Continuing on from post #5419, we can now see Gold is reversing out of the 'typical' retracement zone after completing a 3-wave correction. The EW mantra is validate or invalidate. Whilst prices continue to trace out their expected pattern we have no reason to doubt the analysis and expect the patterns to continue to unfold. However, we need to know what's to be expected in order to be alert for invalidation.
So far we have:
- A strong impulse off the the Sep 11 lows.
- A 3-wave counter trend move
- A retracement into the 'typical' wave-2 or -B zone
We're still not to know if this is a wave-3 of a new trend higher or part of a larger corrective pattern. Firstly it doesn't matter because we're still afforded a trading opportunity, and secondly we can deduce what should happen from here if proven correct but also be aware at what point things are going wrong.
If this is a wave-3 we should trade straight higher with minimal wiggling and ideally we should shoot straight through the $1013 level. That level is defined by measuring the length of wave-1 or -A and adding it onto wave-2 or -B. Therefore $1013 is the minimum length a wave-3 will take and likely to be the maximum length that a wave-C will take, Therefore, if prices reverse off $1013, or thereabouts, then chances are we have a larger A-B-C pattern and not a new impulse which then means prices will fall again.
However, if prices zip straight through $1013 then we're certainly trading in a wave-3 impulse and continue to expect higher prices. Note to the left of that $1013 high we have the major highs? This to me adds some weight that a stall may occur, so if one is long one would be tightening up stops as that level is approached.
The other important level is the Sep 18 highs labeled here as wave-1 or -A. Note the high volume and weak closes? This means sellers and therefore adds a slight risk of a reversal and possible failure of the pattern.
That said until we're proven wrong we should expect prices to continue through to $1013 but the style in which that happens and how prices react at that high are also important indications for the next pattern.
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