During the first part of last week, the Wyckoff Wave continued to give off indications that it was prepared to react. Apparently, that wasn’t the case.
On Thursday, instead of reacting, the Wyckoff Wave put in its most significant up day since early October. It rallied strongly past point V and returned to its intermediate-term downtrend channel.
This curveball sent aggressive short-term bears scurrying to cover their shorts. It also called for an examination of a new, so far unconsidered, scenario.
Patently, point V was not going to be an important resistance area and the Wyckoff Wave was not going to immediately react back into the trading range. This called for a review of the market action, since point Q, and the establishment of alternative scenarios.
On Wednesday, the Wyckoff Wave reacted on slightly increased price spread and volume. This suggested supply was coming into the market and the long awaited reaction off point V could be beginning. That didn’t happen.
The Wyckoff Wave rallied strongly on Thursday on good price spread and volume. This changed the short-term market trend from neutral to up. The new trend channel is drawn in blue, with the supply line between points Q and you and a parallel support line drawn from point T.
The Wyckoff Wave quickly ran into resistance. On Friday, the Wave approached the supply line of the intermediate-term downtrend channel. However, it did so on noticeably reduced price spread and slightly increased volume. This suggested supply was coming into the market.
In addition to the expected resistance at the intermediate down trend channel’s supply line, the Wyckoff Wave is also approaching an important support, now resistance line drawn from point I. This suggests the Wyckoff Wave is going to encounter a fair amount of overhanging supply, if it continues to rally.
It is already in an overbought position relative to its new short-term uptrend channel.
If the Wyckoff Wave can work through the resistance areas, like it did in the area beginning at point V, there is more potential to the upside.
On the 100 Point & Figure Chart their is a count of 8,200, along the 35,800 line. This provides an upside objective of between 42,700 and 44,500. Last March’s high, at point T, was 44,396. Therefore, the Wyckoff Wave has the potential to rally back to the top of the old trading range.
This new scenario must be carefully considered and closely watched as the market develops.
In addition to the above-mentioned resistance and the short-term overbought position, there are some other obstacles that may impede any substantial progress to the upside.
The Optimism – Pessimism Index continues to be in a negative divergence with the Wyckoff Wave when compared with points N and L. There is also a negative in harmonious action with point J. These negative indications continue to suggest the Wyckoff Wave is putting in a strong effort to the upside, but not obtaining commensurate results.
In addition, despite Thursday’s strong advance, the Force Index has been reacting for the past week. This suggests investor confidence is declining.
Does this mean we can ignore Thursday’s strong advance and assume the Wyckoff Wave will react back into the trading range? That would be a strong no!
If the Wyckoff Wave reacts, the Technometer can quickly slip into an overbought condition. This would allow the Wyckoff Wave to resume the rally, or at the very least, slowdown and probably stop any reaction.
As of this writing, there is uncertainty as to which of the, “rally to the top of the old trading range” or “react back to the bottom of the new trading range”, scenarios will prevail.
This would suggest that short-term traders stay out of the market and wait for new developments.
However, as shown on the attached weekly chart, we could well be in a re-accumulation period, not the end of this long and wonderful bull market. Therefore, intermediate and long-term investors should continue to maintain their long positions.
When the market throws a curveball, it’s best to duck, reevaluate options and let the market provide more information on what it is going to do. Watch and wait can be a good thing.