Before resuming my blog posts, I would like to take a moment to express my sincere thanks and appreciation to so many of you who sent me e-mails of condolence after Marlene’s passing. They have helped greatly as I work through this difficult time.
Marlene was the love of my life and we would have been married for 50 years this June 19th.
In this Internet age is uniquely special that you can receive the care and support from people you have never met. Thank you and may God bless you.
When the last blog post was written, the stock market, as measured by the Wyckoff Wave, was testing the high at the top of the trading range that began back in April. As expected, after a brief reaction and poor quality rally to point F, the Wyckoff Wave reacted. At Friday’s close, it was testing the low at point W.
This places the Wyckoff Wave in an interesting and possibly critical position. In today’s post, we will discuss the possible scenarios and their probability of success.
The Wyckoff Wave began a major trading range with a Selling Climax in October, 2014. This is marked as point A on the weekly chart. The major trading range is divided into phases. At this point, the most important phase is the one that begins at point G on the weekly chart. It is marked as point W on the daily chart.
On the daily chart, the trading range’s support line is drawn from point W. The resistance line is drawn from point X, through point Z, B, D and F.
Finally, on the weekly chart, the Wyckoff Wave is in an oversold position relative to its long-term up trend channel.
With that information, let’s review the possibilities and prioritize their probability of success.
1. The Wyckoff Wave could react strongly through the support line drawn from point W. This would be an important Sign of Weakness and give the Wyckoff Wave an opportunity to at least react back to the October 2014 low (point E on the daily chart, point A on the weekly chart). It could then continue to react or meets support and begin a new phase of this long trading.
This would occur if the reaction, off what was thought to of been the Last Point of Supply, met support at point near the bottom of the Sign of Weakness.
2. The Wave could react through point W, encounter strong demand and rally. This would be a Spring of the last phase of the trading range. This could well be the catalyst that moved the Wyckoff Wave into new high ground.
A Spring is an example of ending action and, if successful, is followed by a Secondary Test, Sign of Strength and a Last Point of Support.
3. The Wyckoff Wave could simply test the support at point W and rally back into the trading range. This would eliminate any ending action and the trading range would simply continue it sideways movement.
The probabilities of success are as follows.
1. The Sign of Weakness Scenario has the lowest probability of success. There was no upthrust in the area of point F. This suggests strong supply is not in the market. That is confirmed by the reaction off point F. Supply, while steady, was not overpowering. This will also come into play when discussing the Spring scenario.
In addition, the Optimism – Pessimism Index, which is a study of volume only, remains relatively stronger than the Wyckoff Wave. In addition, it is in a positive inharmonious action with the Wyckoff Wave, when compared with point W.
These all suggest demand is still present and the market is relatively strong.
2. In my view, the Spring scenario has the highest probability of success. Last Friday, the Wyckoff Wave reacted on wide price spread and good volume and tested the low at point W. However, supply was not overpowering and some demand returned and prevented the Wave from reacting through the support.
Instead, the Wyckoff Wave rallied poorly, ran out of demand and is now reacting for another test of the support. Supply has remained constant and not overpowering. This is a clue that a Spring may be coming.
Also, last Friday the Technometer moved into an extremely oversold condition. This, plus the O – P Index’s positive inharmonious action, suggests that demand is present and waiting to make an appearance.
3. This has the second highest probability of success, but isn’t that far behind scenario 2.
After last Friday’s strong move to the downside, the Wyckoff Wave is testing that low. On this week’s reaction the price spread is narrower. This would suggest a successful test of last Friday and a rally back into the trading range.
However, this week’s volume was relatively high. This suggests the presence of supply which, so far, is stronger than the demand. If this week’s reaction had seen lower volume, this scenario would have moved to 1 on the probability list.
Does that mean a spring is guaranteed. Absolutely not. The market will tell us what is going to do. Our responsibility is to identify scenarios and be prepared to take action as they play out.
Next week should be fun. I can’t wait to see what’s going to happen.