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ELLIOTT WAVE


Gold Turning Down

12/23/08 02:32:18 PM
by Alan R. Northam

Gold made a bull market top in March 2008. Since then, GLD has been consolidating its gain from its 1999 runup, forming a double ABC zigzag corrective wave pattern. The target price for the completion of this wave pattern is calculated at $65.


Security:   GLD
Position:   N/A

According to Elliott wave theory, once a market makes a major market top, that market normally corrects in a three-wave ABC zigzag wave pattern. According to the Elliott wave theory, however, there are 11 corrective patterns that can develop during a market correction, with the ABC zigzag just one of them. Another of these 11 corrective patterns is the combination. The combination pattern merges two or more corrective wave patterns. The StreetTracks Gold Trust Shares (GLD) is forming such a combination.


Figure 1 shows the daily bar chart of GLD. GLD made a major bull market top in March 2008. Since then, GLD has been unfolding as a double ABC zigzag corrective wave pattern. The first zigzag pattern is made up of the first A, B, and C waves marked in red. The second zigzag, which is not yet complete, is made up of the second A, B, and C waves, also marked in red. These two zigzag corrective waves are connected by what Elliott calls an X wave. The final C wave of the second ABC zigzag corrective wave pattern started to unfold just two trading sessions ago, and I have marked its path as a dotted blue downward sloping line. The termination of this final wave should occur at or near a target price of $65.


FIGURE 1: GLD, DAILY. This chart shows the Elliott wave count showing a clear double ABC zigzag corrective wave pattern. This chart also shows that the final wave C down is now under way with a calculated price target of $65.
Graphic provided by: StockCharts.com.
 
To calculate the price target for wave C, take the length of wave A of the second ABC zigzag and subtract this length from the price extreme of wave B. Waves A and C are normally the same length, and this relationship is used to determine when wave C should be complete. However, the length of wave C can be longer or shorter than that calculated.


I should also point out that once wave C of the second ABC zigzag corrective wave pattern is complete, it is possible that a third corrective pattern could develop creating a more complex combination wave pattern. However, triple combinations are rare and is not expected, but we should be aware of this possibility. Look for signs of the resumption of the upward trend before taking action.


In conclusion, GLD has been undergoing a bull market correction from mid-March 2008. This market correction appears to be on its last leg down with the starting of wave C of the second ABC zigzag combination wave pattern. The target price for the completion of wave C is $65. Once wave C has reached this target price, the resumption of the bull market trend in gold should resume. However, be aware that wave C could end sooner or later than the calculated target price. Finally, should this market turn upward from its current price level, it would be a sign that wave B is either not complete or our analysis is incorrect and the bull market has resumed.




Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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Date: 12/29/08Rank: 4Comment: 
Date: 12/30/08Rank: 5Comment: This is a clear application of Elliot wave theoretics and can be compared with the real price action.
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