A Look Back at 2014 And What Lies Ahead

Click Here For Wyckoff Wave Chart 01-02-2015

The Wyckoff Wave spent most of 2014 in a trading range that had an upward bias. After a sharp decline in January, 2014 to point O, in March the Wyckoff Wave rallied to point V and that became the first of several resistance levels. The initial support level began at point U.

The Wyckoff Wave then moved sideways in this trading range, but in the process put in several higher resistance and support levels. This would certainly suggest the Wyckoff Wave was accumulating, rather than distributing.

Needless to say, it wasn’t the usual, more structured, trading range that Wyckoff students are used to seeing. There were also several other anomalies in the Wyckoff Wave and, more importantly, the individual stocks.

Throughout the year the Wyckoff Wave was able to advance on several poor quality rallies. The expected supply really materialized and on a couple of occasions the Wave moved into new high ground on relatively low price spread and volume.

The most significant anomaly was the apparent shakeout at point E. Wyckoff teaches that shakeouts (#1 Springs) must be tested. Instead of testing the shakeout, the Wyckoff Wave rallied back to the top of the trading range and then moved into new high ground on relatively reduced price spread and volume.

This could not be called a “jump across the creek”, but was another in a series of higher resistance levels in this ongoing trading range.

The Wyckoff Wave then reacted back into the trading range and met demand at an earlier support level. It rallied and now is reacting back to test that initial support at point K.

It is also back into its trading range and we must now wait for new ending action before the Wave can leave the trading range in either direction.

Individual stocks have also looked a bit differently. Most importantly, there has been a marked reduction in the number of springs and upthrusts that occurred during 2014.

This has led me to conclude that the normal accumulation and distribution behavior that we have always seen in the stock market was diminished. The question is why and will that change in the future?

There are logical reasons for this and it would seem this unusual behavior is only temporary, as artificial barriers have discouraged the normal accumulation and distribution process.

I believe the first is found in the actions of the Federal Reserve. The injection of large amounts of capital and artificially keeping interest rates low has made the stock market attractive and possibly the only place to invest. Those who have invested in the stock market since the 2008 recession have seen excellent profits. In addition, the corrections have been relatively minor and not particularly long.

Because our economy is the strongest in the world, international investors are also buying U. S. stocks. Easy money is flowing into the markets and stock prices are rising without the need to go through long periods of accumulation.

That’s the good news. The bad news is that this is a temporary solution to a long-term problem.

Secondly, we are seeing a great deal of increased government regulation and, more importantly, uncertainty in increased costs, fees and taxes that will be generated by government intervention. This makes it very difficult for corporate executives to plan for the future. As a general rule businessmen don’t spend money during periods of uncertainty.

In the short-term, while big government and the Federal Reserve keep tinkering with our free market economy, things will stay as they are. However, when one builds a house of cards, the smallest breeze can destroy everything.

That’s the bad news. The good news is that it probably won’t happen. We are a free market economy and while it may be temporarily stifled, our wonderful economic system will always prevail in the end.

I would suggest that we may be beginning to see that in the oil industry. Oil is a commodity and its price is based on supply and demand. Although government has reduced the amount of oil obtained from federal lands, production on state and private land has dramatically increased. This has led to an oversupply of oil. The natural result is a dramatic reduction in price.

However, much of the increase in oil production has come from fracking. While it is a wonderful technology, it is more expensive than conventional oil drilling.

Therefore, many drillers, including T. Boone Pickens, have invested more money in fracking than they can now get for the final product. As Mr. Pickens does not choose to sell his oil at a loss, he can withhold it from the market until sale prices stabilize. This reduction of supply, coupled with strong demand, will increase oil prices.

Exxon Mobil is part of the Wyckoff Wave and represents the energy industry. Each Wyckoff Wave stock is a leadership stock for that industry and can be used as an industry index.

The attached chart of Exxon Mobil suggests it underwent a selling climax at point A and a spring at point C. It would certainly appear that we are seeing a normal accumulation as a result of a normal free market action.

Right now there is a preliminary count of 28 points at the $92 level. This suggests Exxon Mobil has the potential to rally to between $115 and $120 per share. This count is not supported by a confirmed Last Point of Support and is subject to change. 2015 may be bringing positive developments to the energy sector.

Will other groups follow suit? Our free market economy has been struggling to relieve its constraints for 6 years. Will others follow Exxon Mobil and make 2015 a good Wyckoff year. The betting is on the positive.