The Force Index is designed to measure the amount of pressure on the market. It is represented as a line chart on the Wyckoff Pulse of the Market Charting Service.
If the Force Index is recording positive readings or low negative readings, the down side pressure on the market is reduced. This will diminish any reaction. If, during a reaction, the Force Index becomes positive, this is a good indication the reaction is coming to an end. Finally, if on a reaction the Force Index becomes more negative, this is an indication the reaction will continue.
The opposite is true on a rally. If, during a rally, the Force Index is producing moderate or high negative readings, this would diminish or shorten the rally. Conversely, if the Force Index is producing positive readings, this is an indication the rally will continue.
As mentioned in earlier posts, the Force Index is extremely helpful when used in conjunction with the Technometer. The Technometer helps identify changes in direction. The Force Index helps analyze those changes and provide clues as to how strong, or weak, the expected rally or reaction will be.
These important Wyckoff tools came into play during the past week. On Monday, the Wyckoff Wave rallied to the top of the trading range. It is marked by the resistance line drawn from point V. The day’s market action indicated a lack of supply.
That put the Wyckoff Wave in a “need to go and go now” situation. If the Wyckoff Wave was going to move into new high ground and continue its rally, good demand needed to be present. This would result in wide price spread, higher volume and a strong move to the upside.
That didn’t happen. Instead, on Tuesday, even though the Wyckoff Wave rallied slightly through the resistance line, it did so on reduced price spread and slightly reduced volume. The same was true on Wednesday, as the Wyckoff Wave reached its high at point A.
On Tuesday, the Technometer reading was 58.55. This is a dangerously overbought condition. However, the Force Index was producing moderately high readings. Tuesdays reading was +143.4. Despite the dangerously overbought condition, the strong Force Index reading suggested that any reaction would not be particularly long or deep.
Even with strong Force Index readings, it is difficult for a stock or an index to advance in the face of the dangerously overbought Technometer. This suggested that, while the Wyckoff Wave would react, the reaction would not be particularly strong.
On Thursday, the Wyckoff Wave reacted. It did so on slightly reduced price spread and slightly increased volume. This suggested the presence of some demand. Normally, in a situation like this strong supply would have come into the market and the Wyckoff Wave would have reacted sharply.
The Force Index gave us a clue that that wouldn’t happen.
On Friday, the Wyckoff Wave reacted again. This time it was on wider price spread and increased volume. This suggests the presence of supply.
However, a review of the intra-day waves suggested that, while supply was certainly present during the morning hours, demand returned during the last part of the day. Notice that the day’s close was in the upper half of the price spread.
Instead of collapsing, the Wyckoff Wave has reacted on relatively reduced price spread and without strong supply coming into the market. In fact, unlike Elvis, demand has never left the building. This is what can be expected when the Force Index produces good positive readings, in the face of an overbought Technometer.
What can we expect next week? The Wyckoff Wave will probably continue to react, at least until the Technometer is no longer in an overbought condition. That reaction will probably hold above the low at point Z.
Then, the Wyckoff Wave could certainly rally and test the high at point A.
The inability of the Wyckoff Wave to move into new high ground on the rally to point A, was an early indication the test will be successful. At that point, it will be important to watch the Force Index and the Technometer.
If, on the test of point A, the Force Index is not a strong as it is now, there is a good chance the Wyckoff Wave will react back into the trading range and even return to its short-term uptrend channel.
It is also important to note that at point V, the Wyckoff Wave began another phase of the trading range that began in August 2015, with a Selling Climax at point Q. This phase of the trading range is marked by resistance at points V and A. There is support at point Z.
One scenario could have the Wyckoff Wave springing the support at point Z. This could be the ending action that would initiate a more important rally.
It is important to note that there absolutely no indications that suggests this will happen. Just something to keep in the back of your mind.