Where Do We Go From Here? – A Longer Term View

Click Here For Wyckoff Wave Chart 09-11-2015

Last week’s post discussed a possible Secondary Test of the Selling Climax at point Q on the daily chart. The Wyckoff Wave is still working that out, but this past week’s market action continues to suggest the Secondary Test will be successful.

A Secondary Test would signify the beginning of a sideways movement and an important trading range that would lead to the next significant market move.

As the Wyckoff Wave works the Secondary Test scenario out, this is an excellent time to step back and look at the stock market from a longer-term view. To do that, let’s go to the weekly chart.

In 2008 – 2009, the stock market went rhrough a significant bear market. In March, 2009, the Wyckoff Wave reached a low of 13,975. That low does not appear on the weekly chart as the charting service data only goes back to April 1, 2009.

There was no climactic action associated with the low. The Wyckoff Wave simply rallied and adjusted its significant oversold position. In fact, it took over year before the Wyckoff Wave went into its first definable trading range and began a quantitative advance. This period of accumulation began at point A on the weekly chart.

The Wyckoff Wave then experienced three more areas of re-accumulation. Then, in May 2014, it arrived at point X. Initially, this appeared to be the beginning of another re-accumulation period. We even saw a shakeout at point A. However, once the Wyckoff Wave moved into new high ground, at point B, it simply moved sideways.

While it stayed in its long-term uptrend channel, the Wyckoff Wave was reaching, at least for now, the end of its long advance from March 2009. It had more than tripled in value and apparently was due for some sort of the reaction.

This was difficult to predict as not only did the Wyckoff Wave exhibit overall relative strength, but it did not go through any kind of ending action that usually precedes declines. The Wyckoff Wave reacted, through several support points and did encounter some support, on its way to point L

While point L certainly appears to be a Selling Climax, the move down from the highs at points B and F are also a normal corrective reaction. It should also be noticed that the Wyckoff Wave held at the halfway point of the rally from point H to F. It is also substantially above the halfway point of the entire bull market.

It would appear that this reaction and Selling Climax gives the Wyckoff Wave an opportunity to begin a new, more defined phase as it fills a count towards its next significant move.

As I mentioned in an earlier post, too many weak hands were in the market and they need to be shaken out so the stronger hands, who would ultimately decide the markets destination, could take control. That appears to be what is happening.

There is also a good possibility that the next move will be to the upside. The Optimism – Pessimism Index is an extremely valuable tool, especially when studying at the market from an intermediate or long term perspective.

I often refer to my hand-drawn charts, which contain the Wyckoff Wave’s performance during the bear market. Before the bear market began there was a significant negative divergence between the capital O – P Index and the Wyckoff Wave. The end result was the bear market.

I have inserted the capital O – P Index below the weekly chart. There are two letter, A and L, on the O – P Index portion of the chart.

The O – P Index has been in harmony with the Wyckoff Wave throughout this entire bull market. However, compare the two during this recent corrective reaction to point L.

The O – P Index, which has been relatively stronger than the Wyckoff Wave, remained that way on the corrective reaction. While point L is noticeably lower than point A on the Wyckoff Wave portion of the chart, it is higher on the capital O – P Index. This suggests the results of the Wyckoff Wave have exceeded the effort put in by the O – P Index. This would be expected in a normal corrective reaction.

Unless the O – P Index become substantially weaker, we can most probably expect to see a period of accumulation, ending action and a new move to the upside. Him him him