A Creek Jump or an Upthrust?

Click Here For Wyckoff Wave Chart 10-21-11

On Friday, the Wyckoff Wave moved through the final resistance of the trading range into new high ground. Is this the beginning of an important Jump Across the Creek or will the Wyckoff Wave upthrust the trading range and begin a move to the down side?

Legitimate arguments can be made for both scenarios. The Bulls can point to an oversold Technometer and that the Wave has respected the short term up trend channel drawn through points H and J. They can also point out that three of the stocks that make up the Wyckoff Wave, IBM, UNP and WMT, all in positions one and two. They had left the trading range and have established defined uptrends.

The Bears can’t say, “not so fast”. They can point to Friday’s action. The Wyckoff Wave traded higher on increased volume. It closed at the top of a narrower price spread. Narrower spread and increased volume suggest supplies present. While the Bulls can counter with “you can expect to see supply as the resistance is penetrated”, this does not preclude the possibility of an upthrust. In addition, the Optimism – Pessimism Index is not keeping pace with the Wyckoff Wave. While the Wave is in new high ground, the O – P is lower than it was at points I, G, and E.

The O – P Index represents effort, while the Wyckoff Wave represents results. That means that the Wave is trying to advance, but, so far, it is not receiving the necessary support of the effort from the O – P. This situation does make the Wyckoff Wave vulnerable to a decline. This negative divergence is especially noticeable as the Wave moved sideways from point I.
While this negative divergence could certainly be eliminated with a strong positive performance on Monday, it does give reason to conclude the Creek Jump is not a foreseen conclusion.

The Wyckoff definition of an upthrust is that after moving laterally in formation for a period of 4 to 12 weeks or more, the stock or index would move into new high ground. It would do so on increased volume and narrowing of spread. It would then react back the average level of closes.

The Wyckoff definition of a Jump Across the Creek is the penetration of a point of resistance on increased spread and increased volume. While it is preferable that this happened in one day’s trading, a Creek Jump can take place over a couple of trading days.

It is also helpful to compare the Force Index with the Wyckoff Wave. If a second rally brings out a lower Force Index reading and the market makes a new high, this is a negative indication and can indicate a possible reaction.

The difficulty surrounding the Bear’s argument is that if Monday’s market action brings in a strong demand, the divergences can disappear and the Bears will be struggling to close their positions.

This conflict should be decided early on Monday. To finish the Creek Jump, the Wyckoff Wave must open strongly and we should see an increased price spread and strong volume. If the Upthrust scenario is to play out, supply will come in either at the opening or after a lackluster start to the upside.

What To Do?
Anyone holding short positions should watch the opening carefully and be prepared to close them at the first sign of good demand. If the upthrust scenario does play out, positions to the short side should be considered.
Those holding long positions should be prepared to close them if the market does not “go and go now”.

The short term position of the market is up.
Although it may change, presently the intermediate term trend of the market is still neutral.