Gold completed 5 waves down from 1,348 as expected by our previous analysis. We mentioned before that we expect a reversal around 1,350. This reversal came and prices fell from 1,348 to 1,309 in an impulsive 5 wave down formation. Yesterday we saw the final wave of the formation being complete and then prices pulled back up towards the 76.4% Fibonacci retracement. According to Elliott wave theory, after a 5 wave movement (corrective or impulsive, it doesn't matter) we should expect a counter trend move and then another impulsive move following the initial trend. In our case, the first impulsive move was down from 1,348 to 1,309. The counter trend move pushed prices towards 1,340. Now we expect a new downward move that will most probably give a new lower low than 1,309.
The entire upward correction from 1,180 is most probably over. However, confirmation of this scenario will come if much lower price levels are overlapped. Until then we should trade cautiously with close stops. The market is now giving us the opportunity to sell with a small risk as prices are very close to our stop level at 1,348 and the upward correction was deep and not shallow. Therefore we prefer to go short near 1,335-40 area with the recent high at 1,348 as stop.
We expect prices to at least test the lower long-term boundaries of the upward sloping channel. If prices pause there, then this could be a signal for a long-term trend change. If prices break below and outside of those barriers, then our primary scenario will become stronger.
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