Since last November the Wyckoff Wave has been in an intermediate up trend channel. The channel’s character has been quite distinctive and extremely strong.
It is much like a set of stairs. There is a rally from one stair to the next, but there is no reaction. Instead, the Wyckoff Wave has moved sideways until the rally to the next set of stairs.
Although the price spread has been relatively narrow, the market has pushed through a fair amount of overhanging supply and has simply refused to react.
This was a disappointment to short-term bears, who were hoping to cash in on brief reactions. The Wyckoff Wave has shown tremendous underlying strength and, since November has advanced by 26%.
Until the last week or so, the character of the Wyckoff Wave remained unchanged. Now, we are beginning to see wider price spread and slightly higher relative volume. Something is happening. While a change in character does not give us an indication as to the direction of the next move, it is a sign to pay close attention to the market. This would help the Wyckoff trader be more prepared for what comes next.
The first inkling of change appeared three days before point J on the daily chart. The Wyckoff Wave attempted to rally, ran into supply and closed near the day’s low. Volume was high which confirmed that supply was present.
This happened as the Wyckoff Wave was attempting to leave the short-term up trend channel to the upside. While this is not an unexpected place for volume to appear, the wider price spread should have caught our attention.
That day’s high was tested at point J. While price spread and volume were reduced, the point J was a higher high. This meant a test of poor quality. Poor quality tests need to be repeated.
The test was repeated at point L. This was an intra-day test and subscribers to the Pulse of the Market service saw that on the intra-day chart. In addition, the Wyckoff Wave was unable to rally back to the supply line of the short term up trend channel. These are not short-term positive indications.
This apparent weakness is also demonstrated on the Wyckoff Wave’s weekly chart. Notice how supply came in as the Wyckoff Wave tested the supply line of the long-term uptrend channel. This is a very important channel, as it has been in existence since the bottom of the 2008 bear market.
By itself, the Wyckoff Wave has the opportunity to react and test the support line of the long-term up trend channel. It is also in a slightly overbought position relative to the intermediate-term uptrend channel, which is drawn in blue.
In addition, the Force Index, which has mitigated the Technometer’s overbought condition, is reacting. This would suggest the Technometer readings will have more of an impact on the market’s future direction.
Despite these negative indicators, the Optimism – Pessimism Index is still remaining relatively strong. The O – P Index usually leads the market during and uptrend and it is certainly doing so now.
Friday’s poor performance does suggest the Wyckoff Wave may continue to react. The question is, how far?
The Wave has already moved into a slightly oversold position relative to its short-term uptrend channel. That is a potential area of support. Just below that is the support/resistance line drawn from point H. Just below that is the support line of the intermediate-term uptrend channel and the support/resistance line drawn from point B.
There is also a Point & Figure chart count that, so far, is confirming these downside objectives.
The Wyckoff Wave has jumped several minor Creek’s (resistance lines) since this rally began last November. It has never really backed up to a Creek, but moved sideways then rallied again. Is this change in character an early indication we could finally be seeing a normal reaction back to a Last Point of Support?
If so, the short term bears, who took positions earlier this week, can finally make some profits. More importantly, this could give the bulls an opportunity to identify new opportunities to the upside or add onto existing positions.
What will happen? We’ll simply have to wait and see. However, a change in character is almost always a signal that something is going to happen. Let’s see what it is.