Did The Wyckoff Wave Jump The Creek?

Click Here For Wyckoff Wave Chart 11-01-2013

This week the Wyckoff Wave pushed through the point U – A resistance line at the top of the trading range, shown on the daily chart. While this must be considered a “jump across the Creek”, it was not done so in the traditional manner.

A jump across the Creek normally consists of wide price spread and noticeably increased volume. While Monday’s price spread was wider, the volume was only slightly increased and was not relatively high compared to the volume experienced during the past two weeks.

There was good follow through on Tuesday as the Wyckoff Wave tested the supply line of the new short-term up trend channel. The channel consists of support line Z – B and a parallel supply line drawn through point A. It appears in blue on the daily chart.

So far, the test has been successful, as the Wyckoff Wave has moved sideways for the last three trading days. In each of these three days it has attempted to rally and test the supply line. Every day supply has come in and stopped the advance.

Did the Wyckoff Wave really “jump the Creek”? The answer has to be yes. While the Wave did not do so in classic fashion it moved into new high ground and there was some follow through. Supply did not appear until Wednesday. This would eliminate the upthrust scenario.

When there is a “Creek jump”, in almost every case there is a reaction back to the old resistance, now support line. That is the “backup to the Creek”. This is a reasonable scenario if:

1. The Wyckoff Wave reacts on reduced price spread and volume.
2. The Wyckoff Wave finds support in the area of the 38,000 level.

That scenario is extremely bullish as the Wyckoff Wave will put in a Last Point of Support. The drying up supply opens the door for a strong advance to the upside.

If the Wyckoff Wave reacts on good supply, which is demonstrated by wider price spread and higher volume, the Wyckoff Wave can fall back into the trading range and continue it sideways movement.

There is one other possible scenario. For the past three days, the Wyckoff Wave has moved sideways. It has experienced both supply and demand. Volume has remained consistent and slightly on the high side. This is an indication we are seeing some absorption. This rolling over can certainly take the Wyckoff Wave to either one of the two reaction scenarios described above.

However, if we see continued sideways movement or a very slight reaction, this could mean supply has lost the absorption battle and the Wyckoff Wave is prepared to quickly advance.

When considering each of these scenarios, it is also helpful to look at the Wyckoff tools. The Technometer has moved from a solidly overbought condition to a low neutral condition. At the same time, the Wyckoff Wave has moved sideways.

The Force Index while reacting slightly, is still producing reasonably low negative numbers. This is a positive indication. In addition, it is in a positive divergence with the Wyckoff Wave when compared to point B.

The Optimism – Pessimism Index, which is an index of Wyckoff Wave volume, is in harmony with the Wyckoff Wave. Earlier this week it was noticeably stronger than the Wyckoff Wave. In a bull market, the O – P Index has a tendency to lead the Wyckoff Wave, as buyers are rushing to get in on the action.

Over the last three days, as the Wyckoff Wave moved sideways, the O – P Index reacted. This is another indication of absorption and shows that supply continues to be taken in and the Wyckoff Wave remains strong.

If the Wyckoff Wave reacts puts in a Last Point of Support, the 100 Point & Figure chart will begin to reveal some interesting objectives.

Looking at the Wyckoff Wave from point Q shows large gaps between support levels. This strongly suggests that figure counts be taken in phases. Phase 1 would be from the S Point of Support to point B. Phase 2 would be from B to Z. Phase 3 from Z to X and so on over to point Q. If there is a Last Point of Support, the counts will be examined in more detail in future Market Letters.

A quick look at the Wyckoff Wave ‘s weekly chart shows the Wave is already testing the long-term supply line of its up trend channel. This channel has remained in place since the bottom of the 2008 – 2009 bear market. In that time it strongly only weakened the supply line once. That was two years ago in August, 2011.

Back then, the Wyckoff Wave sprung the trading range at point B. There was a Sign of Strength to point C, which included a jump across the Creek. There was a reaction for a Last Point of Support to point D. Then the Wyckoff Wave rallied strongly to point G before reacting and starting a new trading range at point X.

Is the same thing happening in 2013? This week may bring us some clues to that extremely important question.