Wyckoff teaches us that like the ocean, small seemingly insignificant waves or events can grow into large waves that indicate a strong move in a particular direction.
These waves have a pecking order of importance consistent with trends.
While it may indicate the beginning of an important move, a wave or event identified on an intra-day chart is not important as a wave or event related to a short-term event. The short-term event or trend is not as important as an intermediate term event or trend. The intermediate term event is not as significant as a long-term event or trend.
When analyzing the market, it is important to keep this event in mind and keep any discovered events within their area of significance.
An example of a small wave with the potential to become more significant is found on the Intra-day chart. We just may have seen an intra-day “jump across the Creek”.
The Wyckoff Wave rallied to point L. It did so within an intra-day up trend channel. Good supply came in and the Wave reacted to point M and then rallied to test point L at point N.
In doing so it broke the intra-day uptrend channel and created an intra-day trading range. The trading range is defined by the red lines on the intra-day chart.
The interesting point is the penetration of the resistance line as the Wyckoff Wave moved to point P. The intra-day wave is marked as point 1.
One of the definitions of a “Creek crossing” is that the strong upward move through the resistance is accompanied by a very high volume. The volume on that wave is the highest on this chart, which covers a 10 day period.
Now that the Wyckoff Wave has, on a minor intra-day basis, jumped the Creek, there needs to be a successful backup. The backup should be on reduced price spread and volume and not move significantly back into the trading range.
That appears to have happened on the reaction to point Q. While the wave marked point 1 took one hour and 50 min., the reaction back to point Q lasted almost an entire trading day. Volume was relatively low, but could’ve been a bit lower.
Every happening in the stock market needs to be confirmed. A successful backup or last point of support needs to be confirmed by good demand coming in to the market, resulting in a continued strong move to the upside. So far, that hasn’t happened.
While the intra-day waves show that the supply being dumped into the market is being absorbed, the intra-day chart has yet to show a strong move off point Q.
Because of this, one of three possibilities can be expected:
1. The Wyckoff Wave will easily absorb any remaining supply and a rally, taking out the high at point P.
2. The Wyckoff Wave will put in a second test and react back to the top of the trading range on even more reduced price spread and especially volume.
3. Supply continues to be present. This will cause the Wyckoff Wave to react back into the trading range and continue its sideways movement.
Monday’s market action will probably provide the answer., As this event was discussed in detail on the daily report, I’m sure all charting service subscribers are looking forward to reviewing Monday’s intra-day chart.
Some additional clues can be found on the daily chart. Remember, the vents on this chart are more significant than those found on the intra-day chart.
After backing up to the Creek (drawn from point B) at point O, the Wyckoff Wave rallied to point R However, like the intra-day wave, there was still some supply present and a second test was made on the reaction to point S.
The Wyckoff Wave then rallied to point T and, in the process, created a new short-term up trend channel.
The reaction from point T was interesting, in that it moved sideways, not down. This is always an indication of strength.
During this time, the Optimism – Pessimism Index (which is a measure of market volume) continued to react. This effort to the downside was certainly not matched by the price (Wyckoff Wave). This positive divergence indicates that the effort to push the market down was not matched by the results.
This, coupled with a Technometer, that was in an oversold condition for most of last week, creates a fairly bullish scenario.
It is also important to note that the Wyckoff Wave is in the upper half of both its intermediate and long-term trend channels.
Finally, as mentioned last week, the 100 Point & Figure chart suggests this bull market can advance by another 20%.
Is the little wave we see on the intra-day chart the beginning of the last 20%?
I suspect the coming week will give us some answers.