Continued sideways action at the top of the range

We have continued to look for a further reaction on these weekly updates.  Instead it has been a mostly sideways affair, with the S&P and Nasdaq continuing to slowly make new highs for the move.  The last few months action has been extremely slow and with low volatility.  The S&P hasn’t had a 1% intraday move since December 14th.  This is the longest period of intraday calm in history.

This last week we once again traded slightly higher for the week.  Volume has given us no extra clues as well.  We are trading right above the resistance level of the recent trading range, and we still expect further weakness.

We are once again reaching overbought on the Technometer and this is occurring while we are at a lower high on the Wyckoff Wave.

The S&P and Nasdaq Indices were both up approximately 1% for the week after Thursday/Friday’s rally.

The recent action still supports the fact that the rally to “Z” was simply a rally to test the resistance at the top of the trading range. We therefore still expect a further correction back to the middle or lower portion of the recent trading range, and wait for ending action once again.

The Optimism – Pessimism Index touched new recovery highs everyday this week while the Wyckoff Wave still lags.   We feel that this divergence will lead to more downside action in the Wyckoff Wave from these levels.

The Force Index rallied this week and now only -44, and at its highest level in months now.   This is much less downside pressure than it has been, and might lead to more continued sideways action.

Our original shorts are still on with our stop level shown on the intra-day chart.  We were looking to add to shorts because of the Technometer returning to an overbought level, and the O-P continued divergence.  But we have not added as of yet, but preparing to possibly during Monday’s trading.

The bond market did make a low as we expected last Friday, and had a nice week to the upside.  Click here if you want to see more detail

The recent trading action still supports the reaction scenario back into the middle of the recent trading range at “U”.
While the Wyckoff Wave will most probably not be putting in a Last Point of Support on any expected reaction here.  So far, the reactions to “E” and “G”, were not followed by strong price action/volume to the upside.   If strong volume would come into the upside, this scenario would have to be back on the table.  We would expect more weakness before entertaining that idea.

Good Trading,

Todd Butterfield

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