Continued Reaction Back Into The Trading Range

Not much new to report after this past week….

For the last month we have given the continued reasoning to expect a reaction back into the recent range.  The price and volume action has been very slow and in a tight range.  We have had a slight deterioration in price and we are trading right below the recent top of the range.

While the Wave has shown some price weakness, the Technometer has stayed locked in a neutral reading.  We feel there is still the risk of more downside price action this coming week.

As we have continued to discuss the last few weeks, the numerous rallies to “Z” appeared to happen with shortening thrusts, and lower price spread and volume.  This type of action is not consistent with a Sign of Strength.  Not expected…but this pullback could possibly be a Last Point of Support (LPS), but our current indications is this is not true.  If strong demand returns this week with accompanied volume, we will re-evaluate this possibility.

The S&P and Nasdaq Indices were both up for the week, and stronger than the Wyckoff Wave.

This past weeks action still supports the fact that the recent rally to “Z” is simply a rally to test the resistance at the top of the trading range.  We therefore expect a correction back to the middle or lower portion of the recent trading range, and wait for ending action once again.  Currently the supply at the top of the trading range has not been sufficient to turn the Wyckoff Wave aggressively back into the trading range.

The Optimism – Pessimism Index touched a recovery high in Friday’s trading with the Wyckoff Wave lagging considerably.  We feel that this is a meaningful divergence and could lead to more downside this week.  The following chart shows the O-P at new highs early Friday, with the price at bottom end of the recent range.  Everything to the right of the blue vertical line is Friday’s intra-day action.  We also have our stop level shown on our recent short positions at the 44,000 level.

The moderate negative readings from the Force Index has supported the idea of a correction here.  The Force Index is at -187 which is applying some downside pull on the Wyckoff Wave.

The Technometer has had continued neutral reading all week and adds nothing new to the picture.  A rally here would return the Technometer to an overbought reading rather quickly.

The recent trading action still supports the reaction scenario back into the middle of the recent trading range at “U”.

While the Wyckoff Wave will most probably not be putting in a Last Point of Support on any expected reaction here.   If strong volume would come into the upside here, this scenario would have to be back on the table.

Good Trading,

Todd Butterfield