XAU – corrective wave ( iv ) down needs one more push lower
The Philadelphia Gold and Silver Index is an index of 30 precious metal mining companies that is traded on the Philadelphia Stock Exchange. The index is represented by the symbol “XAU”.
XAU may have a cleaner picture because its values in not affected by dividend distributions made by GDX and GDXJ, ETFs investing in gold and silver mining companies.
On the chart we can see an unfolding Five Wave up fractal.
Note that A of 3 stopped at 176.4% ext. That is a typical extended wave A of 3 for trending commodities like gold or crude oil.
Now some magic of numbers. Multiply 176.4% by 2 and you get 352.8%
352.8% is exactly where subwave C of 3 topped!
Moreover, it is extremely important to use projections of subwave A of 3 to predict where subwave C of wave 3 may top.
In this case 176.4% ext almost nailed the top!
Once we have enough confirmation that the top of wave 3 is in we should immediately add retracements of the rally started at the low of wave 2 down and topped at the top of wave 3.
A “normal” wave 4 retraces 41.4%-44.1%-50% of preceding impulsive move in wave 3.
Sometimes it gets deeper into 61.8% retracement
If it goes past 61.8% it becomes very close to invalidation of the count.
So far we can see a textbook looking corrective (a)-(b)-(c) move down off the top made by wave 3 up.
subwave ( a ) down looks perfect!
subwave ( b ) up has a textbook a-b-c internal structure and looks perfect!
subwave ( c ) down looks too short for me!
Normally in any corrective (a)-(b)-(c) structure the fina subwave ( c ) is longer than teh starting move in subwave ( a ).
Two most common extensions for subwave ( c ) in a corrective (a)-(b)-(c) structure is 109.2% of ( a ) or 123.6% of ( a ).
So far that ( c ) down has made less than 100%!
That makes me suspicious about that subwave ( c ) down.
If I get suspicious what I always should do is to check its micro structure.
How I check its micro structure?
I zoom-in and open a chart of a lower timeframe. Below you can find a 15min chart of XAU where you can see more details.
XAU - 15 min chart updated on 10-5-2019
Let me remind you how the Simple Zig-Zag corrective pattern looks like. That fractal has two main subwaves, A and C, and both have to have impulsive structures.
That means the final move down in subwave C down has to be subdivided into five micro waves.
Lets zoom-in to 15 min chart to count five micro waves composing the final subwave ( c ) of ( iv ) down in XAU:
Simple Zig-Zag Corrective fractal
On the 15 min chart below you can see that subwave ( c ) down really lacks the final drop in a micro wave v down.
I added a Green Target box where I will be a buyer of GDX/GDXJ and probably even triple ETFs like NUGT/JNUG. Because after wave ( iv ) down is completed we should expect a new rally in wave ( a ) of ( v ) up targeting the previous top made by wave ( iii ) up.
Does that mean it HAS to happen. No! Price does not have to follow fractals all the time. The whole idea of fractal forecasting is based on assumption that if price has perfectly followed some specific fractal long enough you can assume it will keep following it up to the point of completion!
But quite often price does something unexpected violating a seemingly perfect fractal. So that is not 100% bullet proof forecasting method.
If you find the one please let me know!
XAU - 15 min chart updated on 10-5-2019
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