A Poor Quality Test

Friday, August 26, 2016

Click here to open the attached charts

What To Do?

Short Term:
While aggressive short-term Bulls could consider new positions to the upside, the poor risk reward ratio makes this a highly speculative situation.

Aggressive short-term bears should maintain their positions. However, we may have reached the end of the decline and they should be closed if good demand comes into the market on Monday.

Intermediate & Long Term:
Their are no intermediate or long term opportunities to the upside.
Long-term positions to the upside should be maintained.
There are no intermediate or long term opportunities to the downside

Market Trends:

Intra-day: Down
Short Term: Neutral
Intermediate Term: Neutral
Long Term: Neutral

The stock market, as measured by the Wyckoff Wave, experienced and intra-day failure to the upside. It closed, on increased volume, in the lower quarter of a wider price spread, in a neutral condition relative to the Technometer. The intra-day failure suggests the presence of supply.

A review of the intra-day waves confirms the above. After a gap opening to the upside, the Wyckoff Wave rallied, on good demand to point T.

There it encountered supply and reacted, over the next four hours and 30 min., to point U.

Some demand returned and the Wyckoff Wave rallied to point V. However demand was not particularly strong.

Supply returned and the Wyckoff Wave reacted for the rest of the trading day. However, despite the high volume, spread narrowed. This suggests some demand was still present.

After moving into both an overbought and then oversold position relative to the intra-day down trend channel, the Wyckoff Wave closed within the channel.

The Wyckoff Wave also reacted through point E and appears to have put in a poor quality test. So far, the late afternoon demand is not consistent with a response to a Spring.

The Late Afternoon Minor Gives late afternoon demand gives the Wyckoff Wave an opportunity to react on Monday and test point U. If the test is successful the Wyckoff Wave could rally and test the highs at point T.

It does not appear the Wyckoff Wave will react strongly. It was in a position to do that as it approached point U. However, the Wave encountered support and just when it was in a position to “go and go now”, supply was withdrawn and demand came into the market.

There is now a positive O – P Index divergence with the Wyckoff Wave, when compared with points U, S and Q. This also suggests the Wyckoff Wave will successfully test the low at point U.

The Optimism – Pessimism Index rallied slightly. It continues to test the supply line of its upward trend channel. On an intermediate and long-term basis, it is in harmony with the Wyckoff Wave.

On Monday, the Technometer will open in a neutral condition.

Today, the Wyckoff Wave tried to react through the support of the sideways movement that began at point G. Instead, at a critical time, supply was withdrawn and some demand returned.

This suggests the Wyckoff Wave put in a poor quality test of the sideways movement low (that is shown as point E on the intra-day chart). As mentioned above, it is now in a position to retest that low. If the test is satisfactory, the Wyckoff Wave could rally back towards the top of the sideways movement.

Today’s market action reduces the probability of success of both the Spring and a reaction back into the trading range scenarios.

This suggests the Wyckoff Wave is in a position to rally and test support in the area of point F. If demand is strong, the rally could continue and the Wyckoff Wave could test the high at point E.