Continued Sideways Action

Tuesday, January 3, 2017
What To Do?
Short Term
Short-term bears should hold short positions and use stops at last Wednesday’s highs.
Short-term bulls should be looking for long candidates and be prepared to act.
Intermediate & Long Term:
Intermediate and long term positions to the upside should be maintained.
There are no intermediate or long term opportunities to the downside.
Market Trends:
Intra-day: Neutral
Short Term: Down
Intermediate Term: Up
Long Term: Neutral
The stock market, as measured by the Wyckoff Wave, had a gap opening and continued higher for the first 40 minutes of trading.  It then quickly reacted back to unchanged for the day, before experiencing another rally into the close.  Volume was higher today, but was expected with the holiday trading behind us.
The Wyckoff Wave closed higher on the day, and the price spread and volume showed some demand present.
The Technometer is registering a neutral reading, after registering oversold during the middle of the trading session.
The Nasdaq and S&P 500 was both up .85% today.

A review of the intra-day waves shows some interesting divergences.  The rally at the opening did not much have much volume behind it, and you can see that the O-P then quickly reacted back to minus for the day.  It appears selling was present in the morning and into the late afternoon, as prices were being supported by strong hands.  This is shown with the small blue arrows.  Then on the rally into the close, the O-P responded nicely to the upside.  All this also happened as the Technometer was registering oversold readings around 38-39 during the late afternoon.
The Optimism-Pessimism Index closed slightly higher.
The Force Index closed slightly higher as well.
On Wednesday, the Technometer will open in a low neutral condition.

Today, the Wyckoff Wave traded higher on a slight increase in volume.  So far the reactions we continue to experience are very shallow in nature, and we was expecting this one to run a little deeper and some volume to come in.   That did not occur, and today’s rally was encouraging for the bulls.  We must see more positive action in the days ahead, to confirm the bullish action.
We should not see Wednesday’s highs again for this short-term correction to continue.  If the Wyckoff Wave can continue higher here then that would be a bullish scenario.  The Technometer has returned to neutral levels and registered an oversold reading during the midday correction.  We think today’s lows are important for both bulls and bears.  If they are breached it would be a signal that there is more correction to come for the bears.  For the bulls this area should be used as a stop level if long positions get entered.
As we mentioned Friday, the alternative scenario is that we are backing up to the previous highs for a Last Point of Support.  For all the reasons we have mentioned over the last few weeks, we see this as a very low probability.  But we are always aware of alternative scenarios, and today’s action kept this alternative on the table.
As we have been continuing to acknowledge, the rally from “S” to “Z” did not have the volume and price spread we was expecting from a Jump Across The Creek, but appeared more as a test of the upper limits of the trading range.   The days ahead will be important…
 

Good Trading,
Todd Butterfield