Creek Jump or Upthrust?

Click Here For Wyckoff Wave Chart 05-03

For the first three days of the trading week it appeared that the Wyckoff Wave was coming to the end of a minor trading range and getting ready to react. Relative volume was decreasing. The effort of the Optimism – Pessimism Index was exceeding the results shown by the Wyckoff Wave. This created a short-term negative divergence. The Technometer was in an overbought condition and the Force Index was producing negative numbers. Conditions seemed right for a reaction.

On Wednesday, it appeared that reaction was beginning. The Wyckoff Wave opened to the downside and closed just above the day’s low. The day’s volume increased. Although the price spread was slightly narrower, it appeared supply was finally taking charge and the Wyckoff Wave would react to test, not only the support line of the intermediate-term uptrend channel, but the edge of the major resistance line.

The 100 Point & Figure chart supported a reaction and suggested the Wyckoff Wave would hold above the resistance for a successful Last Point of Support.

On Thursday, the Wyckoff Wave was unable to follow through to the downside. Instead it rallied on increased price spread and reduced volume. A review of the intra-day waves suggested that the early demand that propelled the Wyckoff Wave higher was withdrawn and some supply was coming into the market. This, coupled with the Technometer’s continued overbought condition and the negative divergence with the O – P Index, still indicated the reaction scenario was still the most probable.

Friday was not a great day for the short term bears. Those of us who expected a reaction, instead saw a wide gap opening to the upside and good demand. Most importantly, the Wyckoff Wave jumped the Creek of the resistance line begun at point X and drawn through points Z and B. Were we seeing a jump across the Creek and is the Wyckoff Wave ready to begin a new mark up phase?

Before answering that question, let’s review Friday’s market action. As you can see on the attached chart, the Wyckoff Wave rallied to the supply line of the intermediate-term uptrend channel, but then encountered some supply and closed below the day’s high.

The price spread was narrower than on Thursday and the volume was higher. This would indicate the presence of some supply.  However, the Force Index, which had moved into positive territory on Thursday, continued to produce positive numbers on Friday. This has a mitigating factor on the Technometer’s overbought condition.

A Creek jump is defined by a wider price spread and increased volume. While Friday’s volume was increased it was still relatively low and the price spread was not particularly impressive. In addition, almost all of the days price movement was on one intra-day wave that took place right after the gap opening. After that wave, there was no follow through to the upside.

That being said, the Wave’s intra-day sideways movement could simply be absorption as the Wyckoff Wave takes in any remaining supply as it jumps the Creek.

On the other hand, is that supply the beginning of an upthrust that will drive the Wyckoff Wave down and finally begin the reaction?

An upthrust is defined by a relatively narrower price spread, increased volume and a poor close. Like a jump across the Creek, an upthrust can take place over more than one day.

The upthrust scenario is supported by relatively low price spread and relatively decreased volume. While the negative divergence with the O – P Index has been eliminated (a positive for the Creek jump scenario), the Technometer continues in an overbought condition. Despite the positive Force Index, it will be hard for the Wyckoff Wave to rally through the intermediate-term uptrend channel in an overbought condition.

Unfortunately for Wyckoff traders, Friday’s action was incomplete, in that it did not complete either a Creek jump or an upthrust. That conclusion will probably arrive on Monday.

Perhaps some clues can be found in the relative strength and weakness of the 12 individual Wyckoff Wave stocks, when compared to the Wyckoff Wave. On a short-term basis, 7 are weaker than the Wyckoff Wave, 3 are stronger and 2 are the same. This gives some ammunition to the upthrust scenario.

Since the poor quality rally to point B, market conditions have suggested a reaction would be in order. Friday’s market action was inconclusive and while my observations may look terrible next week, I still believe a reaction is in the very foreseeable future.
As an old cowboy once said, “you dance with who brung you”.

It is important to remember that the above commentary is a short term view of the market. The weekly chart of the Wyckoff Wave presents a longer-term perspective. It shows the Wyckoff Wave in the middle of its long-term uptrend channel. In addition, there are no intermediate or long term signals that would suggest any kind of a major reaction.