Up or Down?

Click Here For Wyckoff Wave Chart 02-14-2014

This past week the Wyckoff Wave after rallying off point T on the weekly chart, continued its nice move to the upside.

It ended the week testing the supply line of the long term up trend channel.

As you can see on the attached weekly chart, the price spread was slightly lower than the prior week and volume was decreased. This suggests a lack of demand.

This, along with the Optimism – Pessimism Index’s is negative divergence with the Wyckoff Wave and an extremely overbought Technometer, continue to suggest the Wyckoff Wave is ready for a reaction. However, the overbought Technometer is mitigated by an extremely strong Force Index. This may reduce the depth and length of any reaction. Or, the Wyckoff Wave may simply move sideways.

Still, the relative strength of the market continues to move the Wyckoff Wave higher. What is interesting is that after reviewing the daily an intra-day charts, little supply is appearing and, even when it does, the supply is not sustained.

At week’s end of the intra-day trend of the market was up, but in an oversold position. The short-term trend of the market, which was neutral, has been changed to up. The intermediate and long-term trends of the market continue to be up.

All this continues to indicate the market trends are extremely positive. The question is about the timing of the next short-term reaction.

It also begs the question as to whether point T was a Last Point of Support. While the widespread and increased volume makes it difficult to justify, the unexpected strength of this week’s rally should have every Wyckoff student examining and re-examining every option.

What are these options?

1. Point T could be a Last Point of Support and the Wyckoff Wave is already in the process of beginning a new mark up phase.

If this is going to happen, in the coming week the Wyckoff Wave will rally on wide price spread and volume. It will move strongly past the old highs at point S and another stage of the bull market will begin.

Even though, the Wyckoff wave has put into a solid move to the upside and little supply has yet come into the market, this seems to be the least likely scenario.

Most importantly, a Last Point of Support is created by a reaction on reduced price spread and volume.  That didn’t happen and justifying this scenario would be contrary to Wyckoff discipline.

The Wyckoff Wave is now entering the sideways movement that began a few weeks before point S and now should experience some resistance. The internals of the move from point T have not been particularly strong and this resistance could stop the Wave’s upward momentum.

2. The Wyckoff Wave will react on reduced price spread and volume. It will retest the lows at point T and put in the previously expected Last Point of Support.

This past week’s rally substantially reduced the probability of this scenario. It was initially suspected that the Wyckoff Wave would rally briefly off point T and then react on reduced price spread and volume. It would then move slightly lower than point T and put in that elusive Last Point of Support. As the Wyckoff Wave has almost returned to test the January highs, the probability of this scenario is greatly diminished.

3. The high volume at point T was somewhat climactic in nature and we are beginning a new trading range. The trading range could end with an upthrust or spring which would indicate the market’s next intermediate-term move.

A review of this past week’s Wyckoff Wave is giving this scenario the best probability of success. The rally from point T has exceeded the halfway point of the previous reaction. This past week’s lack of demand and the negative indications from the Wyckoff indicators make it difficult to conclude scenario 1 will succeed and the Wyckoff Wave will move into new high ground.

If the Wyckoff Wave is unable to strongly move past point S, there is a strong probability it will react back to test point T. This would create the trading range and the Wyckoff Wave would move sideways waiting for ending action.

Based on the relative strength of the market, this is more of a dilemma for short term traders. Intermediate and long-term traders who have established positions or took new positions on the reaction to point T should sit back and watch what happens. There is no need to close any long positions at this time.

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