Looking for test of lows…

Click Here For Wyckoff Wave Chart 01-28-2016

Short Term:

There are no opportunities to the downside

Short-term bulls should continue to consider new opportunities to the upside. However, they should not be taken until a successful test of the trading range lows is confirmed.

Intermediate & Long Term:

Intermediate and long-term bulls should maintain existing positions.

There are no intermediate or long term opportunities to the downside.

Market Trends:

Intra-day: Down

Short Term: Down

Intermediate Term: Down, but weakened and in an oversold position.

Long Term: Neutral

The stock market, as measured by the Wyckoff Wave, traded higher on decreased volume. It closed in the upper half of a narrower price spread, in a neutral condition relative to the Technometer. The price spread and volume suggest a lack of demand.

A review of the intra-day waves confirms the above. After a wide gap opening to the upside and a brief 5 min. follow through, supply came into the market as the Wyckoff Wave tested the intra-day down trend channels supply line at point W.

The reaction took the Wyckoff Wave into an oversold position, relative to the trend, at point X. A brief rally and a successful test of point X, at point Z, indicated supply had dried up. This gave the Wyckoff Wave an opportunity to rally.

So far, that rally has been of poor quality, featuring a lack of demand. After one strong intra-day wave to the upside, the Wyckoff Wave spent the last three hours and 10 min. of the trading day making little progress to the upside.

While the Wyckoff Wave may again test the channels supply line, the lack of demand suggests another reaction to test the lows at point X and even point H.

It was also significant that, after the initial strong down wave off point W, supply dried up. During the afternoon supply had ample opportunity to return to the market, but did not.

This lack of supply, at a time when supply should have come into the market, suggests the test of the intra-day lows has a good probability of success.

The Optimism – Pessimism Index reacted. It is in the lower portion of its upward trend channel. It remains in a short-term positive divergence with point U and a longer-term positive inharmonious action with point Q, when compared with the Wyckoff Wave.

The Force Index rallied. It is still producing high negative readings.

Tomorrow, the Technometer will open in a neutral condition.

Today, the Wyckoff Wave put in a poor quality rally. It briefly and very slightly weakened the short term down trend channel.

This suggests the Wyckoff Wave will have another opportunity to test the lows at points G and Q.

It also dramatically reduces the success probability of the Sign of Weakness and Spring scenarios. In both cases, a strong follow-through, to the downside, from yesterday’s market action would’ve been expected.

The O – P Index observations from yesterday have not changed. The Force Index, which probably had an impact on the poor quality rally off point G, is still producing high negative readings. However, it has been rallying for the last five trading days.

It is also important to note that the rally off point G lasted two days. So far, the subsequent reaction has lasted four days.

These factors continue to give the successful test of the bottom of the trading range scenario a good probability of success.

Charts of the Wyckoff Wave are attached.