Small Waves Can Set Up Important Movers In The Other Direction

Click Here For Wyckoff Wave Chart 12-05-2014

Sometimes, the stock market is sending a signal that it may be ready to make a short-term move in a particular direction. That minor move may also be in preparation for a more significant move in the other direction. That phenomena may be happening now.

While it is never over (confirmed) until the fat lady sings, she may be warming up.

Let’s review this possible scenario by looking at the Wyckoff Wave from both an intra-day and daily perspective.

On the intra-day chart, the Wyckoff Wave moved sideways and in intra-day trading range. The range, which does not completely appear on the intraday chart, is within the red horizontal lines.

After a quick rally to point U, the Wyckoff Wave reacted sharply through the support line and down to point V. This was an intraday Sign of Weakness (SOS).

The Wyckoff Wave is now attempting to rally back towards the trading range. If it is unable to return to the range and reacts again, this will confirm an intra-day Last Point of Supply (LPS). This will not be confirmed until the Wyckoff Wave reacts past point X.

For the purpose of this analysis, an assumption is made that the move to point B is the actual Last Point of Supply. That is not confirmed, but we will use that in this scenario.

This would allow us to establish a short-term objective on the 100 Point & Figure Chart of between 43,000 & 42,600. This is based on a count of 10 squares (1000 points) along the 43,600 line. The count is drawn in the attached Point & Figure chart.

While this is not confirmed and the count may change as a result of next week’s market action, based on these assumptions, it is reasonable to develop this general scenario.

Where is 42,600 on the daily Vertical Line Chart? Interestingly, it is right at the top of the trading range on the daily chart (line drawn from point B). This is also the near edge of the creek. The exact top of the trading range is 42,466

It is also reasonable to conclude that the move from the shakeout at point E to point R was a sign of strength. While shakeouts or #1 Springs are almost always tested, that didn’t happen in this case. The strong move off the shakeout cannot be ignored and, in its entirety, must be called a Sign of Strength.

When a stock or index has a Sign of Strength, it is followed by a reaction for a potential Last Point of Support. The reaction off point H certainly appears to be the beginning of that move.

While it is not automatic that a reaction off a Sign of Strength always results in a Last Point of Support, the lack of sustained supply suggests there is a fairly high probability that the Wyckoff Wave will put in a Last Point of Support.

This is supported by the count on the 100 Point & Figure Chart.

To put in a successful Last Point of Support, the Wyckoff Wave should either hold above the near edge of the creek or not fall into the creek much past the halfway point between the two banks. The far bank of the Creek is the line drawn from point L through point X. The exact position of the back edge of the Creek is 42,459.

If this scenario plays out, and only the market will answer that question, the Wyckoff Wave would be putting in an important Last Point of Support. This would change the short and intermediate trends of the market from neutral to up and signal that the Wyckoff Wave is moving into a new mark up phase in this wonderful bull market.

This will all be for naught if supply comes into the market and drives the Wyckoff Wave back into the trading range. Then we would simply continue the sideways movement and wait for new ending action.

The Wyckoff Wave is showing intra-day weakness, but this may be a set up for a new sustained move to the upside. That’s what makes the market fun to watch.

Stay tuned. The coming week could provide some interesting answers.