October 2018 | AtoZMarkets - Based on Elliott wave theory, Gold might be ready for another bearish onslaught after the current rally above 1230. Last week, the price broke away from a 2-month congestion zone to hit 1233. However, Gold price has been bearish this week so far, retreating from the bullish run to 1223. Today, price started with an 80 Pips gain to trade at 1228, but it seems bullish force would be resisted. Looking at Gold price chart from January this year, it's clear that it is exhibiting the properties of a clear bearish impulse wave. Impulse waves according to Elliott wave theory signifies trend in any time frame, and are made of 5 non-overlapping waves. Looking at the year-long price chart, one might believe that the current month rally to 1233 could be the 4th wave of the bearish impulse wave as the chart below shows.
Gold Elliott Wave Analysis: Wave 4 Ends at 1233-1238?
The chart above shows the development of a bearish impulse wave from late January 2018 when price hit the year high at 1366. From 1366, it has dropped massively to 1160 to complete the 3rd wave. The 3rd wave in this case extends more than 161.8% Fib-projection of wave 1 from 2. There are possibilities that the 3rd wave is extended. Often times when this happens, wave 4 correction is shallow (less than 38.2% retracement of wave 3). At 1233, wave 4 is less than 38.2% retracement of wave 3 (38.2% retracement is at 1238). We can sufficiently say 1233-1238 is a resistance zone where wave 4 is expected to end for the start of wave 5. If price moves as forecast, a fast dip below 1200 and further down to 1140 is very much likely.
Does Head and Shoulder Pattern Confirm End of Wave 4?
There was an intraday 'double top' pattern at 1233 and price quickly broke below the neckline. Aside from the double top pattern, a 'head and shoulder' pattern is also about completing. Head and Shoulder patterns like double top patterns are reversal patterns. If price should break below 1220 neckline, there might be a real reversal bearish reversal. If this happens, price will most likely drop to 1200, bounce and then decline further to continue the 5th wave of the year-long bearish impulse wave toward 1140. This forecast will be valid if price makes the necessary bearish breakout. A break above 1233 instead would invalidate this forecast and set price further to 1238-1240.
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