This past, holiday shortened, week, the Wyckoff Wave rallied within its trading range on reduced price spread and volume. While a significant portion of the low volume was a result of the holiday season, a closer review suggests that demand was drying up..
This, plus the overbought Technometer and the negative divergences between the Wyckoff Wave and the Optimism – Pessimism Index, indicates that it will be difficult for the Wyckoff Wave to leave the trading range to the upside.
After moving into new high ground at point B on the weekly chart, the Wyckoff Wave fell back into the trading range. This eliminated the shakeout at point A from being ending action.
It also suggests that point A on the weekly chart (point E on the daily chart) was the beginning of another phase in this 11 month trading range.
The Wyckoff Wave was supported at point C as it reacted back into the trading range. This was also the support line of the long term up trend channel that began at the end of the 2008 bear market.
This support area is also found on the daily chart marked point K. Point K is on an important support line from earlier in the trading range. This support line may become rather significant as the trading range develops.
Even though the lowest support level in the trading range is now at point E, if support persists around the 41,000 level (point K), that could become the support level for the ending action.
While it is never confirmed until it is confirmed, nothing in the trading range, over the past 11 months, has suggested any sort of distribution. This scenario is supported by a strong Optimism – Pessimism Index and the relatively higher tops and bottoms we have seen since the trading range began, last February.
All this gives us an opportunity to revisit the shakeout at point E. The lack of a secondary test and the fact that there was no strong price spread and volume as the Wyckoff Wave moved into new high ground, makes us go back and rethink the shakeout scenario.
Is it possible that this was climactic action and signified the beginning of a new and more structured trading range?
Whether it a shakeout or climactic action, the end results appear to be the same. However, it will be extremely important to watch how the Wyckoff Wave behaves as it approaches either the resistance line drawn from point H or the support line drawn through point K. It is possible there may be a more traditional and defined the trading range than what we have been seeing over the past 11 months.
I will comment more on that and make some non-Wyckoff economic and market observations in next week’s end of the year blog post.