An Interesting Gap Opening

Friday, August 5, 2016

Click here to open the attached charts

What To Do?

Short Term:
There are no short-term opportunities to the upside.
Aggressive short-term bears should maintain their positions and move stops to cover costs.

Intermediate & Long Term:
Their are no intermediate or long term opportunities to the upside.
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, but in an extremely oversold position.
Short Term: Neutral
Intermediate Term: Neutral
Long Term: Neutral

The stock market, as measured by the Wyckoff Wave, traded lower on increased volume. It closed in the upper half of a wider price spread, in a neutral condition relative to the Technometer. The price spread and volume suggest the presence of supply.

Despite the large increase in volume, a review of the intra-day waves indicates that the morning featured a lack of demand and some supply returned during the afternoon.

After a huge gap opening to the downside and a 20 min. follow-through to point V, the Wyckoff Wave spent the next two hours and 45 min. in a relatively poor quality rally to point W.

There, some supply came into the market and the Wyckoff Wave reacted for the rest of the trading day.

The gap opening, which resulted from extremely bad news from Bristol-Myers about a failed lung cancer chemotherapy trial, dominated the day. Regardless of the news, the Wyckoff Wave had behaved as though it was going to react and today, it did.

The Wyckoff Wave reacted through the resistance now support line that marked the top of the original trading range and established an oversold position relative to its intra-day down trend channel. Today’s lack of demand and presence of some supply suggests the reaction may not be complete.

This scenario is supported by the intra-day Optimism – Pessimism Index. Notice that point W is noticeably higher than points U, L and J. It is noticeably lower than the Wyckoff Wave. This intra-day negative divergence suggests the effort being put in to rally the Wyckoff Wave, is not achieving the expected results. This also makes the Wyckoff Wave vulnerable to a reaction.

The Optimism – Pessimism Index rallied. It is in a slightly overbought position relative to its upward trend channel. It remains in harmony with the Wyckoff Wave.

The Force Index rallied slightly.

On Monday the Technometer will open in a neutral condition.

Today, in contrast to other market indicators, the Wyckoff Wave reacted back into the trading range. It moved through the resistance/ support line drawn from point C and is now in a position to test the June low at point D.

Is the Wyckoff Wave bleeding the market or did today’s market action make it an outline?

The S&P ETF (SPY) rallied on reduced price spread and increased, but relatively low volume. It also rallied into new high ground. This is a critical point for SPY. It needs to go and go now and based on today’s market action, that could be a difficult undertaking.

Although the Wyckoff Wave has returned to the trading range that began last August, at point Q on the one year chart, it may rally next week and test the line drawn from point C. If the test is successful, the Wyckoff Wave could make a significant reaction back into the trading range.

If not, the Wyckoff Wave could begin a new phase of the trading range with resistance beginning at point E and support at the bottom of the ongoing reaction.