Last week the Wyckoff Wave reacted down to the support/resistance line drawn from point H. This was a top of a minor sideways movement that took place just before the Wave rallied to the 37,000 level at point J.
Thursday brought an intra-day failure to the downside and a two day rally began ending the week with a strong close on Friday.
The Technometer had moved into a slightly oversold condition. However the Force Index has been reacting strongly and is producing fairly negative numbers. This would have a mitigating impact on the Technometer readings.
The volume of the entire move down from point J was relatively high. While there is plenty of demand present, the volume and the relatively wide price spread may be an indication the reaction is not complete.
There are a couple of additional support areas below the one mentioned above. They are the support line of the intermediate-term uptrend channel and a more important support/resistance line drawn from point B.
While the Wyckoff Wave may have completed the test of the support line on Thursday, another scenario would allow the Wyckoff Wave to react again and test these other significant support areas.
Regardless, there is a great deal of underlying strength in this market and further reaction would be a fairly short direction and not particularly deep. The initial objective of a temporary count along the 37,000 line of the 100 Point & Figure chart would take the Wyckoff Wave down to the point B support/resistance line.
Conversely, there are some indications of strength. The O – P Index continues to be stronger than the Wyckoff Wave and, while it is still in harmony with the Wave, is barely taking part in this reaction.
The Force Index, while producing extremely low numbers, is in a positive divergence when compared to the Wyckoff Wave at point G and in a positive inharmonious action when compared with point E.
It is reasonable to conclude that this reaction is only a short-term affair and a bit more attention should be paid to the Wyckoff Wave’s future direction.
A look at the weekly chart of the Wyckoff Wave shows that the Wave is in the upper portion of its long term up trend channel. The Wave has been faithful to this channel for a little over four years.
It is also in a slightly overbought position relative to the intermediate up trend channel.
The Wyckoff Wave has already reached the phase II objective area on the 100 Point & Figure chart at 37,400.
While the position of the Wyckoff Wave on the weekly vertical line chart shows the opportunity to react, there is no indication of a substantial turn around.
The Wyckoff Wave has already reached the phase II objective area on the 100 Point & Figure chart at 37,400. While there are two additional phases with maximum objectives of just over 51,000, there is no guarantee they will be fulfilled.
This is still a strongly bullish market and intermediate and long term traders should look for Springs, their secondary tests, Last Points of Support and successful testing of the trend channels to take new or add to hold positions.
In addition, as the Wyckoff Wave is testing the supply line of its long-term uptrend channel, this might be a good time to review existing positions, see if objectives have been met and perhaps do some profit taking.
As we are well into and perhaps even approaching the end of this wonderful bull market, the bulls should watch for any “whooping it up” or sudden strong moves to the upside that have abnormally wide spread and volume. This could be an indication a buying climax is ahead and this would put positions in danger.
While I don’t believe this is in our immediate future, it should be kept in the back of everyone’s mind, just in case.
This wonderful bull market will not go on forever, but it sure is fun to be a part of it.