Short-term Opportunities to the Downside

Tuesday August 2, 2016

What To Do?

Click here to open the attached charts

Short Term:
There are no short-term opportunities to the upside.
If the scenario described below plays out, aggressive short-term bears could consider new opportunities to the downside. However, at this point, it does not appear any reaction will be particularly long or sustained.

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: Changed to Down
Short Term: Neutral
Intermediate Term: Neutral
Long Term: Neutral

The stock market, as measured by the Wyckoff Wave, traded lower on increased volume. It closed in the lower half of a wider price spread, in an oversold condition relative to the Technometer. The price spread and volume suggest the presence of supply.

A review of the intra-day waves confirms the above. After a small gap opening to the downside, strong supply came into the market and the Wyckoff Wave reacted to point M.

The reaction broke through the support at the bottom of the intra-day trading range and suggests a possible intra-day Sign of Weakness. The Wyckoff Wave spent the last two hours of the trading day attempting to rally. While some demand was present, it was not particularly strong. Supply did return during the last 25 min. of the trading day.

So far, the rally has not taken the Wyckoff Wave back into the intra-day trading range. It appears that the Wyckoff Wave could be putting in an intra-day Last Point of Supply.

The potential intra-day Sign of Weakness, or Fall Through The Ice, changes the intra-day trend from neutral to down.

Today’s market action suggests a successful intra-day Last Point of Supply and a continued reaction.

The Optimism – Pessimism Index reacted and has returned to the supply line of its upward trend channel. Today’s reaction placed the Wyckoff Wave back in harmony with the O – P Index.

The Force Index also reacted. It’s relative strength suggest there is a mitigating impact on the oversold Technometer.

Tomorrow, the Technometer will open in an oversold condition.

Today, the Wyckoff Wave continued its slow reaction back towards the top of the trading range. That top is defined by the horizontal line drawn from point C.

While supply was certainly present, it has not been dominant. This, coupled with the oversold Technometer makes an argument that the Wyckoff Wave will hold at now support line drawn from point C. This would be a more significant Last Point of Support and put the Wyckoff Wave and position to continue its rally. That is one scenario.

The second scenario has the Wyckoff Wave putting in a successful intra-day Last Point of Supply and continuing its reaction. That reaction would take the Wyckoff Wave through the support line drawn from point C then back into the trading range.

This scenario is supported by the higher volume levels over the past five trading days, when supply began coming into the market. This suggests that supply has been more sustained and has increased slightly over the past few trading days. This is not indicative of a drying up of supply on a reaction to a Last Point of Support.

Tomorrow should be a critical day. If, during the morning, the Wyckoff Wave is unable to rally and supply comes into the market, the Wyckoff Wave should react back through that support and into the trading range.

If the Wyckoff Wave reacts on relatively low volume and narrow price spread and holds above point C. This would give demand an opportunity to commander the market and allow the Wyckoff Wave to rally.

The reaction back into the trading range scenario continues to have the highest probability of success. If, there is a successful intra-day Last Point of Supply, aggressive short-term bears could consider new opportunities to the downside. These would be aggressive positions as it does not appear the reaction will be particularly long or sustained.