The Wyckoff Wave finished a shortened, but unproductive week, with an attempt to leave its most recent sideways movement or trading range to the upside. While Thursday’s market action was not, in itself, particularly impressive, we might be seeing the beginning of some ending action.
The Wyckoff Wave has spent the last two weeks in this minor sideways movement, which began at point X. The operative word here is minor as the Wave is in the upper portion of a significant intermediate term up trend channel.
While supply continues to be present, the Wyckoff Wave refuses to react. In itself, the sideways movement is a positive sign. Coupled with the Wave’s history of moving sideways and then rallying within this up trend, the market’s outlook for the future seems quite bullish.
A quick review of the first daily chart shows the relative strength of the Wyckoff Wave within the intermediate-term up trend channel.
It also shows important resistance lines at the top of the phases of this year-long trading range. As the Wyckoff Wave has moved strongly through these lines, they now are expected areas of support when or if the Wyckoff Wave reacts back to an important Last Point of Support.
Presently, the most important of these lines is drawn from point X. The back of the resistance areas (Creek) is the line drawn from point X through point Z, B and D.
The second chart is a 100 Point & Figure chart of the Wyckoff Wave. In addition to the significant counts to the upside, there is also a potential count to the downside taken along the 34,900 line. Presently, there is a count of 1,400 points, giving us an objective to the downside of 33,500. This is right at the resistance/support line drawn from point X.
While this information is interesting and perhaps helpful, it is not a definite indication that the next move is down or that 33,500 is the final objective. The Wyckoff Wave could certainly continue to move sideways and add to that count.
With all that in mind, let’s take a closer look at Thursday’s market action and the scenarios that may be starting to play out.
I have drawn a very short-term trading range with a resistance line drawn from the highs at point X and the support line drawn through the low that occurred two days later.
On Thursday, the Wyckoff Wave began to leave this trading range to the upside. The day’s market action was on reduced spread and slightly increased volume.
As the Wave has moved above the resistance, we now need to consider a few short term scenarios. It is important that the intermediate and long-term scenarios are comfortably bullish and are not impacted by this short-term market analysis.
There are three possible scenarios and they are presented in order of their probability.
1. The Wyckoff Wave is beginning an upthrust. Narrow spread and only slightly increased volume are not positive indications. In fact, an intra-day review of the individual waves suggested more of a lack of demand. Either way, there is an opening for supply to come into the market and drive the Wyckoff Wave back through the trading range. It is also important to note that any advance will run into additional resistance as the Wyckoff Wave tests the support line of the intermediate term up trend channel.
Finally, after being overbought on Thursday, the Technometer moved into a high neutral condition. Until recently, the Technometer has been supported by a strong Force Index. The Force Index is now at -229. This suggests that any reaction cpuld be a bit deeper and longer.
2. The Wyckoff Wave could continue to leave the trading range to the upside and begin a new mark up phase. It this happens, Monday will bring wide price spread, strong volume and a weakening of the intermediate-term up trend channel. Unfortunately, this will move the Technometer into an overbought condition. This time, as mentioned above, a weaker Force Index will not sustain an overbought condition on the Technometer.
3. The Wyckoff Wave will simply react back into the trading range and continue it ssideways movement.
The Wyckoff trader should be prepared to respond to any of these scenarios. The aggressive short-term trader could consider positions to the downside on the upthrust.
At this time the other scenarios would not require any market action. If the market breaks out to the upside, short term bulls should wait for the next reaction to take a position. Chasing the market, especially one that will be over bought, can be a bit tricky.
Intermediate and long-term bulls are happily watching their profits accumulate. Even though the market has moved sideways, over the past two weeks, portfolios have increased in value as Wyckoff investors have accumulated stocks that are stronger than the Wyckoff Wave.
If the Wyckoff Wave experiences a short-term upthrust and reacts, there is a good possibility this will turn into an important Last Point of Support. This will be an excellent opportunity to add to intermediate and long-term portfolios.