Expecting Further Reaction Back Into The Trading Range

For the last 4-5 weeks we have given the continued reasoning to expect a reaction back into the recent range.  The price and volume action had been very slow and in a tight range.  We continue to have a deterioration in price and we are now trading below the top of the trading range as expected.

Tuesday the Technometer gave us another sell signal which we alerted subscribers to in that evening’s update.  While the Wave has shown some price weakness, the Technometer has also stayed near an overbought reading which is shown by the blue circle at the bottom of the following chart.  We feel there is still the risk of more downside price action this coming week.

The S&P and Nasdaq Indices were both slightly lower for the week as well.

This past weeks action still supports the fact that the recent rally to “Z” is simply a rally to test the resistance at the top of the trading range. We therefore expect a further correction back to the middle or lower portion of the recent trading range, and wait for ending action once again.  Currently, the supply at the top of the trading range has pushed the Wyckoff Wave slowly back into the trading range.

The Optimism – Pessimism Index touched another new recovery high Wednesday with the Wyckoff Wave lagging considerably.   We felt that this was a meaningful divergence and could lead to more downside. The following chart shows the O-P at new highs Wednesday, with the price still near the bottom end of the recent range.

The O-P/Wave divergence happened while the Technometer went to a 50+ reading.

We also have our stop levels shown on our two recent short positions.

The moderate negative readings from the Force Index has supported the idea of a correction here.  The Force Index is at -145 which is applying some downside pressure on the Wyckoff Wave.

We had stated last week, that any further rally would return the Technometer quickly to an overbought reading which it did at Tuesday’s close/Wednesday’s opening.   So far this level has provided some resistance.

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