Since the first of the year, the Wyckoff Wave’s performance, while quite positive, has been a bit frustrating. We have seen short rallies and long sideways movements. Spreads are narrower and trying to time turning points has been an exercise in frustration.
When this happens, it is always helpful to take a few steps back and look at the stock market from a broader perspective. In this case, the weekly chart of the Wyckoff Wave.
After looking at the narrow spreads and prolonged sideways movements on the daily chart, I found that a review of the Wave’s weekly chart seemed to put things in a better perspective.
The most significant point is that the Wyckoff Wave has easily returned to its long term up trend channel, drawn in orange. This trend began at the bottom of the 2008 bear market. Although the Wyckoff Wave has been in both the overbought and oversold positions relative to the trend channel, it has been in an up trend for just over four years.
During that time, the Wyckoff Wave gained 19,856 points or an increase of 134%. This has been a very impressive bull market and it doesn’t appear it’s going to end anytime soon.
After a long sideways movement, which began at point U, the Wyckoff Wave weakened the trend channel as it reacted down to point D. It is reasonable to call point D a spring.
The Wyckoff Wave then began, what has become, and intermediate term up trend channel. This is marked in blue. It rallied all the way to point G. Point G was just above the resistance (Creek) drawn from point C.
The slight penetration almost seemed to be an upthrust. However, the price spread and volume was not indicative of an upthrust. The Wyckoff Wave then moved sideways, reacted briefly to point H and then drove into new high ground.
This penetration of the resistance (jumping the Creek) is much more apparent on the weekly chart, than on the daily chart. The Wyckoff Wave has decisively returned to the uptrend channel and has actually slightly weakened the intermediate-term up trend channel.
Even more important, there is plenty of room for the Wyckoff Wave to react back towards the now support/resistance line (Creek) drawn from point C. This enhances the probability of a successful and extremely important Last Point of Support (LPS), which could mark the beginning of a new move to the upside.
In fact, the support line of the long term up trend channel could end up being an excellent spot for this LPS.
I have also added a weekly line chart of the Optimism – Pessimism Index and placed it below the volume on the weekly chart of the Wyckoff Wave.
I have drawn a long term up trend channel using the same support and resistance points for the trend channel on the Wyckoff Wave vertical lne chart. Notice how, over a four-year period, the O – P Index is weaker than the Wyckoff Wave and in an oversold position relative to its up trend channel.
At first glance, this would seem to be a negative indication. However, even though it is weaker over the long term, the Optimism – Pessimism Index is in harmony with the Wyckoff Wave. As a matter of fact, if you compare the O – P Index with the Wyckoff Wave using the intermediate term uptrend channel, you will see the O – P Index is significantly stronger than the Wyckoff Wave.
What we are seeing on the long-term chart is evidence of the tremendous amount of overhanging supply that continues being dumped on the market.
When this supply encounters a strong Wyckoff Wave, that is determined to rally, the result is a standoff and the sideways movement, without reactions, that we have been seeing.
On Friday, the Wyckoff Wave closed at 34,606. The top of the 2000 bull market was just over 38,000. The main distribution area prior to the 2008 bear market was also at the 38,000 level. That’s where an awful lot of folks bought into the market and, even after all those years, are now trying to get out even.
The market strength is shown by its sideways movement, rather than a strong reaction.
We can see the impact of the O – P Index and the Force Index on the Wyckoff Wave, by looking at the daily chart.
Both are extremely positive. We have already discussed the Optimism – Pessimism Index, but when the Force Index produces positive or very low negative numbers, it is a positive sign.
At point X, the Technometer was in an extremely overbought condition, relative to the Wyckoff Wave. They should have precipitated a strong reaction. Instead the Wyckoff Wave moved sideways.
If you look at the Force Index from point X through Friday, we have seen extremely strong readings. This is why the Wyckoff Wave hasn’t reacted.
Will the Wyckoff Wave react in the coming days? If so, and the reaction is on reduced price spread and volume it would be an indication that all the supply is finally drying up. In this case, a reaction would be a good sign for the bulls.
The Wyckoff Wave’s next objective on the 100 Point & Figure chart is between 37,400 & 38,900. That count is along the 31,000 line and only includes the first two of four phases.
The stock market appears to be setting up for its next move to the upside. Let’s hope it comes sooner, rather than later.