This week, the Wyckoff Wave tested both the halfway point of the previous rally and revisited the top of the trading range.
Because the initial test was on relatively wide strength and good volume, it needs to be retested. The Wyckoff Wave appears to be doing just that. Thursday’s and Friday’s reduced volume and Friday’s reduced price spread sent some initial indications that the test may be successful. While that is certainly good news for the bulls, a successful second test is far from being confirmed.
While the Wyckoff Wave could successfully test the halfway point and the low at point E. it could also react back into the trading range. There is also the possibility it will turn around and rally into new high ground.
Smart Wyckoff traders would consider every possible scenario and, more importantly, what they would do if and when they occur. Early decisions, made on solid Wyckoff principles take the emotion out of stock market decision-making. This dramatically increases the probability that a trade will be successful.
While a more detailed description of these scenarios appears in the daily Pulse of the Market Report, here are a few things to consider.
1. As the Wyckoff Wave reacts to test point E, the Technometer remains in a nearly overbought condition.
2. That is countered by a very positive relationship between the Optimism – Pessimism Index and the Wyckoff Wave.
3. A count, on the 100 Point & Figure chart, taken from Wednesday’s high over to point D, gives us a potential short term objective of between 40,400 and 40,300. That would take the Wyckoff Wave through the intermediate-term uptrend channel support line and put it in a position to test the bottom of the trading range.
4. There has been no ending action in the form of either a spring or an upthrust. However, the move from points C to D can be considered a Sign of Strength within a trading range.
While waiting for the Wyckoff Wave to give us a better indication of its future direction, this is an excellent time to dig deeper into the Wave and its individual stocks.
1. The relative strength and weakness is a draw. 6 stocks are stronger than the Wyckoff Wave. 6 are weaker.
2. An analysis of short term trends shows that 7 of the 12 Wyckoff Wave stocks are in an uptrend. 3 are in a downtrend and 2 are neutral.
3. The intermediate trend is stronger. 6 stocks are in an intermediate uptrend. None are in a downtrend and 6 are neutral.
4. 5 stocks are in a long-term uptrend. None are in a long-term downtrend and 7 are neutral.
5. When comparing the Wyckoff Wave to the Optimism – pessimism Index, we find that 6 stocks are in a positive divergence with the O – P Index. 4 are in a negative divergence and 2 are in harmony.
6. When looking at the Technometer, which is more of a short term indicator, 4 stocks are in an overbought condition. 3 stocks are over sold and 5 are neutral.
This suggests the stock market, as measured by the Wyckoff Wave, has a nice upside bias. Some stocks, like Caterpillar, have already begun their mark up phase. Others, like Boeing, are still in the trading range.
This would be fairly normal and part of the bull market rotation process.
Intermediate and term investors to the upside have had time, during this trading range, to adjust their portfolios and add new positions. If the Wyckoff Wave puts in a Last Point of Support, reacts to the bottom of the trading range or even spring, the range, another opportunity will present itself.
Short-term traders, who are trying to time the market, need to pay close attention to the Technometer and any O – P Index divergences. These, coupled with an analysis of price spread and volume should leave them to the best entry points.
Bottom line, it appears the Wyckoff Wave is prepared for the next leg of this wonderful bull market.