A Good Week for the Wyckoff Wave. What About the S&P 500?

Click Here For Wyckoff Wave Chart 07-12-2013

The Wyckoff Wave put in a relatively good week. It returned to its intermediate-term up trend channel and created a new short-term uptrend channel. The short, intermediate and long-term trends are all up.

On Thursday, the Wyckoff Wave reached the supply line of the new up trend channel, encountered resistance and began to react. Conditions suggest that support will be found in one or more of the following places:
1.  The support line of the intermediate-term uptrend channel, marked in blue.
2.  The support line of the new short-term uptrend channel, marked in green.
3.  The supply line of the old short-term down trend channel, marked in red.

While the Wyckoff Wave is the predominate index for many Wyckoff students, some continue to pay close attention to the S&P 500 Index. A comparison of the two produces some very interesting similarities.

First, let’s review a relative strength chart that compares the Wyckoff Wave (red) with the S&P 500 (green). The comparison is made from the trading range both indices went through during the later part of 2011. Notice how they almost exactly mirror each other. At times the Wyckoff Wave is a bit stronger than the S&P. Other times find the roles reversed. Both provide an excellent look into market internals.

Right now, the S&P 500 is stronger than the Wyckoff Wave. It has also moved into new high ground. The Wyckoff Wave is still about 3, 000 points below its all-time highs.

While relative strength comparison between the Wyckoff Wave and the S&P 500 is interesting, that feature on the Wyckoff Charting Service, is most often used when comparing individual stocks against either the Wyckoff Wave, the S&P 500 or one of the Group Leadership Stocks.

Like the Wyckoff Wave, during the summer of 2011, the S&P 500 experienced a selling climax marked by point A. It then moved sideways in a trading range and sprung the range at point G.

After a Sign of Strength (SOS), the S&P 500 reacted to a Last Point of Support (LPS) at point I. Unfortunately, the S&P 500 actually fell back into the Creek. It then rallied and, a few weeks later, successfully tested point I.

Conversely, the LPS on the Wyckoff Wave held above the back edge of the Creek. While both indices experienced reduced price spread and volume (see the down arrow on both the vertical line charts), the Wave’s LPS was more easily recognizable and did not need to be tested.

The S&P 500 then rallied to point J and reacted to point K. As the initial up trend channel had been broken, a new up trend channel (which turned into a long-term up trend channel) can be drawn (supply line G – I, parallel support line H) in orange.

The S&P has stayed true to that trend channel, ever since.

Point & Figure Chart calculations taken from this trading range, give the S&P 500 index an objective of 1, 770. This is about 18% above its present level.

Interestingly, the Point & Figure Chart calculations for the Wyckoff Wave, also taken from its 2011 trading range give it an objective in the area of 43,600. This is also 18% above its present level.

While both indices are telling us basically the same thing, the Wyckoff Wave has been a bit easier to follow. The S&P 500 trends are not as consistent and the important Last Point of Supply at point I caused confusion because it was back inside the original trading range.

These, seemingly minor, inconsistencies can become quite important when the Wyckoff trader is looking to take or close positions.

While both are helpful, the Wyckoff Wave may well be a bit more in tune with the shorter-term directions of the market and the timing necessary to profitably enter and exit.