Gold and oil pausing their declines
Gold and crude oil might see a respite from the declines of recent weeks, as there are opportunities nearby for modest sideways/upward corrections in both markets. This could be an environment for some to look for countertrend trades, while slower paced commodity bears might view the next one to two weeks as a setup for stronger downward moves in late March and April.
After our previous post covering these markets, gold followed the plan by sinking to test 1,862. It then continued lower than we expected, although our next support near 1,840 would have been another good place to exit a short trade.
On a daily chart (not shown) gold appears oversold. From an Elliott wave perspective it's possible to count five completed waves in the downward pattern that should comprise wave 'a' on the chart below. We believe the fifth wave subdivided as it extended lower. With a possibly completed impulse down, we next look for signs of a sideways or upward correction that should consist of three small waves. It might already have begun.
If price has found its footing, then nearby targets for the first move up include 1,835, 1,840, and 1,851. That should precede a "correction within a correction" as small wave [B] tries to test one of the supports shown. Keep in mind that wave [B] can reach a little bit lower than the previous low, so 1,803 could be a valid target for the dip.
We think the pending wave 'b' is likely to make a shallow upward retrace into the territory covered since the wave (iv) high, and our preferred target zone is between 1,858 and 1,874 as shown. However wave 'b' can reach considerably higher without invalidating the wave count.
After the corrective pattern 'b' is complete, we expect a fairly strong downward wave 'c' of (v) of [c] with a preferred target zone of 1,550 to 1,524 to finish the decline.
Crude oil is tracing a formation similar to gold's in the near term, although it may be a little bit ahead of gold in the maturity of its correction. The danger here for many market participants will be to regard last week's higher low as the sign of a real bullish reversal. We believe the higher low instead represented just the first sub-wave of a bigger downward pattern. This would be consistent with the idea of middle wave [III] extending and subdividing in a manner similar to what happened with gold.
Going into this week we're watching for nearby support starting at 74.95 and possibly including 74.44 and 73.37. From there, we'd like to see the corrective wave (II) finish closer to the area of 77.44 or the zone near 79.00.
The next downward phase should be fairly strong, as it will represent the third (middle) wave inside a larger third wave. Our preliminary target for that move includes the area from 70.66 to 70.47 and the area from 69.64 to 69.40. In a larger view our preferred support area for the completion of the entire decline is near 57.70 with other possible supports also shown on the weekly portion of the chart.
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