Thursday, June 19, 2008

Elliott Wave Count on Gold

Gold market turned above the expected risk zone in the initial three days of this week. As promised I would like to share my elliot wave count on spot gold.

Currently we have completed a third wave high pointed as a major 5. The market is now in the 4th corrective wave forming a zig zag corrective pattern. The formation is a double zig zag with currently the last leg 'C' of the corrective wave in progress.

The corrective waves have followed typical 5-3-5 patterns. In the current wave we are forming the (ii) wave of the 3 of the corrective 'C' wave which would be a 5 wave sequence.

An alternate count is the possibility that market has formed an impulsive 1 and completed corrective wave 2 when it made a high of $935 and a low of $856. If we move above $910 this would bring caution bells to my mind and above $935 it would be wise to accept this alternate count and trade with it.

However the possibility of an 'c' wave being in progress looks strong as long as we hold $935. If we close below $870 on a daily basis, a move to lows of $827 would be a given. I remain cautiously bearish of gold as I was when we moved to $935. Gold market correction doesn't get over until the 'Old bulls' get burned.

As I believe, it is wise to trade the pattern then the wave.

Interestingly my focus is now turned to some profitable trades that emerged on an intraday basis in base metals. We had a very strong short covering session today. Copper, Zinc, Lead traded much higher than last week levels.

Aluminium is emerging as the trade of the year. With bullish trajectory remaining very strong since it hammered a bottom in January this year. Currently we have entered the 5 wave in aluminium and might have completed the 1st impulse today. LME aluminium looks set to target $3400 in next few weeks. Possible it is going much higher to $4000 in next few quarters. The prices have resolved into a triangle and broken out of it with record volumes and rise in open interest. I remain bullish on 'Ali' with important support at $3000 now.

Copper has formed the classic near perfect upward impulses in the last 24hrs on local commexs. Comex copper is looking set for a sharp upmove and may have formed an important base. LME copper looks set to rise to $8450 and may be to a new high in next few weeks if volumes keep on supporting the price.
The inventory on LME warehouses have been rather sticky for all the base metals and may reverse its building trend by next week.

Cancellation rates have just started to edge up and might signal some support. However, still one should be cautious where the short covering might end in Lead and Zinc.

I think good trades are emerging in DJIA and local Nifty 50. We may see a very strong down move in Nifty tomorrow.

I will come up with the counts of crude oil shortly.

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