for the whole ABC correction. I think I take the blue count as main operative for now. Based on various fibs, target would be 1690-1730.
If I draw a channel on the short-term chart, I would say that the futures should be bouncing in wave 4 for the next 5-8 days, and then the final wave 5 would start. I think the red channel is more probable at this point and the whole correction could end before Christmas. If wave 5 evolves as an ending diagonal, it would increase the odds of reversal just before the end of the year and also would allow the price not to close below the critical levels identified for the weekly candles.
I think that if this whole correction is meant to end in December, it should end before December 23 in order to comply with one more rule/guidance by Frost&Prechter. If it takes longer, the whole wave that started in August could just be wave (A) of a bigger, more complex correction. We will return to this on December 23rd.
For now we know where to look at 4 pm PST on Monday.