Technical Analysis of Stock Trends, The Wyckoff Wave – Week in Review August 19, 2016
This past week the Wyckoff Wave closed 62 points lower than it did the previous Friday. Volume continues to be low. A review of the daily market action suggested the absence of both demand and supply. Therefore, little has changed since last week’s Market Letter.
Last week’s Letter discussed three scenarios. The first was that the Wyckoff Wave would rally and successfully test point F on the vertical line chart. The second saw the Wyckoff Wave putting in a Spring of the sideways movement from point G. The result would be a stronger rally that would test the top of the trading range at point E. Finally, the scenario with the least probability of success has the Wyckoff Wave reacting back into the trading range and, at least, testing the lows at point D.
The week’s market action did not result in a Spring or a strong reaction back towards point D. In addition, the lack of strong supply further reduced the probability that the Wave would react.
When an index or stock is going through any kind of distribution there is a tendency to see a wider price spread and higher volume levels. This week’s market was quite dull and displayed none of those characteristics.
The Wyckoff Wave certainly did not Spring the sideways movement. While it attempted to move lower and test the movement’s support, every time it did so little demand came into the market. This also suggests that the Spring scenario’s probability of success is also reduced.
This leaves the normal corrective rally scenario. A normal corrective rally would fill the gap left on the move to point G. A successful test of point F could also create a change in the short term trend, from neutral to down. This would give the Wyckoff Wave an opportunity to react back into the trading range and possibly Spring the support in the area of either points D or Z.
It is also possible that the Wyckoff Wave could begin a new trading range phase with support marked by point G and resistance by point E.
Regardless, in one form or another, it appears the Wyckoff Wave’s next move will be to the upside. The Technometer continues in an oversold condition and, more importantly, the overall market dullness suggest accumulation, not distribution.
The 100 Point & Figure chart has a tentative objective account, taken along the support at point G, of reaching the high at point E. While there are no specific Wyckoff indicators that would allow us to take a count, if some sort of ending action occurs, that would be an important objective area.
If this objective are reached, it would eliminate the normal corrective rally scenario and improve the probability that we would enter a new phase of the trading range that began in August, 2015.
So, what should happen next week?
The Wyckoff Wave will probably either put in some sort of an attempt to rally or continue to move sideways.
Eventually demand should return to the market and the Wyckoff Wave will begin to rally. I am much more confident that demand will return than I am as to when it will actually happen.
A while ago, the Daily Pulse of the Market Report advised short-term traders to take short positions in the area of point E. Those positions should continue to be maintained until strong demand comes into the market.
As the Wyckoff Wave is still close to its highs, adjustments in intermediate and long-term portfolios can still be made. This would include taking profits on individual stocks that have reached objectives, or closing positions that have not met expectations.
Cash can be set aside to take new positions as market conditions indicate.