Expecting the Reaction to Continue

Tuesday, January 24, 2017
What To Do?
Short Term
Short-term bears should hold short positions and keep stops as previously directed.
Short-term bulls should stand aside.
Intermediate & Long Term:
Intermediate and long term positions to the upside should be maintained.
There are no intermediate or long term opportunities to the downside.
Market Trends:
Intra-day: Down
Short Term: Down
Intermediate Term: Up
Long Term: Neutral
The stock market, as measured by the Wyckoff Wave opened slightly higher today, and continued higher for the rest of the day. Volume was unchanged today from yesterday, and still at average levels.  The price spread and volumes showed some demand present.
The Technometer came off of the overbought reading which we used as a sell signal in the middle of last week and is now back at neutral again.
The Nasdaq and S&P 500 were both higher almost .75% today, and stronger than the Wyckoff Wave.

A review of the intra-day waves shows the Wave opened higher and continued higher all day.  The O-P did not follow the price two new lows yesterday, and then reversed upward late yesterday and today.  We was expecting more weakness the last few days, but the O-P did not respond with further weakness which created a divergence, so we had the rally of the last two days.  The O-P is now once again at new highs for this move, and the Wave is still lagging considerably.
The Optimism-Pessimism Index was higher today.
The Force Index closed higher today as well, and in the last two days has rallied considerably to a negative reading of only -69.  This is allowing the Wave to add to its gains.
On Wednesday, the Technometer will open neutral/overbought.

Today, the Wyckoff Wave closed higher on average volume.  We had stated that we would have liked to seen more downside volume come in Monday and take the O-P to a new low as the Wave had done, but this did not occur..  The Technometer has just came off an overbought “Sell” reading, and we should have more downside before it would become oversold.  We are anxious to see what resistance there is at point “D”.  So far we have been making lower lows and lower highs, so let’s see if this scenario holds.
The alternative scenario is that we are backing up to the previous highs for a Last Point of Support.  For all the reasons we have mentioned over the last few weeks, we see this as a very low probability.  If the Wyckoff Wave can continue higher with an increase in volume, then that would be a bullish scenario and we would discuss in more detail.  With the O-P/Wave divergence and near overbought Technometer, this alternative is losing favor.  On today’s rally volume did not increase so we are still of the opinion there is more downside.
As we have been continuing to acknowledge, the rally from “S” to “Z” did not have the volume and price spread we was expecting from a Jump Across The Creek, but appeared more as a test of the upper limits of the trading range.  Lets see if we can fall further back into the trading range here as expected.
 

Good Trading,
Todd Butterfield