Last week’s blog post discounted the probability that the rally to point N, on the daily chart, was a Sign of Strength. This past Wednesday, that observation was confirmed, as the Wyckoff Wave reacted back into the mini trading range. That reaction is marked as point Q.
The reaction was brief and, once again, the Wyckoff Wave attempted to rally. It is presently testing the high at point N.
Although the Wyckoff Wave is at its highest levels in nearly a month, the market action from point M has not been conducive with a Sign of Strength or a Last Point of Support. It appears to be simply a rally off the bottom of the trading range.
This suggests that the Wyckoff Wave is simply going to continue moving sideways, within the more important trading range that began in August, 2015 at point Q on the daily chart.
This trading range is six months old and has developed a significant potential count to the upside. The count is still developing, as there has been no ending action, in the form of a Spring or a Sign of Strength within the trading range.
That being said, there is a potential up move of 30,000 points on the 100 Point & Figure Chart. The count is taken at the 34,800 level. This provides a total upside objective of 64,800. That is over 17,000 points higher than the 2015 highs.
The Selling Climax, with its Automatic Rally and Secondary Test, along with the support that came into the market, as the Wyckoff Wave reacted to point G, I and M, suggests the sideways movement is accumulation. This support and the trading range’s relatively long duration are good indicators that we are indeed seeing a significant period of accumulation.
If we were looking at a Distribution, supply would be more prevalent and sustained. For example, that demand quickly appeared on the reaction to point O, would be an unusual occurrence during Distribution.
Therefore, unless the market tells us otherwise, it is not unreasonable to use an Accumulation scenario as the basis for market analysis.
So far, the Accumulation trading range is divided into two phases. The first phase would be from the ending action, whenever it happens, over to point G. The second phase would be from point G to the Selling Climax at point Q.
That does not mean that ending action will happen quickly. One primary aspect of accumulation is to move a stock from weak hands to stronger hands. For this to happen there has to be a fair amount of selling. That selling was evident during the reaction from point D. It can also be seen on the relatively high volume levels that have appeared, especially after point G. This suggests more supply needs to be taken in before the market can put in a substantial rally.
This continuing presence of supply is presented nicely on the weekly chart. The trading range begins from the Selling Climax at point L. Notice the relatively wide price spread and higher volume. When the market moved sideways, this is almost always an indication that supply is present.
As the accumulation trading range develops, one should watch for a decrease in both price spread and volume. A dullness needs to set in.
This dullness also drives weak holders from the market. They become impatient with any lack of price movement and begin to look for other opportunities.
With interest rates this low, those opportunities are reduced. This would suggest the trading range may last longer than expected.
While it is fun to enjoy the market activity found in the mini trading range, the big-money is in the, more prominent, accumulation trading range. If there is ending action and the Wyckoff Wave rallies to fulfill the potential shown on the Point & Figure Chart, 64,800 is 35% above the March 2015 highs.