A Step Back View of the Market

Click Here For Wyckoff Wave Chart 04-05-13 

This week the Wyckoff Wave attempted to leave the X – Y trading range to both the upside and the downside. As of Friday’s close, both of these attempts failed.

In addition, neither effort appeared to be ending action, in the form of an upthrust or a spring.

Last Friday the Wyckoff Wave left the trading range to the upside. However, Monday’s market action showed a lack of demand and good supply came into the market on Wednesday driving the Wyckoff Wave back into the trading range. The lack of demand illuminated the upthrust scenario. It was simply too soon for the Wyckoff Wave to leave the trading range and it simply returned and waited for some sort of ending action.

Did that ending action occur on Friday when the Wyckoff Wave briefly penetrated the support at the bottom of the trading range? If so, Friday’s market action could be called a spring.

However, there was a major gap opening to the downside and the Wyckoff Wave actually opened below the support line drawn from point Y. While demand did come into the market, it was not the kind of strong driving demand normally associated with a spring. In addition, a spring also needs supply. Supply is needed to form the spring action. Supply driving the market down like a compressed spring and demand driving it up as the spring releases. Since there was a gap opening, there was no supply driving the Wyckoff Wave below the support line.

Therefore, it appears we are still waiting for the stock market, as measured by the Wyckoff Wave, to give us a clear indication of its future direction.

There is a tendency to get caught up in the day to day market activity. As we do that, there is a tendency to forget that studying the market’s performance over the past few days only allows us to draw short-term conclusions.

As I have mentioned before, it is very helpful to spend a little time looking at the market from a longer-term view. This is best done using the weekly vertical line chart.

The Wyckoff Wave’s weekly vertical line chart places it almost in the middle of its long-term uptrend channel. It also shows the Wave penetrating the resistance (jumping the Creek) represented by the line drawn from point C. The relative shortening of price spread and decreasing volume during the past three weeks suggests the Wyckoff Wave is preparing to “roll over” and react back towards the resistance. If successful, this would be a normal Last Point of Support (LPS).

A quick look at the 100 Point & Figure chart count, presently gives the Wyckoff Wave a downside objective in the 33,400 area. A reaction to that objective area would keep the Wave above the resistance and be about what would be expected if the Wave puts in a LPS.

A review of the intermediate-term up trend channel adds credibility to the bullish scenario. This channel is marked in blue on the weekly chart.

Presently the Wyckoff Wave is right at the supply line of the up trend channel. For the past couple of weeks, it has also been in a slightly overbought position relative to the trend channel. It is a reasonable to suggest that a reaction back to test the support line of the trend channel is a very likely scenario.

Finally, since the end of the 2008 bear market the Wyckoff Wave has been in a long-term up trend. Every time the Wyckoff Wave has moved into an oversold position, it has not only rallied, but reached the supply line of the trend channel. There is no reason to expect this will not continue.

While the short-term Wyckoff trader is watching the market closely and waiting for a good entry point, probably to the downside, the intermediate and long-term investors are watching the market with less intensity and happily counting their profits.

Over the past five years, there have been numerous opportunities for the long-term investor to take new or add to existing positions. Because the Wyckoff investor looks for stocks that are stronger than the Wyckoff Wave, he or she is able to take advantage of the natural rotation of stocks and watch investments gain in value, even during sideways movements.

This is a happy time for the intermediate and long-term investor. The five-year bull market has produced consistent profits and lots of smiles. There is no reason to think the trend will not continue.