This week the Wyckoff Wave left the apex to the upside. Unfortunately for the bulls, it is running into resistance as the Wave approaches the top of the trading range (line drawn from point H).
While it could certainly move through the resistance (jump the creek), the Wyckoff indicators suggest it is unlikely to happen.
Friday’s market action indicated the presence of supply. The Wyckoff Wave attempted to rally and then reacted and closed near the bottom of a narrower price spread. This is an intraday failure to the upside and due to the increased volume, indicates the presence of supply.
This negative indicator is supported by a clearly overbought Technometer. On Friday it closed at 55.45. On Monday, it will also open in a clearly overbought condition.
The Wyckoff Wave is also in a negative divergence with its Optimism – Pessimism Index (the O – P Index is a volume index of the Wyckoff Wave). When compared to point H, the O – P Index is higher and the Wyckoff Wave is lower. This suggests that the market effort, as shown in the O – P Index is not being matched by the results of the Wyckoff Wave.
These two indicators are important, but even more significant when the Wyckoff Wave is approaching an important resistance area.
Therefore, the reaction back into the trading range scenario has the highest probability of success.
If this plays out, it puts the Wyckoff Wave right back into a sideways trading range. It must now wait for new ending action to determine the market’s future direction.
This ending action could happen if the Wyckoff Wave reacts to test point I and, in the process Springs the support line at point I.
Back in October, the Wyckoff Wave had a #1 spring (shakeout) at point E. This was a potential ending action, but fizzled out as the Wyckoff Wave rallied and put in a higher top in this long and tedious trading range. Instead of moving strongly into new high ground, the Wyckoff Wave reacted to point I and continues to move sideways.
This suggests that two new phases have been formed in the trading range. The most conservative phase would be a count from the Spring or the Last Point of Support over to point I.
While there is no beginning point to the count, presently there is a potential to the upside of over 8,000 points. If the count is extended all the way over to point E, the Wyckoff Wave could advance by over 13,000 points. The most conservative count would be taken from point I along the 40,900 line. The more aggressive count from point E would be taken along the 38,700 line.
Once these counts are finalized, they would give the Wyckoff Wave an objective of over 50,000 or about 25%.
Just because the Wyckoff Wave is in a trading range, doesn’t mean you will automatically rally out of that range. However, in this case, unless there is a major change in the market’s character, an important move to the downside has a fairly low probability of success.
Throughout this trading range, the Wyckoff Wave has shown relative strength on the rallies and for the most part, higher tops and higher bottoms.
In addition, when it seems a rally within the trading range has met resistance and will end, it continues to advance to a new high. This is evidenced by the number of new resistance lines that have been drawn to mark the top of the trading range.
In addition, with the exception of the support line drawn from point E at the #1 spring, each support line drawn on the chart has been higher than its predecessor.
Finally, the Wyckoff Wave is right in the middle of its long-term up trend channel. With only a few exceptions, it has remained in this channel for over six years.
For many months, the Wyckoff Wave has had an upward bias and there are no indications that we are seeing any change in character.
Intermediate and long-term bulls, who have held positions during this long trading range have seen nice gains in their portfolios. There is no reason to think that 2015 is not heading for the same results.