An Interesting Black Friday

Click Here For Wyckoff Wave Chart 11-28-2014

To the casual investor, the Friday after Thanksgiving was a non-eventful shortened trading day. However, the Wyckoff Wave gave us a very different picture.

The S&P 500 reacted by a modest 0.25%. The Dow Jones Industrials actually rallied by .09%. Conversely, the Wyckoff Wave lost 600 points or 1.38%.

The Wyckoff Wave is comprised of 12 stocks. Each is a leader in its industry group. Individually, they are called Group Leadership Stocks as they serve the same purpose as a group index.

Three of these groups experienced major declines. Caterpillar, the industrial group leader, lost $5.19. Transportation’s Union Pacific lost $6.04. Exxon Mobil, who represents energy, lost $3.94.

These losses did not come through gap openings to the downside, but through supply that finally returned to the market.

It appears that after almost a month of a poor quality rally, the stock market, as measured by the Wyckoff Wave, may be putting in a long-awaited reaction.

While during the last few weeks the Wyckoff Wave has tried to react, the supply coming into the market was never particularly strong and certainly not sustained.

Even though Friday’s trading only lasted 3 1/2 hours, supply was present throughout the entire trading day and the Wyckoff Wave put in a poor close. In addition, volume was actually higher than on the day before Thanksgiving.

If Monday brings a follow through to the downside, or a short and fairly weak rally, the Wyckoff Wave will have begun its reaction back to the top of the trading range (line drawn from point B). Also known as a “backup to the creek”, if successful, the Wyckoff Wave would be putting in an important Last Point of Support.

This would change the intermediate-term trend of the market to up and set the stage for another mark up phase in this wonderful six-year bull market.

The depth of Friday’s supply is best shown on the intra-day chart.

After last Friday’s rally to point M, the Wyckoff Wave put in a brief sideways movement and established a minor intra-day trading range. On Friday, in an intra-day Sign of Weakness, the Wyckoff Wave fell through the bottom of the range on sustained supply.

Monday may bring an intra-day rally back to test the bottom of the trading range. If so, this would be a intra-day Last Point of Supply.

While it is doubtful, if strong and sustained demand comes into the market early Monday, Friday’s market action could actually have been a shakeout. This scenario has a relatively small chance of success, but should be in the back of every Wyckoff trader’s mind.

There is a fairly high probability that the reaction back to the top of the trading range will culminate in a Last Point of Support.

The Technometer is already in an oversold condition. The Force Index is in a positive divergence with the Wyckoff Wave and Optimism – Pessimism Index is also moving in that direction.

While shortened trading days are usually non-events, Friday may be the precursor to the next significant market move.