This past week brought more bad news to the stock market. Media outlets trumpet newfound concerns about Emerging Markets. This new term first came to light on Friday, January 23rd, when the markets and the Wyckoff Wave put in strong move to the downside.
The “bad” news continued and Wyckoff Wave continued to react. The price spread narrowed and volume increased. This suggests that some demand was coming into the market.
The Wyckoff Wave is also in a position to test the resistance, now support, line of the trading range that began at point K. This is also the near bank of a significant Creek If this test is successful, it will become an important Last Point of Support.
The week’s increased volume indicates that both supply and demand are waging a battle for control of the market. In concert with the bad news, some investors are liquidating stocks and that supply is causing a downward pressure on the markets.
However, the narrowing price spread indicates that a fair portion of the supply is being taken in by investors who expect the markets to rally in 2014. Could this be an example of stock moving away from week and into strong hands?
As we are fast approaching both the support/resistance line mentioned above and the supply line of the long term up trend channel (drawn in orange), this battle appears to be entering its final stages.
The bulls are looking for a continued reaction on decreased price spread and volume. The bears would also like to see the market react, but on wider price spread and sustained volume.
Is the Wyckoff Wave providing any clues as to what that important answer may be?
Subscribers to the daily Pulse of the Market Report are receiving additional commentary on the performance of the Wyckoff tools. These tools are the:
1. Optimism – Pessimism Index, which is a volume index of the Wyckoff Wave.
2. Technometer, which measures overbought and oversold conditions.
3. The Force Index which registers investor sentiment.
These important Wyckoff tools are providing some interesting readings that suggest we are not about to encounter a substantial reaction. These clues will be become clearer as next week unfolds.
One reason that a strong reaction may not be in the cards, is because no cause has been built that would support a reaction.
On the attached 100 Point & Figure chart, the only place to take a count is along the 40,100 point line. This 1,500 point count, would give us a maximum downside objective of 38,600. The Wyckoff Wave has already reached that objective area.
Conversely, last May, the Wyckoff Wave began a prolonged trading range at point K on the weekly chart. Although it did not spring the trading range and point N, there was a Sign of Strengths from point N to point O. Point P can be called a Last Point of Supply.
The Wyckoff Wave then rallied and jumped the Creek (penetrated the resistance line at the top of the trading range) and continued to point S. It is now reacting back to the Creek and we shall see if there is a successful backup. Again, this would be an important Last Point of Support.
Returning to the 100 Point & Figure chart, it is therefore reasonable to take an initial count along the 36,200 line. This gives us an objective of between 42,900 & 43,009.
If we do put in the Last Point of Support, approximately 7,500 points can be added to those objectives. At this time there is no specific Last Point of Support. This provides a total objective of from 50,400 to around 53,700.
It is interesting to note that a figure chart count taken along the 2011 trading range provided objectives of between 49,200 & 50,300.
While the successful backup to the Creek seems to be the most probable scenario, it is always important to look for the negative possibilities. In this case, it would appear that the worst-case scenario is that the Wyckoff Wave will fall back into the trading range and begin a new phase of sideways movement.
This coming week should prove to be extremely interesting and we may get answers to questions concerning the markets intermediate and long-term direction.
My money continues to be on the bulls and this week has not provided any reasons to change my mind. Watch the volume. That’s where the answers lie.