Week in Review
July 11, 2016
On Friday, the Wyckoff Wave put in a surprise move to the upside. This was after it appeared to successfully test the earlier high at point C on the daily vertical line chart.
On Friday, June 1st, the Wyckoff Wave rallied to point E on reduced price spread and volume. This appeared to be the successful secondary test of point C. The following Tuesday, the Wyckoff Wave reacted as expected, as some supply did come into the market.
Wednesday saw an intra-day failure to the downside, as the Wyckoff Wave found support and rallied. However, that bounce was more on a lack of supply than demand coming into the market.
Even though Thursday’s market action moved the Wyckoff Wave slightly lower on reduced price spread and volume, an analysis of the intra-day waves indicated a lack of demand.
Once again, this seemed to confirm that the Wyckoff Wave was successfully testing, not only point C, but now point E, and was ready to react back into the trading range.
Then along came “oops Friday”. The Wyckoff Wave rallied on increased price spread, but lower volume, then on Thursday. For the second time in a week, the move to the upside was not on demand, but a lack of supply.
Regardless, the Wyckoff Wave rallied past the highs at points C and E and moved through the top of the trading range. There, for the first time in several days, the Wyckoff Wave encountered supply, as it reacted during the last hour and 10 min. of the trading day. This increase in volume is seen on the intra-day chart. While volume is normally higher at the end of the trading day, notice how it increased as the Wyckoff Wave reacted off point W on the intra-day line chart.
What did this week’s market action mean? Was the Wyckoff Wave putting in a poor quality test of point C, or was this the beginning of a move through the top of the trading range? This would suggest a Sign of Strength and the beginning of an intermediate term move to the upside? Let’s look at both scenarios.
Friday’s market action eliminated any negative divergences or inharmonious actions between the Wyckoff Wave and its Optimism – Pessimism Index. In addition, the Technometer remained in a neutral condition. Finally, the Force Index was producing positive readings.
Based on these indicators, there is nothing that suggests the Wyckoff Wave will react. In addition, the Wyckoff Wave rallied through the top of the trading range on wider price spread. As the Wave moved through the top of the trading range, it did not meet strong resistance in the form of a sustained supply. These are all positive and encouraging indications.
Conversely, it is always important to analyze the entire move rather than just a single trading day. Since the rally off point D, on the daily chart, the Wyckoff Wave has only experienced one day, when good demand was present. That was on the day prior to point E. Then, demand was withdrawn the next trading day.
If the Wyckoff Wave is going to rally into new high ground, it seems that stronger demand should have be present.
Point D on the daily vertical line chart is at the same place as point G on the intra-day line chart. Because the Wyckoff Wave put in successive higher highs and lower lows, an intra-day up trend was established. The trend channel, drawn in blue, established a support line at points G and point I. A parallel supply line was drawn through point H.
The Wyckoff Wave moved into an overbought position relative to the trend channel at point M. This suggested the Wyckoff Wave would react back into the channel. It did, but supply drove the Wyckoff Wave through the channel’s support line and into an oversold position at point T.
The Wyckoff Wave had an opportunity to correct its oversold position and return to the intra-day up trend channel. Instead, there was a poor quality intra-day rally to point U. The Wyckoff Wave failed to return to its trend channel and the intra-day trend was changed to neutral.
On Thursday, the Wyckoff Wave reacted to point V. This was expected to be the beginning of a reaction that would at least test the lows at point G and probably continue back into the trading range.
Then on Friday, the unexpected happened. The Wyckoff Wave rallied to point W. Notice that despite the nice move to the upside, the Wyckoff Wave has not been able to return to its intra-day up trend channel.
When trend channels are drawn, it is important that they remain in place and not be changed. To move the support line from point I to point T and the parallel supply line to point M, would be a mistake. Trend channels should be used to identify entry, exit and especially turning points. They should not be used simply to frame the market.
That the Wyckoff Wave has been unable to return to its intra-day up trend channel is a negative indication.
The Wyckoff tools are neutral to positive. However, the analysis of supply and demand, that has been discussed above, is more negative.
When these conflicts appear, it is always better to go with the analysis of price spread and volume.
While I may look a little silly next week, I certainly feel that the Wyckoff Wave will have a difficult time continuing its rally.
Poor quality secondary tests need to be tested. Therefore, it would appear the Wyckoff Wave will react and then rally to test Friday’s high. The success or failure of that test will determine the market’s future direction.