Since the March 2009 low at 3,120.80 a major zig-zag correction has been unfolding. You might ask, why this is not just the first three waves of a impulsive 5 Wave rally higher? The clue is the C wave. Wave A of the 3,120.80 low to 5,025.10 was a strong impulsive rally and was followed by a simple zig-zag correction in wave B, but wave C higher from the B-wave low at 3,765.90 has been slow moving and not as dynamic as wave A, this is what we would expect for wave C of a zig-zag correction, but not wave 3 in an impulsive 5 wave rally. Wave C has taken almost 3 time as long as wave A to cover the same distance as wave A. The other clue is, that wave C is equal in length to wave A, which one would expect in a zig-zag correction, but not in an impulsive five wave rally.
Now that we have confirmed, that the rally of the 3,120.80 low is only a correction, then let's look at the final part of the C wave rally. Wave v of C has become an ending diagonal (overlapping by wave one and four, which only is allowed for diagonals). The break below the ending diagonal support-line near 5,510 confirms that wave v of C is over and we should now look for a decline to the origin of the ending diagonal at 4,632.30 over the coming weeks.
When dealing with ending diagonals, there is a time-guideline, which can be a guide for us, when we expect the origin of the ending diagonal to be hit. The guideline states, that it would take only half the time to return the origin of the ending diagonal as it did to build the entire formation, which in this case means that the origin at 4,632.30 should be hit within 30 weeks or in early March 2015.
However, longer term I will be looking for a continuation lower towards the bottom of wave B at 3,765.90 and lower towards the March 2009 bottom at 3,120.80.
With the long term picture in place, we have a nice roadmap for the short term moves, that should keep us out of trouble for many months to come.
We have tracked this decline since the top of red wave ii on April 28 at 1.5306 and this count has worked to absolute perfection. Now we are just about to hit the first target for red wave v at 1.4313. This a nice decline of 926 pips at todays price at 1.4380. Many investors will not even be able to make this profit in a year.
We can count five clear waves down from 1.5586 and it will just be a matter of time before a correction towards at least 1.4730 takes over.
Short term a break above 1.4435 will be the first warning that a bottom could be in place, while a break above 1.4501 is needed to confirm the bottom for wave 1 and that wave 2 towards at least 1.4730 is unfolding.
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Gold expect a break below the triangle support-line soon
I think it was about time I updated the daily chart for gold, as one can loose sight of the bigger count, when looking only at the 4-hourly chart.
As can be seen, we have seen a test of the triangle support-line near 1,273 and this line has held for now, but it should just be a matter of time before, we will see a break below this line and more importantly a break below 1,240.20 (the low of wave d) confirming that wave 5 lower is developing.
With wave e and 4 in place I have re-calculated the targets for wave 5. The first target comes in at 1,060.20, where wave 5 will be 38.2% of the distance travelled from the top of wave 1 at 1,920.84 to the bottom of wave 3 at 1,179.83 subtracted from the top of wave 4 at 1,345.28. The next target will be the 50% target of this distance, which comes in at 972.77, which also happens to be the measured triangle target. The fact that we can calculate the 972.77 target in two different ways, make this the most likely downside target.
Short term I would like to see resistance at 1,291.70 protect the upside, but if broken it indicates that we saw a short term low at 1,272.75 and a correction towards the 1,297 - 1,303 area is developing before the next strong decline below the triangle support-line near 1,273. Only a break above 1,322.69 will delay the expected downside pressure.
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We where looking for a final decline in wave 2 to 1.5706, which was the 38.2% corrective target of the impulsive rally from 1.5398 to 1.5898. The minor spike below 1.5706 is a perfect ending of this wave 2 correction and we should now be looking for wave 3 higher towards at least 1.6187 and more likely even higher towards 1.6496.
Short term a break above minor resistance at 1.5830 and more importantly a break above resistance at 1.5866 will confirm that wave 3 is developing.
Only an unexpected break below 1.5693 will delay the expected upside for a move closer to the 50% corrective target at 1.5648, but the is not my preferred scenario.
As long as resistance at 138.01 holds firm, I will be looking for a final decline towards the equality target between wave A and C at 134.34.
Short term I'm looking for a break below support at 136.81 to confirm that the final decline lower to the equality target at 134.34 is developing. As we are locked in an expanded ending diagonal, this decline will likely not be a smooth easy to read decline...
Once the equality target is reached we should be ready for a new impulsive rally much higher.
USD/JPY - Wave c of the flat wave B-correction is likely over at 104.29
I have been looking for a retest of the 104.13 high to end wave c of the flat wave B, with the test of 104.29 this is more than fulfilled and I will now be looking for a break below minor support at 103.81 and more importantly a break below support at 103.47 as confirmation, that wave B is indeed over and wave C lower to at least 99.30 is developing.
At 99.30 wave C will be equal in length to wave A, if the top is in place at 104.29. Short term the risk is a continuation higher to 105.44 in a larger flat correction. This is not my preferred count, but until we have proof, that wave B is over, this is the risk scenario.
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