The Evolving Trading Range

Click Here For Wyckoff Wave Chart 05-13-2016

This past week, the Wyckoff Wave appears to have successfully tested the April high at point V. That happened on Tuesday and is marked as point X on the daily chart.

The minor rally to point X eliminated the probability that the reaction from point V to point W was a reaction to a Last Point of Support. After the poor quality rally to point X, supply came into the market and the Wyckoff Wave reacted. Not only did it put in a lower low then at point W, but the wider spread and slightly increased volume is not conducive of market action preceding a Last Point of Support.

The reason this scenario had a low probability of success, was the poor quality of the rally from point U to V. The rally was on relatively narrow price spread. Demand was not particularly strong or sustained. This is not conducive to a Sign of Strength.

This suggests that the reaction to test the lows at points U and S, will begin to define the beginning of a new phase of the trading range.

The new phase of this evolving trading range could have support in the area of points U and S and resistance in the area of point V.

One reason that it will be difficult for the Wyckoff Wave to react much past points U and S is the Technometer. This past week it has moved from a clearly overbought condition at point X to a slightly oversold condition, as of Friday’s close. If the Wyckoff Wave continues to react the Technometer will become extremely oversold. It is difficult for any reaction to continue in the face of a strongly oversold Technometer.

In addition, the negative readings from the Force Index do not mitigate the impact of the oversold Technometer.

A quick look at the weekly chart, where point V on the daily chart is marked as point Q, shows the Wyckoff Wave ran into resistance as it approached the bottom of the sideways movement that began in November 2014. This would be a very logical place to encounter overhanging supply.

People, who purchased stocks in late 2014 and early 2015, lost money as the stock market reacted and went through the August, 2015 Selling Climax at point L (weekly chart). The rally to point Q (weekly chart) gave them an opportunity to get out even, or with a small loss. That was the overhanging supply.

This past week, I came across an interesting fact that reflects the action of a public with little patience. In the 1960’s the average person who purchased stock, held that purchase for an average of eight years. Today, that average is eight months.

Those investors, who purchased stock early in this wonderful bull market that began in 2009, have seen excellent returns on their initial investments. In addition, by simply riding out the decline, these investments are at or even slightly above their all-time highs. Patients is a great virtue.

The new phase of the trading range, which is developing at a significantly higher level than last August’s Selling Climax is another indication that the trading range has a good probability of being accumulation.

Another contributing factor is the relatively narrow price spread and overall market dullness. This dullness is a contributing factor in motivating the public to sell stock to professional interests.

What lies ahead? Although we have not seen any ending action or a Last Point of Support, the Wyckoff Wave’s 500 point and figure chart already shows a maximum objective of over 65,000, if all the counts play out.

It is important to note that until there is ending action, a definitive objective cannot be stated. The point here is to show that if we are, indeed, in a period of accumulation there is the possibility of a nice move to the upside.

Buy and hold maybe boring, but it also can be very profitable.