Click Here For WyckoffWave Chart 06-12-2015
On Tuesday and Wednesday the Wyckoff Wave was finally able to Spring a phase of this long trading range that began at point W.
Wyckoff teaches there are three types of Springs. The #1 Spring is a shakeout. Good supply drives the index or stock through the support and substantially below the bottom of the trading range. Only then does the rally began as strong demand come into the market. #1 Springs always have to be tested. This type the Spring or Shakeout usually takes place over few trading days.
The #2 Spring is the most common. The index or stock falls through the bottom of the range, on good price spread and volume. It is encounters demand and rallies. This usually takes place during one, or possibly two trading days. #2 Springs also need to be tested.
The #3 Spring occurs when a stock or index slides through the trading range support on relatively narrow price spread and volume. It is not confirmed until strong demand comes into the market and there is a rally back into the trading range. #3 Springs do not need to be tested. However, a Secondary Test is not uncommon.
On Tuesday the Wyckoff Wave began a #3 Spring as it slipped below support line drawn from point W. The price spread was narrow and volume moderate.
Then, on Wednesday, good demand came into the market and the Wyckoff Wave rallied.
Wednesday morning gave both investors and traders an excellent opportunity to take new positions to the upside. For those who didn’t buy the spring, positions can be taken on a successful Secondary Test.
The rally continued on Thursday until the Wave ran into resistance. It encountered both short-term resistance at point C and a longer and stronger resistance level marked by the line drawn from point B. Point B was in September, 2014.
The Wyckoff Wave was unable to penetrate the resistance and reacted on Friday. This began the test of the Spring.
If the test is successful, the Wyckoff Wave could rally and test the top of the short term trading range (line drawn from point F). It could also test the highs at point T and continue into new high ground.
If the Secondary Test is successful and the Wyckoff Wave puts in a Sign of Strength and successful Last Point of Support, there are some good upside objectives.
Presently, there is a count of 6,000 along the 41,900 line on the 100 Point & Figure chart.. So far, this gives the Wyckoff Wave maximum upside objective of 47,900. This appears to be a confirming count that dovetails with earlier counts taken from more significant trading ranges, at lower levels.
That’s the good news. What happens if things don’t go as planned?
The first area of concern is the Secondary Test. Will it be successful and, if so, what market action can we expect?
The Wyckoff Wave reacted sharply on Friday on wide price spread, but decreased volume. Good supply came into the market on Friday morning, but began to dry up during the rest of the day.
Regardless, the widespread has brought the Wyckoff Wave extremely close to the low at point G. The widespread suggests the Secondary Test may not be completed. The Wyckoff Wave could react on extremely narrow price spread and low volume. It could also rally and then put in a second reaction and confirm the Secondary Test.
This #3 Spring is going to be tested. The test should be completed during the coming week.
If the test fails, a couple of things can happen. First, the Wyckoff Wave can continue to react and attempt to Spring the low at point J or more probably at point I.
It could also react and then move sideways. This would begin a new phase of the trading range.
While the overall bullish indications make this a low probability scenario, the Wyckoff Wave could react strongly and then Spring the entire trading range at point L
The Wyckoff Wave could also put in a poor quality secondary test. This means the Wave found support below the #3 Spring. This would require a second Secondary Test.
Presently, the Wyckoff Wave is in an oversold position relative to its long-term up trend channel. This can be seen on the weekly chart.
In addition, there are no indications from the Wyckoff tools that show significant weakness. In fact, any further reaction would put the Technometer into an oversold condition. This makes it difficult for reactions to continue.
While the alternative scenarios need to be watched closely, a successful test of the #3 spring continues to have the highest probability of success.