A week ago Friday (the day after point B), the Wyckoff Wave put in a lack of demand day and appeared extremely vulnerable to a reaction. This past week it has reacted and is testing the support line ( G – M) of the intermediate-term up trend channel.
A short term count along the 34,800 line provides an objective area of between 34,000 and 33,700. This is above the most important resistance line drawn from point X and marked with a blue arrow.
On Monday of this week, the Wyckoff Wave reacted sharply to point C. The next day’s brief rally to point D, gave us the opportunity to draw a new short-term down trend channel.
While the Wyckoff Wave can always react back into the trading range, the most probable scenario continues to be that this reaction is leading to an important Last Point of Support.
On Friday the Wyckoff Wave moved into an oversold condition on the Technometer (although it will open on Monday in a neutral condition). It also is remaining in a strong position (close to the supply line and, so far, not testing the support line) in the short term down trend channel.
One indication that the Wyckoff Wave will continue to move lower is in the relative volume. While Thursday’s and Friday’s volume has decreased, it is still quite a bit higher than one would like to see if supply is truly drying up. This would suggest the more aggressive figure chart objectives can be met.
While many market indexes rallied on Friday, the Wyckoff Wave actually traded lower. This was due, in part, to the huge drop in IBM, which fell by 17 1/8 points. Apparently, this was on poor earnings and most of the drop was in the first 5 min. of the trading day.
Over the weekend, I received an e-mail from a Wyckoff student, who asked how one could predict this poor performance and take a position, before it happened.
A tried-and-true Wyckoff principal is that the news doesn’t drive the markets. The news simply takes the stocks where they were going to go anyways – just a bit faster.
Let’s apply this axiom to IBM.
To do this, we need to take a fairly long view of IBM and how it has performed over the past year or so. If one were only to look at the stock over the past few months, a couple of extremely important clues would have been missed.
Just about one year ago, IBM rallied to an all-time high at point K. It then reacted and found support at point P. This established an 18 point trading range between $210 and $192. While this may seem overly wide, it is only a 9% spread. This would equate to a $4.50 point spread if analyzing a $50 stock.
IBM moved sideways within the trading range for almost 11 months. It’s long-term trend channel is neutral. It also established an intermediate term uptrend channel (drawn in blue) with a support line through points G – F and a parallel supply line through point H.
The intermediate-term trend channel provides an important clue. Look how the Optimism – Pessimism Index behaved as IBM rallied off point G. It has been relatively weak, which strongly suggests a lack of effort (O – P Index) is not in harmony with the results (vertical line chart).
Then, on the rally to point R, tried to leave the long-term trading range to the upside. While the move was on good price spread and volume, the O – P Index didn’t participate and IBM was in an overbought condition relative to its Technometer.
Regardless, IBM penetrated the resistance (jumps across the Creek) and then even backed up to the resistance (Creek) at point S. It then attempted to rally and quickly moved into an overbought condition relative to its Technometer. Unfortunately, on the rally to point T, IBM was unable to move into new high ground and put in a lower top. This is not a good sign at this important juncture. IBM needed to go and go now. It didn’t and reacted back into the trading range at point U.
This would suggest that the Creek jump was not going to be successful and IBM would return to its long term trading range.
IBM put in a second lower top on the rally to point V. This also allowed us to draw a short-term downtrend channel, just like the Wyckoff Wave. This was an opportunity for a short term position to the downside. The position could have been taken anywhere between points V and W.
IBM then returned to its long term trading range and the news certainly accentuated the decline. It now has the opportunity to test support at point G or even the bottom of the trading range drawn from point P.
Is IBM in a position for a major decline? If the move to point R was an upthrust, that could have been the case. However, there wasn’t an upthrust. What we saw was simply an attempt to jump the Creek, which failed.
IBM is back in its long term trading range and we are waiting for ending action to see what the next intermediate or long term trend will be.
As an old basketball coach, I remember remarking (quietly and courteously of course) to referees when disagreeing with a call – “Ball don’t lie”.
In this particular case, charts don’t lie either. This is a classic example of how a stock was ready to react and the news took it down much faster than would normally be expected.