Intermediate and Long Term Opportunities

Click Here For Wyckoff Wave Chart 04-01-2016

This past week I received a comment regarding last week’s blog post. It came from a 50 year Wyckoff student. While, in itself, that caused me to pay attention, his comments were right on the money.

He said; “How is it Jim, that mention is only made several times about maybe going short?

This during a huge 5,000 point rally–tons of money to be made going long?”

Sometimes, we have a tendency to pay much more attention to short-term moves, than studying the market from a longer-term perspective. As the trading range, which began in late August, progressed, I have paid more attention to short-term opportunities rather than a longer-term perspective.

Trading ranges can get a bit boring. Stock market traders want action and waiting for a long trading range to develop and go through ending action, is not one of our top five favorites.

While we may not enjoy the waiting, that comment was right on the money. There are, most probably, excellent profits to be made to the upside, in the intermediate to long-term future.

Let’s go back and take a longer-term look of the stock market, as shown on the Wyckoff Wave’s weekly chart.

Since the end of the 2008 – 2009 bear market, the Wyckoff Wave has risen by 300%. It went through four periods of accumulation and re-accumulation before topping out last March at 44,396. This was one of the longest sustained rallies in market history.

This wonderful rally did not end with a Buying Climax. It would be difficult to call the market action to the right of point B distribution. It simply appeared that the Wyckoff Wave ran out of demand and began a normal corrective reaction.

This reaction broke the long-term uptrend channel (drawn in orange on the weekly chart) and the Wyckoff Wave reacted. The following refers to the weekly chart.

The reaction appears to have ended on August 24, 2015, with a Selling Climax at point L. This was confirmed as the Wyckoff Wave put in an automatic rally to point M and a successful Test of the Selling Climax at point N. Since then, the Wyckoff Wave has moved sideways. In doing so it established a resistance level at point O and support levels at points L and P. The Wyckoff Wave has rallied to the top of the trading range and is presently testing the high at point O.

So far, this trading range appears to be in the early stages of accumulation. The purpose of accumulation is to motivate “weaker hands” to sell stocks to the professionals “strong hands”. Early in accumulation, no one is particularly anxious to sell. This can be overcome by a dull market, where non-professionals become tired of watching iridescence move sideways and move on to other options.

Low interest rates make this more difficult as other options are few and far between.

Another way to turn holders into sellers is bad news. I read today that Donald Trump is forecasting a major recession. Presently the Wyckoff Wave is at the top of the trading range. Perhaps Trump’s bad news will stimulate some selling.

Regardless, the trading range will continue until there is ending action. If this sideways movement is accumulation, there should be a Spring, with it’s Secondary Tests. If successful, this will be followed by a Sign of Strength and a Last Point of Support. This will signal the beginning of the new bull market.

In my humble opinion, this scenario has an excellent probability of success and the Wyckoff Wave has a very good chance of increasing by over 200%. That forecast is taken from a very preliminary count on the 100 Point & Figure chart.

While the intermediate and long-term trader can simply hold their positions through this trading range, it also presents the opportunity for some portfolio adjustments.

Like now, when the Wyckoff Wave reaches the top of its trading range, stocks that have either met objectives, or under performed can be sold. The proceeds from the sales can be held in a cash account until the Wyckoff Wave reacts to test the bottom of the trading range. This gives the intermediate and long-term traders opportunities to take new positions at good prices.

This situation appears on the daily vertical line chart. The Wyckoff Wave has broken the short-term uptrend channel and appears ready to react back into the trading range. A strong reaction would open the door for long-term traders and investors to spend some of that cash.

The Wyckoff Wave ran out of demand at point R, on the daily chart, but has yet to put in a good reaction.

The brief reaction to point S was followed by a rally to point T, which is testing the top of the trading range. The Wyckoff Wave’s Technometer was oversold during most of this past week. There also are negative divergences with the Optimism – Pessimism Index. These all indicate a reaction and short-term opportunities to the downside.

Short-term opportunities aside, I agree with the 50 year Wyckoff veteran, who has seen more than his share of market rallies and reactions. The market has a tremendous opportunity to the upside. It will offer larger profits on an intermediate to long-term basis then what can be gained from short term or swing trades.