Elliott Wave Count on Gold - VIII

I have maintained my bullish outlook in gold for quite a while. In a presentation this year I expressed the view that gold price would rally to $1200 along with the rising USD. Since September gold is up nearly 12 percent and USD Index is up nearly 13 percent. Though both the markets have behaved in an expected manner, the volatility has led to very little trading being profitable. Overall I still feel that the major trend for gold has still not ended and it is resolving into a much stronger trend for a larger time frame.

In the last one month gold prices have rallied up from a low of $680. Elliott wave analysis in gold has given quite a few counts and there is a possibility that we may seen one more low before the next move up.

In my previous post ( Gold Update ) I mentioned that we may have seen the low of $734 as the important bottom in gold. But as mentioned gold prices closed below $730 and made a low of $680. The rise in gold prices which took markets up to $934 came in three wave and the next fall was also in three ways. Take a look at the graph -

In my view a major bearish pattern has been formed at $935 and unless prices go above $950 this latest count will remain my most probable count. On a weekly graph the gold price count looks like this -

We are currently in the 'C' wave of wave 'B' of the second ABC zig zag in gold. The USD has broken down and gold prices have been moving independent of this fact. Any major reversal in USD can lead to severe weakness in gold prices. USD has entered a strong upmove and has formed a bottom for this decade. Long term trend in USD is decisively bearish and in gold decisively bullish. Medium term trend can see the reversal of trend. I am writing this at a point where gold prices have shown immense strength. From a market sentiment point of view I think all market participants have become bullish.

Huge volatility in prices is generally a sign of market weakness. Gold has seen huge amount of buying from a lot of investors and amid the 'Financial Armageddon' gold prices have failed to make a new high. Overall I feel gold prices would find a bottom at $550 if they are unable to hold $640 on a weekly closing basis. On a relative comparison basis gold would be a steal at $600 range for the long term investors. My long term targets of $1200 and above remain the same. But prices need to resolve meaning fully to reach these prices.

In the very short term prices face immense resistance at $832 and $854. If prices close above these levels gold might rise to $880 to $900 before falling to sub $700 levels. I feel any bearish pattern at $850 and above should be used for initiating a bearish price objective on gold.

Market Mayhem - Trend

Previous market alert

Long term

Long term trend in Nifty remains bullish until prices remain above 1200. We are in a corrective 4th wave of primary uptrend. Current price move can be divided into 61.8 and 38.2 of the entire move. Currently Nifty is trading below 61.8% of the entire motive wave. The lower degree fourth wave ended at 2600 and Nifty has bounced back twice from the same closing level.



Medium term

The correction that began in January 2008 is unfolding into a Zig-Zag. The current move is the wave ‘C’ of the corrective Zig-Zag ABC. We have already formed wave 3 of wave C within ABC. The corrective channel formed in May is still holding the price with a one week aberration.




Short term View

We remain in corrective short term abc of down 5 wave impulse ‘C’. The corrective wave ‘a’ and ‘b’ have ended and we entered the wave ‘c’ on Friday. This may take markets up to the 3500 to 3700 which is the termination of 4th wave of one previous degree. Markets would eventually make a new low before the current down trend ends. An alternate count exist which shows that market can make a new low if it falls below 2490 in the next one week. On a risk reward basis, it would be favorable to go long with a risk level below 2490 for a sharp upward rally. Markets may test level of 2630 in the next few days before the next rise.


This count would have to be reviewed and adjusted if market closes below 2490 in the next two weeks.

Is the trend tiring

The USD index which gave an important breakout a few days back has seen volatile moves in the last few sessions as it flip flopped between 88 and 87. The break to the upside should lead to significant rally in the next days or trading sessions. If it is able to trade above 88.2 there would be a strong rally in the USD index to well above 90.

Take a look at the graph -



For the Elliott wave count refer to the graph - USD Index wave count

It is interesting to note that the USD index which is in general positively correlated to US equities is now serving as an important gauge of sentiment. A rise in USD has been accompanied by a fall in various stock market indices in the last few weeks and a make or break day is getting closer. In the next few days either the market would test its lows and recover significantly to its major resistance levels, like 11500 for Dow Jones Industrial, 1000 for S&P, 3500 for Nifty, or it would lead to a severe price erosion. I think the market internals are pointing towards a global rally that will take all participants by surprise if DJIA is able to holds its October lows on a closing basis.

If markets fall in the next couple of days and reach important support levels, there would be good opportunity to the upside in next one month. We are entering a strong seasonal phase in the next week and this can lead to a significant rally in the markets. So buying on any dip with October lows as risk levels may serve very well.

Market Mayhem Alert

Nifty may bottom out between 2540 and 2640. The 'c' of wave 'B' of corrective ABC is in force. A possibility of a 1000 point rally would be strong if market falls and recovers from the above said range. Risk would be a new low below the October lows.

An alternate count scenario

Elliott wave count on Nifty has been quite confusing lately and there are a number of ways to put it. As i had put up a count previously which shows we are in 'C' of a zig-zag, i see another count possible. While discussing the pattern with a friend, this pattern seems to make a better understanding of the count.

The alternate scenario says we are in a double zig zag corrective pattern. The current leg is the wave 'b' of the ABC corrective and we are forming the 'c' wave of 'b'. The current wave might take markets to as high as 3500 to 3700 and then make a new low. Which would initiate the formation of wave 'c', the final leg down of the wave pattern. Have a look -



This count suggest that it would take another 6 months for markets to bottom out if a=b in time and c equals a+b which holds true in general market conditions.