After beginning the week with a strong move to the downside, the Wyckoff Wave rallied back to test the high at point L and then began to react.
The reaction pushed the Wave through the supply line of its intermediate up trend channel.
It seemed there would be a nice reaction after the poor quality rally to point A. It didn’t quite work out that way. Instead Monday brought us a one day reaction on good spread and volume. Unfortunately for the bears, it was not sustained and, on Tuesday, the Wyckoff Wave made another attempt to rally.
That too was not sustained as the Wyckoff Wave ran into supply on Wednesday. That day brought reduced price spread, very high volume and a poor close.
While this phenomena normally describes an upthrust, the Wyckoff Wave did not attempt to leave the trading range to the upside. It just ran into supply.
So far, the subsequent reaction has not been overly impressive. This was noteworthy as there was no follow through to the strong supply that entered the market on Wednesday.
The Wyckoff Wave has moved sideways, with a slight upward bias, since a late December high at point J. The move has been on relatively narrow price spreads, but reasonable volume.
Volume levels continue to suggest that despite moving into new high ground, there is still a fair amount of supply coming into the market.
It would seem that, while the Wyckoff Wave is in a rather bullish position (the short, intermediate and long-term trends of the market are all up), supply still needs to be dried up before the Wyckoff Wave can make another strong move to the upside.
The stock market responds to the pressures of both demand and supply by rallying and reacting. Like the ocean, these moves begin as small, gentle waves. They gradually grow in size to become large powerful giants.
We first find these smaller waves in the intra-day fluctuations. Often, they can give us clues in which direction their grown-up brothers will take the market.
This week, the daily chart gave us two important indications that supply was present. They were Monday’s strong move to the downside and Wednesday’s narrow spread, high volume and poor close.
While these may suggest the market will react during the coming week, perhaps the intra-day chart can provide additional clues.
The intra-day chart of the Wyckoff Wave is made up of individual intra-day rallies and reactions. There is a specific criteria that determines how far the Wyckoff Wave will advance or decline before a Wave is called.
Unlike most intra–day charts, that post the price and cumulative volume every couple of minutes, the Wyckoff Wave is built by ignoring these minor fluctuations. Over the years, this technique has provided an excellent indication of how the market is actually behaving.
Each day, at the market’s close, the individual Wyckoff Wave’s are calculated and posted to the intra–day chart. The intra–day chart contains 10 days of intra-day data. The intra-day chart is included, and commented on, in the daily Pulse of the Market Report. The report is e-mailed to Pulse of the Market Charting Service subscribers after the close of every market day.
On Friday, January 10th, the Wyckoff Wave rallied into an overbought position relative to its intra–day up trend channel. The channel is drawn in blue. The high, at point O is the same as point L on the daily chart.
Usually overbought positions need to be corrected and this is what happened on Monday. The Wyckoff Wave rallied back into its intra–day uptrend channel, made one last attempt to rally and then succumbed to strong supply.
That supply took the Wyckoff Wave down to its low for the day at point P (point M on the daily chart). The Wyckoff Wave weakened the intra–day uptrend channel and is in an oversold position relative to its intra–day up trend channel.
It now needs to correct that position and rally back into the channel. If it does not do that, the intra–day up trend is vulnerable and the trend will be changed to neutral.
On Tuesday, the Wyckoff Wave put in a poor quality rally to the upside as shown by the narrow spread and reduced volume of the individual waves.
The rally continued on Wednesday. Suddenly strong demand appeared and drove the Wyckoff Wave back to the support line of its intra–day uptrend channel .
The demand needed to be sustained or the intra–day rally was in trouble.
Instead of continuing to rally, the Wyckoff Wave reacted and made two additional attempts to reenter the intra–day uptrend channel. The last attempt was at point Q (point N on the daily chart).
The last attempt failed and the Wyckoff Wave reacted to point R. The poor quality rally to point S confirmed the inability of the Wyckoff Wave to reenter its intra–day uptrend channel. This caused the intra–day trend to be changed to neutral.
For most of Thursday and early Friday morning, the Wyckoff Wave reacted slowly on generally reduced price spread and volume. Supply was drying up and the Wyckoff Wave had an opportunity to make one last attempt to reenter the intra–day uptrend channel.
However, note that H on the intra–day chart is lower than point R. If the Wyckoff Wave was going to put in a strong rally, point H should have held above point R.
On Friday, the Wave then rallied to point V. Once again supply came into the market and the Wyckoff Wave spent Friday afternoon reacting on good price spread and volume.
Notice that point V was lower than point S. This is the second indication of weakness in this little move to the downside. Therefore, it was not surprising that we saw supply come in at point V.
This relative intra–day weakness suggests that the Wyckoff Wave will react and test the low at point P. It also has the potential to continue to react in an attempt to reenter the old intra–day down trend channel. That channel is drawn in red on the intra–day chart.
These quiet, gentle intra–day waves are sending some clues that a more important short-term reaction continues to loom on the horizon.
This scenario is bolstered by a temporary count of between 900 & 1000 points, along the 40,900 line. This gives the Wave the potential to react back to its short-term up trend channel supply line.
If that happens, this could become an important support point and be just what the Wyckoff Wave needs to send it strongly into new high ground. Those gentle intra–day waves could be telling us that a large storm to the upside is brewing.