Click Here For Wyckoff Wave Chart 05-01-2015
In March the Wyckoff Wave began to react off the top of the trading range. The reaction changed the short-term trend to down and, on April Fools Day found support at point M.
The subsequent rally weakened the new down trend channel and moved to the Technometer into an overbought condition. At that point a reasonable scenario was for the Wyckoff Wave resume the reaction and return to its short-term down trend channel.
That didn’t happen. Instead, as it reacted from point X, on the daily chart, the Wyckoff Wave quickly found support at point Y. It has moved sideways for the last three weeks.
This narrow trading range has found support and resistance in the areas of 42,750 and 43,500.
On Thursday, it appeared the Wyckoff Wave was finally going to react through that support and at least test the lows at point W. This potential reaction renewed attention to the possible Spring scenarios at support areas marked by points W, K and I.
That didn’t happen. Instead the Wyckoff Wave rallied back into the trading range and appears ready to continue it sideways movement. It also could retest the resistance at the 43,500 level.
It should be noted that the rally was primarily on a gap opening. This makes it difficult to call Thursday’s market action an intra-day Spring.
In the face of a clearly overbought Technometer and significant short and intermediate term negative divergences with the O – P Index, it appears the Wyckoff Wave will have an extremely difficult time moving through that resistance level.
Conversely, as seen on the weekly chart, the Wyckoff Wave is testing the support line of its long-term up trend channel. In fact, that test may have been the impetus behind Friday’s bounce.
This has created a developing apex that is shown on the weekly chart. A green resistance line has been drawn from point H. The apex support is the long-term trend channel’s orange support line.
At some point the Wyckoff Wave will break out of the apex formation. The overbought Technometer and negative divergences with the O – P Index continue to suggest the move will be to the downside.
What about volume? The weekly chart offers an interesting look at recent volume and message it seems to be sending.
Notice that over the last three weeks volume has remained relatively high. However, the price spread is relatively narrow. This suggests the presence of supply and supports the negative indications of the Technometer and O – P Index.
Finally, an analysis of the Wyckoff Wave’s intra-day chart, which is sent daily to Pulse of the Market cap charting Service subscribers, suggests supply is relatively stronger then demand.
There is one more important Wyckoff indicator that needs to be discussed. That is the Force Index, which measures the downward pressure on the market. Over the past month, the Force Index has been relatively strong. This means the downward pressure is reduced. Any reaction should be relatively short and shallow.
This suggests that if this analysis is correct, at some point in the near future, the Wyckoff Wave will react and test the lows at point W on the daily chart (point G on the weekly chart). It could also react and test point K and I on the daily chart (points B and C on the weekly chart). This would give the Wyckoff Wave an opportunity to Spring one of these areas of support.
These are scenarios that should be considered by any Wyckoff trader. They are not guaranteed, but one should be paired to act if they do take place.
In the end, only the market will tell us what is really going to happen.