Technical Analysis of Stock Trends, The Wyckoff Wave – Week in Review September 23, 2016
Sometimes very small intra-day waves can be the precursor of a much stronger move. That is what appears to be happening to the Wyckoff Wave.
Last week’s article presented three possible scenarios about how the Wyckoff Wave would behave as it was testing the support line, drawn from point D, on the three-month vertical line chart.
It appeared that the rally off the support scenario had the highest probability of success. This week’s market action confirmed that observation and eliminated the other two scenarios. They were a Spring of the support and a Fall Through the Ice.
After moving sideways on Monday and Tuesday, on Wednesday the Wyckoff Wave put in a nice move to the upside. There was some follow-through on Thursday, but then the Wyckoff Wave began to react. The reaction continued on Friday as the Wyckoff Wave began to test the top of the sideways movement drawn from point K.
The past week’s market action is best viewed on the intra-day line chart.
Everything began with an intra-day reaction that started at point W.
Then the Wyckoff Wave moved sideways in an intra-day trading range. The range was divided into two phases. The first phase is over to point L. The second phase ends at point Z. The first phase is marked by a support line drawn from point L through points O, Q and U. The resistance line is drawn from point M, through points R and V.
On Wednesday, the Wyckoff Wave rallied strongly through the top of the range on its way to point X. This was an intra-day Sign of Strength (Jump Across the Creek) and suggested the Wyckoff Wave was ready to continue its rally to the upside.
Before the rally could continue, the Sign of Strength needed to be confirmed. This is done through a reaction to a Last Point of Support. This reaction needs to hold above the top of the trading range and, most importantly, it needs to be on reduced price spread and volume. This would confirm supply has dried up and the Wyckoff Wave is ready to back towards the July highs.
As of Friday’s close, the Wyckoff Wave reacting on reduced price spread and volume. It was also holding well above the top of the intra-day trading range.
In addition, the the Wyckoff Wave was in a positive inharmonious action with its Optimism – Pessimism Index. The Technometer was in a nearly oversold condition and would become oversold on any further reaction.
This suggests that the Wyckoff Wave will successfully put in an intra-day Last Point of Support. While it is very apparent on the intra-day line chart, a closer look at the three-month vertical line chart shows the Wyckoff Wave is holding above the tops of the sideways movement that began at point K.
There is a count of 1,900 on the 100 Point & Figure chart, when taken along the 40,200 line. It is taken from the bottom of the trading range at 39,100 and at the present potential Last Point of Support at 40,200. This provides an objective range of between 41,000 and 42,100. This would take the Wyckoff Wave back to the top of the trading range.
If the second phase is fulfilled, it would place the Wyckoff Wave in new high ground.
In addition, if the Wyckoff Wave is able to move above the high at point E, the long-term trend of the market would change from neutral to up.
There is an excellent probability that the Wyckoff Wave will rally during the coming week. The next step is to watch and see how it behaves as it reaches the resistance line, drawn through point E at the top of the trading range.
After a relatively dull Summer, the stock market could have an interesting Fall.