XAUUSD 12M 1. Elliott Wave Structure Overview
Wave 1 to Wave 5 (Impulse Waves): The chart outlines a classic five-wave impulse structure, indicating a long-term uptrend for XAU/USD. This sequence suggests a series of strong moves up, with each wave climbing to higher price levels.
Wave 5 Completion: The fifth wave appears to have reached its final stages, potentially signaling the invalidation extension above Wave 5 if the price moves higher than 3,187.83. This marks the end of the impulsive phase and could lead to a corrective phase (A-B-C pattern).
2. Corrective Phase (A-B-C Waves)
Wave A (Initial Decline): If Wave 5 is complete, we may see an initial decline in prices, marking the start of Wave A in the corrective phase. This move typically retraces the preceding impulse and could lead prices toward lower support levels.
Wave B (Corrective Rally): Wave B is often a short-lived rally within the larger downtrend and may present a false breakout or inducement for retail traders. This rally can lure traders into buying prematurely, only for the market to resume its decline.
Wave C (Continuation of Decline): Following Wave B, Wave C typically resumes the downtrend. This final corrective wave might present a significant buying opportunity as it reaches strong support levels, such as the Point of Control (POC) around the 1,400.00 area, a common zone of equilibrium in the market.
3. Key Fibonacci Levels and Their Importance
0.618 Retracement: Fibonacci retracement levels like 0.618 are crucial for identifying support zones during corrections. This level, marked at around 890.62, is annotated as MUST NOT PASS WAVE 1 INVALIDATION, indicating a strong support area in the corrective phase.
1.236 and 1.618 Extensions: The 1.236 and 1.618 Fibonacci extensions are key indicators of possible trend exhaustion. Specifically, 1.618 at 2,778.78 is noted as the potential maximum for Wave 5, signaling an area of volume divergence where momentum might start to weaken.
4. Volume Divergence and Implications
Divergence in Volume on Wave 5: A decrease in volume while prices continue rising (volume divergence) in Wave 5 implies that buyer momentum may be fading. This could be a signal of an upcoming reversal or correction phase, aligning with the start of Wave A in the corrective structure.
5. Break of Structure (BOS)
Key BOS Levels: Break of Structure (BOS) marks areas where the market structure changes direction, signaling potential trend shifts. For example, BOS MSS Wave 1 (12M) indicates a structural shift in the first wave that could influence future trend changes.
BOS in Wave 3 (Potential Trend Shift): The BOS in Wave 3 may guide the corrective phase. If these BOS levels hold, they serve as critical areas of support or resistance during corrections, guiding potential entry or exit points.
6. Price Levels of Interest
Point of Control (POC): The POC, a high-volume node around 1,400.00, represents a point of interest and a key equilibrium area. In corrective phases, prices often return to this level, serving as strong support and a potential buy zone.
Premium and Discount Zones: The chart uses premium and discount zones to signify favorable buying and selling areas. The discount zone reflects levels where prices are seen as relatively low, and a buy opportunity might arise. Conversely, the premium zone signals overbought conditions and potential sell opportunities.
7. Market Psychology and Retail Traps
Inducement and False Breakouts: Terms like inducement Wave 4 (12M) highlight areas where retail traders may be led to buy or sell at suboptimal times. The fake breakout in Wave 4 suggests that traders might be lured into taking long positions, only for the market to reverse downward.
Markup Phase (12M): The markup phase typically occurs when institutional players drive prices higher, accumulating positions at lower levels before pushing the market up. The return to the flip zone indicates where institutional interest often lies, triggering rallies as it becomes a point of interest.
8. Next Week’s Trading Plan
Based on the analysis above, here’s a structured plan:
Primary Strategy: Seek short-selling opportunities if the chart is entering Wave A of the corrective phase, with the expectation that the market may decline in the short term.
Target Levels:
Wave A Support Zone: Watch for reactions at the 0.618 retracement level, around 890.62, which is annotated as a must-not-pass zone for invalidation. This area could attract buying interest if the price dips.
Wave B Resistance Zone: If Wave B forms, consider this a temporary rally. Short positions might be ideal if the price reaches the premium zone, signaling overbought conditions.
Wave C Completion: Look for a significant buy zone if prices reach key levels, such as the Point of Control (POC) near 1,400.00, marked as a point of interest and equilibrium zone.
Risk Management: Place stop-loss orders above the invalidation extension above Wave 5 at 3,187.83 to control risk if the wave count is proven wrong.
Volume and Price Action: Monitor volume spikes and price action during corrective moves to confirm trend reversals or trend continuations.
Summary of Key Points
The analysis suggests that Wave 5 may have peaked, with a corrective A-B-C structure likely to follow.
The corrective phase provides potential sell opportunities in Wave A and B, while Wave C could mark an ideal buy zone.
Use premium and discount zones to identify favorable buying and selling areas, and watch for retail traps like inducement and false breakouts.
Equilibrium areas like the POC (around 1,400.00) serve as potential support zones for longer-term buy positions.
