Autumn Might See Gold Trading Down Before Rebounding
By Tom Pizzuti and Kurt Hulse Aug 27, 2013 10:30 am
Gold bulls and gold bears can profit if they know their trading time frames.
Third Example: Seeing the Trade on a Higher Time Frame, Executing It on a Lower One
There probably are a few good trades left between now and the end of the big correction. Those opportunities should be traded on a daily time frame, but they are more easily seen on the weekly and monthly timeframes.
So where will gold go from here? At the moment, the rally from the late-June low should be seen as a retrace -- part of what could be an ending diagonal forming to complete the large correction of the past two years. We have diagramed this, our primary scenario, on the weekly chart below. The Elliott Wave count on the weekly chart corresponds with the count labeled in black on the daily chart above, and it calls for two more lower lows before a bigger rally can occur.
A variation on the ending diagonal scenario is not shown on the weekly chart, but is shown with green labels on the daily chart. The effect of that would be to produce just one lower low before a larger rally.
As traders using Elliott Wave, we always have to consider the "what ifs" that would tell us our projection and trading plan is wrong. Two possible alternatives are more easily seen on the monthly chart, below.
The first alternative would be if the June low was the final part of the correction. On a monthly timeframe, the count for that idea looks okay, although it doesn't look quite as defensible on weekly and daily charts. In any case, if price were to exceed the May high of $1487.20, that would be an indication that the low is probably already in. Traders who took advantage of the move up from late June could get back on the trade after seeing confirmation, and they'd be farther ahead with minimized risk.
The second alternative would be for the whole downward move from 2011 to be more than just a 4th wave correction. That would be confirmed if price were to go below $1,102.20, the level of the previous 1st wave. Breaching that level would almost certainly spark selling, although it is not clear whether it would result in a sustained move downward. We believe this scenario is unlikely.
This article originally appeared on Trading on the Mark.
No positions in stocks mentioned.