Gold miners are approaching a very strong resistance

The PHLX Gold/Silver Sector Index (XAU) is a capitalization-weighted index composed of companies involved in the gold or silver mining industry.

The decline off the top made in August 2016 looks corrective. It is subdivided into waves (A) down, (B) up and, finally, (C) down. The wave (C) down should be subdivided into five waves of a smaller degree. The structure off the top of the wave (B) up does not look completed. The bottom made in September 2018 really looks like a bottom of the wave 3 down and the subsequent rally has a corrective structure and may be counted as wave 4 up. As you can see, that corrective wave 4 up is quickly approaching a meaningful resistance at 76.57. That level stopped decline six times in the past. Most likely that support now will turn into a strong resistance. In addition, we have a down trendline that only makes resistance at this level stronger. I would not chase the miners here. If it manages to break that resistance most likely it will come back to retest that level from above. However, I think XAU will not be able to break it from the first try.

XAU index - daily chart updated on 31 January 2019

However, ES reached to 2,677 this Friday which is 114.4% extension of wave ( a ) off the low. That could be a nice topping area because it stopped one step away from the critical resistance at 2,685. As long as we stay under that level the bearish count is alive.

Let’s discuss what would be the consequence of potential violation of that resistance. That would mean invalidation of the bearish count. Meaning that probability of getting another lower lower low under the December 2018 bottom would become very low.¬†

Under that alternative bullish scenario (see the green count on the chart below) that (a)-(b)-(c) move off the low would  be wave ( i ) up of a new rally or wave A of a larger corrective wave ( B ) up of ( 4 ) down. Under that scenario ES may keep grinding up to 2,700 which is 123.6% extension of the wave ( a ) up. That would violate that critical resistance level at 2,685 making bears panic and finally run their stops. But even under that scenario that spike over the resistance would be short lived. We should later see a pullback to the green target zone drawn on the chart below.

ES-mini - 120 min chart updated on 19 January 2019