The Stock Market and The News

Click Here For Wyckoff Wave Chart 09-27-2013

It would appear, that this week, a possible government shutdown is going to have a considerable impact on the stock market, one way or the other. Democrats and Republicans continue to make the people’s business less important than their never-ending battle with each other.

The threat of a government shutdown will have a significant impact on our country, and for traders and investors, will move the stock market sharply in one direction or the other.

If a last minute deal is made to avoid a shutdown, the market will probably rally. If the market rallies, it will be important to look at the rally’s quality. If the government  shuts down, we can probably look at a sharp reaction.

One of the core Wyckoff principles is not to pay attention to the news, but to analyze the market’s price spread and volume. Wyckoff guru Robert Evans often said “the news will not establish market direction. It will simply take the market, where it is already going. It will just get there faster”. I expect this will be happen in the next couple of days.

So, where is the market going? A little over a week ago the Wyckoff Wave jumped the Creek and appeared ready to continue the bull market. It immediately ran out of steam, supply returned and the Wyckoff Wave moved back into the trading range. Last week’s post discussed whether we were having a Jump across the Creek or an Up thrust.

Either way, the poor quality market day just before point A was a signal that short-term bears could take positions to the downside. The daily report suggested subscribers could take short-term positions to the downside.

The market then reacted. It also moved into an oversold position on the Technometer. More importantly, a short-term positive inharmonious action and an intermediate term positive divergence appeared when comparing the O – P Index to the Wyckoff Wave.

This, in addition to the relatively reducing price spread and volume, suggested the Wyckoff Wave was headed for a Last Point of Support.

This was an interesting area. The short-term bears were continuing to hold positions. At the same time the Wyckoff Wave was approaching a potential last Point of Support. Therefore, it was also time for the short term bulls to investigate potential opportunities to the upside.

Friday was an important day. The Wyckoff Wave reacted sharply on increased price spread and slightly reduced volume. This suggested there was a lack of demand. If we were seeing a Last Point of Support, strong demand would have come into the market.

It also placed the Wyckoff Wave just above the far bank of the Creek. A reaction this deep into the Creek area suggests the Wyckoff Wave could easily fall back into the trading range. Wyckoff students would then look for new ending action. Putting national events aside, the market would be expected to react further on Monday.

Naturally, as supply appeared early on Friday, the opportunities to the upside were eliminated as the Last Point of Support scenario disappeared. The bears who have taken positions just before point A, simply continued to enjoy profits.

While there appeared to be opportunities to the upside, Friday’s market action eliminated them and the bulls were now forced to wait for new opportunities to the upside.

Not only is the Wyckoff Wave just above the back edge of the Creek (line drawn from point U through points W and W – 1, but it is also just above the halfway point of the rally from points Z to A.

If the bad news appears to him on Monday, in all probability the Wyckoff Wave will move sharply below these support areas. It will then have an opportunity to test the support at the bottom of the trading range (line drawn from point Q).

The Wyckoff Wave could rally off the support or, it could spring the trading range and produce the long-awaited for ending action.

While there are several possible scenarios, while it is important to thoroughly consider each one, in the end the market will provide good clues and ultimately the answers.

One positive note is that events will probably be the catalyst to take us there faster and sooner.