This past week the Wyckoff Wave continued to advance. It moved through the supply line of the short term up trend channel and is testing the support line of the old intermediate up trend channel.
This week’s market action mirrored previous weeks as the Wyckoff Wave has been unable to establish a consistent behavior pattern.
Demand that has been withdrawn, suddenly reappears. When supply comes into the market, it is not sustained. The Wyckoff Wave appears ready to sustain a normal corrective reaction, but then rallies.
This is shown in the market action we have seen over the past 2 1/2 weeks. The Wyckoff Wave rallied to point 1 on reasonable price spread and volume. It was in a position to test the supply line of its up trend channel. This is a place where supply could come into the market and the Wave would react back into the channel.
Instead, the Wyckoff Wave continued to rally. The rally was of poor quality. The narrowing price spread suggested a lack of demand making the Wyckoff Wave quite vulnerable to a reaction.
Finally, the Wave put in a one-day reaction to point 2. However, demand appeared and a strong up day followed. Then, this past Monday, demand was again withdrawn. The Wyckoff Wave was testing the short-term supply line and, once again, appeared vulnerable to a reaction.
The reaction began on Wednesday, but only lasted during the morning hours. Once again demand returned and this time, drove the Wyckoff Wave through the supply line. Now it was in a position to attempt to return to the old intermediate up trend channel.
However, there was no follow through on Friday. Instead the Wyckoff Wave rallied on reduced price spread and increased volume. This is an indication that supply was present.
The other Wyckoff indicators continue to be reasonably positive. The Optimism – Pessimism Index is rallying and has become slightly stronger than the Wyckoff Wave.
Even though the Technometer is in an overbought condition, that is somewhat mitigated by the positive numbers coming from the Force Index.
It would appear that, once again the Wyckoff Wave is vulnerable to react. However, market signals have been inconsistent and, to add insult to injury, short-term bears have been fooled twice in the past two weeks.
I am primarily an intermediate to long term investor and most of my profits have come from this strategy. However, I do enjoy some short-term trading and it has been rewarding as well. Several years ago I was able to cover a good portion of my son’s college expenses trading OEX options.
I have also had some disappointments. However, I have always looked at losing trades as an opportunity to learn and my short-term discipline and strategies have come more from my losses then my gains.
The most important lesson is that one does not need to be in the market all the time. I have learned to only trade when market conditions make total sense and the Wyckoff tools, like the O – P Index, Technometer and Force Index are sending the same message as the price spread and volume indications on the vertical line chart.
In addition, I always write down (don’t think it, write it) exactly what I expect a stock to do the next trading day and what I should do if that doesn’t happen. If a stock behaves contrary to what I have written, I simply close the trade.
I have found that if I adhere to this discipline, I enjoy profits, but keep my losses to a bare minimum.
This is a confusing market and while I have a short term bias to the downside, the market’s conflicting signals have sent me to the sidelines. I am very content to wait until all the Wyckoff indicators are sending the same message.
While this is of little interest to intermediate and long-term traders, who are holding positions and increasing the value of their portfolios, short-term traders are having a difficult time finding entry points.
While the market has been advancing, it is difficult to take a short term position to the upside in the face of an overbought Technometer and a continued lack of demand.
These would be high risk positions to the upside. In addition, the Wyckoff Wave has only gained 802 points or 2% in the last 14 trading days. In the face of a rather high risk, that is not a great reward.
The short-term trend is up. While traders should never try to fight the trend, they’re always looking for turning points. Until a turning point to the downside is much better defined, it is best to stay on the sidelines and wait for the market to tell us when to go for the gold.