Expecting Continued Reaction…

The last few months we have seen low volatility with almost no net movement.  We have continued to look for a further reaction on these weekly updates.  Today’s report will be no different.  This last week we had a minor pullback Monday, then basically sideways action the rest of the week.  Volume has given us no extra clues as well.  We are trading right below the resistance level of the recent trading range, and still expect further weakness.

We are once again reaching overbought on the Technometer and this is occurring while we are at a lower high on the Wyckoff Wave.

The S&P and Nasdaq Indices were both unchanged for the week after Fridays rally.

The past two weeks action still supports the fact that the rally to “Z” was simply a rally to test the resistance at the top of the trading range. We therefore still expect a further correction back to the middle or lower portion of the recent trading range, and wait for ending action once again.

The Optimism – Pessimism Index touched another new recovery high at Friday’s opening with the Wyckoff Wave still lagging.   We feel that this divergence will lead to more downside action in the Wyckoff Wave.

Our original shorts are still on with our stop level shown on the intra-day chart.  We are looking to add to shorts, because as of Friday, we have a buy signal in the bond market.  It would make sense here to have a stock selloff, with a corresponding bond rally.

The moderate negative readings from the Force Index continues to support the idea of a correction here as well.  This reading is still applying some downside pressure on the Wyckoff Wave.

This in conjunction with the Technometer close to another Overbought reading, should give us downside action in the week ahead.

The recent trading action still supports the reaction scenario back into the middle of the recent trading range at “U”.

While the Wyckoff Wave will most probably not be putting in a Last Point of Support on any expected reaction here.   If strong volume would come into the upside, this scenario would have to be back on the table.  We would expect more weakness before entertaining that idea.

Good Trading,

Todd Butterfield